Total Articles: 16
U.S. SUPREME COURT APPROVES CLASS ACTION WAIVERS
Last week, the United States Supreme Court issued a landmark arbitration ruling involving consumer arbitration agreements which is likely to have wide applicability in the employment setting as well.
Supreme Court Finds FAA Preempts State Law Prohibiting Class Action Waivers in Arbitration Agreements
This article is a continuation of Ford & Harrison LLP's focus on the use of arbitration agreements to protect employers from collective/class-action exposure under the Fair Labor Standards Act.
Supreme Court Validates Class Action Waiver Provisions in Arbitration Agreements
In our April 2010 issue of Labor and Employment
Law, we discussed using mandatory arbitration
agreements as one option for combating the
proliferation of wage and hour class action litigation.
Under these agreements, an employee is required
to waive the right to bring or participate in any
collective or class action lawsuit. In addition, such
agreements often prohibit arbitration of class
claims. Arbitration agreements can be equally
effective in requiring arbitration on an individual
basis of all types of employment-related claims.
However, as we explained in our April 2010
newsletter, the enforceability of these agreements
has been controversial and has been denied in
some jurisdictions on “unconscionability” and
public policy grounds.
Mandatory Arbitration Clauses that Prohibit Classwide Arbitration Held Enforceable Under Federal Arbitration Act
Last Wednesday, the United States Supreme Court held in AT&T Mobility LLC vs. Concepcion that the Federal Arbitration Act ("FAA") permits companies to require customers to arbitrate their complaints individually, precluding class action claims. Specifically, the Court held that the FAA prohibits state laws that condition the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures. Consequently, companies can now require consumers to arbitrate any and all disputes and prevent the disputes from being decided on a classwide basis in arbitration.
Employers Should Consider Waivers Of Class Claims In Light Of Supreme Court Decision
In AT&T Mobility LLC v. Concepcion, a 5-4 Supreme Court struck down this week California's policy of prohibiting waivers of class claims in consumer arbitration agreements. The Court held that California's so-called "Discover Bank rule" conflicted with the Federal Arbitration Act. The AT&T decision is yet another statement of the strong federal policy favoring arbitration of disputes and may provide support to employers who want to include class waivers in employment agreements.
California Supreme Court Holds Arbitration Agreements May Not Waive Employees' Right to an Administrative Hearing
California courts will no longer enforce arbitration agreements to the extent that they require employees to waive the option of an administrative hearing (known as a "Berman" hearing) before the California Labor Commissioner. In an important opinion on February 24, 2011, the California Supreme Court ruled in Sonic-Calabasas A, Inc. v. Moreno that a Berman waiver in an arbitration agreement is "contrary to public policy and unconscionable."
Divided Supreme Court Endorses Use of Class Arbitration Waivers
On April 27, 2011, a divided U.S. Supreme Court held that the Federal Arbitration Act (FAA) protects an employer’s right to include a class action waiver in its arbitration agreement even though a state law bars such provisions as unconscionable. In a 5-4 decision, the Court found that “[s]tates cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”
Second Circuit Addresses Class-Action Waivers in Arbitration Agreements after Supreme Court's Stolt-Nielsen Decision
In March 8, 2011, the Second Circuit issued In re American Express Merchants' Litigation, ("Amex") regarding the enforceability of a class-action waiver, specifically in light of the Supreme Court's Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010). Previously, in Stolt-Nielsen, the Supreme Court reversed the Second Circuit on the issue of whether silence in an arbitration agreement would allow parties to arbitrate on a class basis. Although the Court in Amex ultimately held that the class-action waiver was not enforceable, the basis of the Court's decision likely would not apply to a class-action waiver in the context of the Fair Labor Standards Act. (A copy of the decision is available by clicking here or on the Second Circuit's web site at: http://www.ca2.uscourts.gov/decisions.)
Federal District Court Rules Unsigned Arbitration Agreement with Class-Action Waiver is Enforceable
Granting an employers motion to compel arbitration, a California federal court has held a class-action waiver did not render an arbitration agreement unenforceable, even though the employee did not sign the actual arbitration agreement, only other documents referencing it. Borrero v. The Travelers Indem. Co., No. CIV S-10-322 KJM (E.D. Cal. Oct. 14, 2010). The court ordered the employee to arbitrate her claims for alleged unpaid overtime and other violations of the California Labor Code.
High Court Says Arbitrators Cannot Decide Class Claims Unless Arbitration Agreement Specifically Says So Does this Apply to Employment Claims?
In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., the Supreme Court ruled that arbitrators cannot decide class action styled arbitration claims unless an arbitration agreement specifically provides for it. But the Courts ruling may not become the boon that it seems for employers. An argument can be made that the decision does not apply in the context of employment claims because the National Labor Relations Act (NLRA) gives employees the right to engage in concerted activities for the purpose of mutual aid or protection. Employers that interfere with those rights commit unfair labor practices. So, theory being, employers that impose arbitration on employeesbut at the same time prohibit them from banding together to arbitrate their claimsunlawfully interfere with employees rights protected the NLRA.
Supreme Court Holds that Parties Who Have not Agreed to Class Arbitration Cannot be Required to Submit to Class Arbitration.
On April 27, the United States Supreme Court published its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., No. 08-1198, an antitrust case that could have far-reaching implications with respect to class arbitration. (A copy of the Court's slip opinion is available here.) In a 53 decision, the Court held that parties who had never agreed on the issue of whether to allow class arbitration under the arbitration agreement between them and whose arbitration agreement made no mention whatsoever of class arbitration could not be required to submit to class arbitration under the agreement. In so holding, the Court ruled that "a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."
Supreme Court Rules Against Inference of Class Arbitration in Silent Contracts.
On April 27, with Justice Samuel Alito writing for the 5-3 majority (Justice Sonia Sotomayor abstained), the U.S. Supreme Court addressed class-action arbitration when the parties agreement was silent regarding the aggregation of multiple parties claims. According to the Court, the arbitration panels imposition of class arbitration despite the parties stipulation that they had not reached an agreement on this issue is fundamentally at war with the Federal Arbitration Act (FAA) principle that arbitration is a matter of consent. [A]n implicit agreement to authorize class action arbitration, the Court ruled, is not a term that the arbitrator may infer solely from the fact of an agreement to arbitrate.
Supreme Court Rules Class Arbitration Not Allowed When Agreement is Silent.
On April 27, 2010 the U.S. Supreme Court decided that class arbitration is permissible only when the parties to a contract specifically agree. That is, silence does not amount to an implicit agreement to class arbitration. This question had confounded courts and arbitrators for years.
No Class Arbitration Under the FAA Unless Specifically Agreed, At Least for Now.
Today the Supreme Court decided a case important in the employment law field although the underlying case was a commercial dispute. The question in Stolt-Nielsen v. AnimalFeeds International (S.Ct. 4.27.10) [pdf] was whether under the Federal Arbitration Act, arbitrators could decide that class action was appropriate if the arbitration agreement was silent on that issue. Holding that the answer was no, Justice Alito wrote:
U.S. Supreme Court Lets Stand Decision of California State Court Refusing to Enforce Arbitration Agreement Containing Class Waiver Provision.
The U.S. Supreme Court has refused to review the decision of the California Court of Appeals in Athens Disposal Co. v. Franco, which held that an arbitration agreement between a trash company and a driver that included a waiver of class claims and prohibited the employee from seeking civil penalties on behalf of other workers was unconscionable and so tainted with illegality that it was unenforceable.
Careful What You Ask For... (4th Cir.)
A recent Fourth Circuit case highlights potential pitfalls with class and collective action arbitrations. In Long John Silvers Restaurants, Inc. v. Cole, et al., 514 F.3d 345 (4th Cir. 2008), the court affirmed an arbitrators award determining (i) the Fair Labor Standards Acts (FLSA) opt-in collective action certification process was inapplicable to the arbitration proceedings, and (ii) employees could pursue an opt out class action. The award magnified the scope of the case by including all employees who fell within the definition of the putative class, not just those who filed consents to join the action.
