From Lexology, – Kaixin Fan and Ashley M. Simonsen discuss a case before the New Jersey Supreme Court in which the court will decide if a class action waiver is enforceable if there is not an agreement to arbitrate the claims. Class action waivers are particularly useful for companies using independent contractors because it helps them avoid class action lawsuits alleging misclassification. Kaixin and Ashley write:
The ever increasing threats of mass arbitration have led many companies to re-examine the terms of their contracts with consumers and to include provisions intended to guard against such threats. One of the options some companies may find themselves considering is doing away with the arbitration clause but keeping the class action waiver.
A class action waiver with an agreement to arbitrate is enforceable under the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempts state laws that prohibit class action waivers in arbitration agreements. 563 U.S. 333, 352 (2011). However, a freestanding class action waiver, i.e., without an agreement to arbitrate, may be unenforceable in some states, including in California if certain conditions are met. Discover Bank v. Superior Ct., 36 Cal. 4th 148, 162 (2005).
The New Jersey Supreme Court recently heard oral argument on this issue and may soon resolve this debate under New Jersey law. In Pace v. Hamilton Cove, tenants of an apartment building brought a putative class action alleging that the building management made false promises that the apartment would have 24/7 security. 475 N.J. Super. 568 (App. Div.), leave to appeal granted, 255 N.J. 342 (2023). The tenants asserted claims of common law fraud and violations of the state Consumer Fraud Act. The defendants moved to dismiss the suit, advancing the argument, among others, that the plaintiffs’ lease agreements contained a class action waiver….