The Franchise Memorandum

As part of the continuing saga of Awuah v. Coverall N. Am., Inc., 2013 U.S. Dist. LEXIS 171870 (D. Mass. Dec. 5, 2013), a Massachusetts federal district court recently reexamined the arbitrability of some of the plaintiffs’ state wage claims. At prior phases of the Awuah litigation, a class of plaintiffs was certified and later obtained a final judgment in their favor. This certified class excluded certain Coverall franchisees who had signed a franchise agreement with Coverall containing an arbitration provision. Following the Massachusetts Supreme Judicial Court’s 2012 decision in Crocker v. Townsend Oil Co., 979 N.E.2d 1077 (2012), these excluded plaintiffs brought a motion for reconsideration of their obligation to arbitrate their state wage claims. In Crocker, the Massachusetts Supreme Judicial Court held that wage claims under the Massachusetts Wage Act may not be waived unless the waiver expressly references Wage Act claims. Relying on Crocker, the excluded Awuah plaintiffs argued that their arbitration clause did not expressly reference wage claims and was unenforceable.

In ruling on the motion, the court agreed with the plaintiffs that state law requires an arbitration clause to expressly reference the Massachusetts Wage Act. The court went on, however, to deny the motion for reconsideration based on language in a prior Awuah decision by the First Circuit. In Awuah v. Coverall N. Am. Inc., 703 F.3d 36 (1st Cir. 2012), the court held that any Massachusetts law imposing special notice requirements on arbitration agreements was preempted by the Federal Arbitration Act (FAA). In its ruling last month, the district court found that it was compelled to follow this precedent and hold that the FAA preempts Massachusetts’ requirement that the Wage Act be expressly referenced in an arbitration clause. The court observed, however, that it disagreed with this outcome. The court reasoned that the FAA should only preempt state laws that discriminate against arbitration agreements in particular. Because Massachusetts law requires the Wage Act to be expressly named in other types of agreements beyond arbitration agreements—such as releases—the federal court stated that it would have held that the arbitration agreement was unenforceable.