What Makes a Class Action Waiver Invalid?

Class action waivers are a pretty controversial topic in the legal space. And despite much debate over whether they should even be allowed, these waivers don’t seem to be going away any time soon.

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Class action waivers continue to be used by companies, banks, and even landlords with the hope of getting people to forfeit their right to class action lawsuits. And whether you were aware of it or not, you probably came across and even agreed to a few of these waivers. They’re usually included as part of arbitration agreements, which are commonly used by corporations and require individuals to resolve disputes in private rather than in court.

But just because you signed a waiver doesn’t mean your right to sue is completely off the table. In this blog, we’ll help you understand more about these agreements, why you’re being asked to sign your rights away, and why some waivers could be deemed unenforceable.

Class Action Waivers in Employment Contracts

According to the Economic Policy Institute, more than half of private-sector employers enforce mandatory arbitration contracts—about 40 percent of which include class action waivers. In other words, approximately 24.7 million Americans have agreed not to file class action lawsuits against their employers.

Employers benefit from class action waivers in various ways. For one, avoiding class action litigation saves companies lots of time and money. Companies also get to choose and hire the third-party arbitrator tasked with resolving internal disputes, which affords them more control over the resolution and makes it easier to sway decisions in their favor. Dealing with problems in private rather than in the public eye can also help the company save face.

Though class action waivers are morally controversial, it is still technically legal for employers to use them. In a recent 5-4 Supreme Court ruling, the high court declared that the National Labor Relations Act (NRLA), which protects employees’ right to engage in collective activity, doesn’t automatically permit workers to initiate or participate in class action litigation. Supreme Court Justice Ruth Bader Ginsburg was one of the justices to disagree with the majority opinion and wrote that the court’s ruling blocks vulnerable people from getting to fairly resolve disputes.

Even though they’re legal, class action waivers must still be held to typical contract law regulations. If you are bound to a waiver in the workplace – it was probably part of the initial paperwork you signed when you were hired – you may have a shot at disputing its validity by proving you did not sign the contract, were threatened, or were otherwise deprived of free will when you agreed to the terms. If you don’t have much of a legal defense, companies can still be made to change their practices through collective protest and public attention.

Google, for example, faced tons of backlash over its use of forced arbitration and class action waivers until the company ultimately changed its policy. Its employees charged that by dealing with issues in secret, Google fostered a work environment in which workers couldn’t effectively challenge or deal with cases of sexual harassment and discrimination. Employee walkouts and protests drew all eyes to Google and, facing a significant amount of public attention, the company eventually agreed to end its arbitration and class action waiver requirements. 

Class Action Waivers in Retail

At one point or another, we’ve all mindlessly scrolled through an online retailer’s terms and conditions, clicked “agree,” and went about our business. You probably didn’t realize that, in some cases, you signed away your right to sue the company. Netflix, Amazon, and more of your favorite companies make you agree to arbitrate any legal claims before you can use their services. Similar to employers, retail companies may use class action waivers to sidestep the costs of litigation, protect their reputation, and maintain control over the decision-making process.

These web agreements are legal, but if not properly executed, they might be invalid. Forbes writes that in order for a company’s waiver to be enforceable, it must:

• Communicate all terms clearly;
• Make users scroll through its conditions before they can agree;
• Prohibit the use of its services before agreeing to its terms;
• and periodically have users reconfirm their agreements.

If an online waiver doesn’t meet these conditions, there may be room for consumers to dispute its validity in court.

A proposed class action against food delivery service Doordash, for instance, took a stab at challenging the enforceability of its class action waiver by arguing that customers weren’t required to review its terms at any point before using its mobile app. The case argued that since customers had to independently search DoorDash’s website to find its terms of use, they didn’t knowingly and actively agree not to sue the company.

Class Action Waivers in Finance

Class action waivers can also be used in the financial sector. In fact, about two-thirds of major credit card issuers use arbitration clauses in their contracts to prevent customers from suing them, according to CreditCards.com.

According to the Consumer Financial Protection Bureau (CFPB), by preventing consumers from taking their claims to court, financial service providers are able to avoid big payouts and continue perpetuating harmful activities. The Bureau argues that individuals have little power to change financial institutions’ practices without the ability to take group action and even attempted to pass a rule in 2017 that would prohibit financial companies from using mandatory arbitration. The Republican-majority Senate, however, agreed to kill the rule in a vote that was considered a victory for Wall Street.

Challenging a bank’s arbitration agreement may be difficult. But you may still be able to bring a class action suit against your financial service provider if you’re given the option to opt out of the company’s arbitration clause. Companies have different opt-out periods, so be sure to follow their unique deadlines, which should be listed in their terms of service. If you aren’t sure of a bank’s policy, you can use this tool on CreditCards.com to learn about whether the company enforces mandatory arbitration and the rules for opting out. For example, the site indicates that consumers have 45 days to send a written opt-out notice to reject American Express’ arbitration policy.

The most recent financial company to make waves in the news over its use of arbitration agreements is JPMorgan Chase, which recently announced it revised its terms of service to revoke credit card holders’ ability to sue the company unless they opt out of the agreement. Business Insider reports that critics argue Chase’s new terms will boost its profits at the expense of its customers.

Class Action Waivers in Real Estate

Given the cost of hiring a third party to settle disputes, ownership of a small real estate property might not warrant the need for a class action waiver or arbitration agreement. There isn’t much of a benefit for an individual landlord to arbitrate disputes with tenants. On the other hand, a large property management company may find arbitration to be a more inexpensive conflict resolution method.

If you do find yourself bound to your lease’s class action waiver or arbitration agreement, you may be able to get out of it if you can prove it doesn’t abide by contract law regulations. If the agreement is solid, though, you might be stuck arbitrating your claims – which may not necessarily be the worst thing depending on what your dispute is. The best way to prevent being caught up in this situation is to consult a lawyer before signing a lease or rental agreement.

Recap

Employers, financial institutions, retailers and landlords have their own unique, personal motives for using class action waivers. Some common benefits across the board are avoiding the costs of litigation and mass payouts, plus the ability to deal with problems in private. But the laws that affect class action waivers continue to be challenged and modified. As always, we’ll keep you posted on any developments you should know about.

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