Arizona’s Implied Covenant of Good Faith and Fair Dealing
May Apply to Workers in Multiple States
Class Action: In Garza v. Gama, the Arizona Court of
Appeals found that Arizona’s implied covenant applied to the compensation
arrangements between a trucking company and 80,000 drivers, even though not all
of the drivers worked in Arizona.
According to the 2016
Carlton Fields Class Action Survey, more than sixty percent of in-house
legal departments are currently defending at least one class-action lawsuit. The
prevalence of class actions in federal court is evident from even a cursory
review of the Supreme Court’s recent term, in which the Court issued multiple
significant class action opinions.
However, as a recent case from the Arizona Court of Appeals illustrates, the
rise of class-action litigation is not a development confined to federal issues
or litigated solely in federal court. In Garza v. Gama,
the Arizona Court of Appeals reversed a trial court order decertifying an
80,000-member class of both employee and independent contractor drivers who
worked for Swift Transportation, finding that Arizona’s implied covenant of good
faith and fair dealing applied to the compensation arrangements between Swift
and 80,000 drivers, even though the drivers did not necessarily work in Arizona
and were managed from terminal locations in 26 states.
Facts and Procedural Background of Garza
succinctly stated by the Court of Appeals, “Leonel Garza was a Swift
[Transportation] truck driver who sued the company in 2005, alleging it
systematically underpaid all of its drivers.”
The claims asserted by Garza and other class members involved two groups of
drivers: about 1,000 drivers who entered into individual independent contractor
agreements with Swift, and a larger group of employed drivers.
The trial court certified a class of 80,000 drivers, including both the employed
drivers who had no written contract, and independent contractors. The court
certified both groups in a single class of drivers, finding that the two claims
raised by the drivers presented common questions of law or fact that
predominated over the individual claims, as contemplated by Rule 23(b)(3). The
two causes of action asserted by the drivers were breach of an express contract
and breach of the implied covenant of good faith and fair dealing.
claims involved the mechanism through which Swift paid its drivers.
Specifically, Swift paid the drivers for each trip based upon the mileage of the
trip. It paid drivers for a certain number of miles per assignment, which was
calculated prior to the inception of the trip. The drivers asserted that Swift
systematically calculated, through the use of certain options in a software
program it utilized, a low number of miles, failing to account for the miles
actually driven on each trip.
After the express breach of contract claim was resolved in Swift’s favor, the
case was poised for trial in 2015. Prior to trial, however, the Superior Court
reconsidered the decision to certify the class. It decertified the class,
holding both that common issues no longer predominated and that the class was no
longer manageable. Following this ruling, the class members sought review of the
case by special action. The court of appeals accepted special action
jurisdiction, and reversed.
Application of Arizona Law
The trial court had found that choice-of-law issues presented unmanageability
issues, because not all of Swift’s employee-drivers worked out of Arizona.
Rather, Swift hired and managed these employed drivers from terminal locations
geographically dispersed among 26 states. Some of these states do not recognize
a cause of action for breach of the implied covenant of good faith and fair
dealing arising out of an employment relationship. Applying the factors set
forth in the Restatement (Second) Conflict
of Laws (1971) (“Restatement”), however, the Court of Appeals found that
Arizona law governed the employed drivers’ claims.
Specifically, the court noted that the drivers work, by definition, in multiple
states. As a result, those states “lack a significant interest in the nature of
those drivers’ relationships with Swift.”
In contrast, the acts at the center of the drivers’ claims – notably, the
decisions around which options to select within the software – occurred in
Arizona, finding that the structure of Swift’s relationship with its drivers was
a “hub and spoke,” with the corporate office in Arizona as the center hub.
Because a single state law applied, the court held that the class of 80,000 was
not unmanageable and reversed the trial court order decertifying the class.
Lessons in Class and Collection Actions
Employers located in many parts of the country can avoid employees’ class and
collection actions through the use of waivers. The U.S. Supreme Court has upheld
the enforceability of class-action waivers in a couple of fairly recent
While the Supreme Court has not yet ruled on the enforceability of such waivers
in the employment context, it is likely that the issue will come to the Court
because of a split in the circuits on the issue.
Employers in the Second,
Circuits can, for the time being, rely upon case law in their jurisdictions
holding that such waivers are enforceable.
Seventh Circuit, on the other hand, in Lewis v. Epic Systems Corp,
agreed with the position of the National Labor Relations Board that such waivers
violate the National Labor Relations Act. In yet another approach, the Sixth Circuit, in Killion v. Kettle
ruled that class- and collective-action waivers are enforceable only to the
extent an alternative arbitration forum is available to the employee. Therefore,
there is no real “waiver,” just an ability to shift the action from court to
arbitration. To complicate matters even further, in the Ninth Circuit, one
divided panel recently agreed with the Seventh Circuit's approach, holding that
class- or collective-action waivers violate the National Labor Relations Act,
but a prior panel of that court had, seemingly, upheld a waiver as valid.
Given cases like Garza II, it seems that employers in the circuits that
uphold waivers should seriously consider whether waivers are an appropriate tool
to implement, at least until enforceability is resolved by the Supreme Court.
other lesson related to Garza II is the importance of considering which
law an employer wishes to have apply to an employment relationship. Arizona
employers have the ability to designate the applicable law, at least in
circumstances in which they can establish that the employee was involved with
and cognizant of the choice of law provision placed in the employment agreement.
Certainly, it is easy to look back and see how the situation in Garza II
could have been avoided. However, the case does point out the importance of
considering waivers and choice-of-law provisions at the beginning of the
 For example, Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 672 (2016) (holding an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case); and Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1550 (2016).
 Garza v. Hon. Gama/Swift, No. 1 CA-SA 15-0315 (July 12, 2016) (“Garza II”)
 This article focuses on Garza II’s holding
that, notwithstanding the drivers’ work across multiple states,
Arizona’s implied covenant of good faith and fair dealing applied, and
that the Court of Appeals’ decision also addressed other issues
regarding commonality and class manageability not discussed here.
 Mr. Garza’s initial request for class
certification was denied by the trial court, and the putative class
members appealed. Garza v. Swift Transp. Co., Inc., 222 Ariz. 281
(2009). Although the Court of Appeals agreed with the class members,
the Supreme Court of Arizona vacated that decision, holding that the
Court of Appeals lacked jurisdiction. Id. On remand, the trial court
reconsidered its decision and certified the class of drivers. Garza
II ¶ 2.
 Garza II ¶¶ 18-24 (citing RESTATEMENT §§ 6, 188, and 196).
 AT&T Mobility, LLC. v. Concepcion, 131 S.Ct. 1740 (2011) (regarding consumer class action waivers) and Am.
Exp. Co., v. Italian Colors Rest., 133 S.Ct. 2304 (2013 (regarding
merchant waivers of class antitrust claims)
Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013).
 Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015)
Cellular Sales of Missouri, LLC v. NLRB, 2016 WL 3093363 (8th Cir. 2016)
 Lewis v. Epic Systems Corp, 2016 WL 3029464 (7th Cir. 2016)
 Killion v. Kettle Distributors, LLC., 761 F.3d 574 (6th Cir. 2014)
Morris v. Ernst & Young,
LLP, No. 13-16599, (9th Cir.), decided August 22, 2016 with John Mohammadi v. Bloomingdale's,
Inc., 755 F.3d 1072, 1075 (9th Cir. 2014).
 See Swanson v. Image Bank, Inc., 206 Ariz. 264 (2003).