Arbitration Of Claims

Executive Summary: In New Prime Inc. v. Oliveira, the U.S. Supreme Court held today that the Federal Arbitration Act’s (FAA) exclusion of certain “contracts of employment” from the Act’s coverage applies to transportation worker independent contractors. In its holding, the Court did not define who constitutes a transportation worker under the FAA.

On January 8, 2019, in a unanimous opinion written by Associate Justice Brett Kavanaugh, the Supreme Court ruled that where parties have agreed to delegate issues of arbitrability to an arbitrator, a court may not override that agreement. The Court explained this is true even where the court believes that a party’s argument that the dispute is within the scope of the agreement is frivolous. The Court’s decision ends a circuit split about whether, when faced with an enforceable delegation provision, courts could still hear arguments about the scope of an arbitration agreement under the “wholly groundless” exception.

Addressing a motion to compel arbitration and to dismiss a pending action, the United States District Court for South Carolina analyzed the enforceability of an arbitration clause in favor of a nonsignatory. Supporting its opinion with a legion of authority, the court found in favor of arbitration based largely upon the specific language of the arbitration agreement but also based upon the overall federal policy supporting arbitration. Devon Smith, individually and on behalf of all others similarly situated v. General Information Solutions, LLC, WL 2018 6528155 (December 11, 2018).

As recent Supreme Court decisions have surveyed and expanded the landscape of arbitration and arbitration agreements, employers have placed greater focus on whether arbitration is actually the right fit for their company.

A recent decision of the United States District Court of South Carolina again demonstrated a liberal federal policy favoring arbitration agreements. Suzanne Young v. AMISUB of South Carolina, Inc. d/b/a Piedmont Medical Center, 2018 WL 5668619 (November 1, 2018). While analyzed here in the context of an employment dispute, the guiding principles are equally applicable to other contexts.

Vacating a $10 million arbitration award resulting from a “collective action” arbitration, the U.S. Court of Appeals for the Seventh Circuit ruled that whether class or collective arbitration is authorized by an arbitration agreement is a threshold question for the district court, not an arbitrator. Herrington v. Waterstone Mortgage Corp., No. 17-3609 (7th Cir. Oct. 22, 2018).

On October 3, 2018, the U.S. Supreme Court heard oral argument in New Prime Inc. v. Oliveira, No. 17-340. While the case turns on what may appear to be a simple question of statutory interpretation, the outcome could have profound consequences for employers throughout the transportation industry, for hundreds of thousands of independent owner-operators, and eventually for all consumers.

In a matter of first impression before the Eleventh Circuit Court of Appeals, and an issue left open by the U.S. Supreme Court, the Eleventh Circuit has ruled that who decides whether an action can be litigated as a class in arbitration is an issue of “arbitrability” and those are all to be decided by the court in the absence of terms of the arbitration agreement that evince a “clear and unmistakable intent” to overcome that default presumption. JPay, Inc. v. Kobel, No. 17-13611 (11th Cir. Sept. 19, 2018).

Courts usually enforce mandatory arbitration agreements in the employment context if the agreements are not too one-sided.

Many employers rely on pre-dispute arbitration agreements, usually entered at the beginning of employment, to resolve disputes that may arise during employment. The objective is to address matters through binding and private arbitration rather than public litigation. Now a bipartisan coalition in Congress, including Sen. Lindsay Graham, R-S.C., and Rep. Walter Jones, R-N.C., is trying to make arbitration agreements unenforceable in any “sex discrimination dispute.”

The United States Supreme Court heard a one-hour consolidated oral argument in three arbitration cases involving the intersection of the National Labor Relations Act and the Federal Arbitration Act on October 2, 2017.

Overview: By Decision dated July 19, 2017 (the “Decision”), the Appellate Division, First Department (the “First Department”) (which has jurisdiction over Manhattan and Bronx) held that arbitration agreements obligating employees to waive their rights to bring collective disputes, such as class actions regarding wage disputes, were unlawful and unenforceable because they “run afoul of the National Labor Relations Act” (the “NLRA”). Though freely acknowledging that the United States Supreme Court will resolve a similar issue in its October 2017 Term, the Decision currently binds the trial courts in Manhattan and Bronx and has precedential effect for other trial courts throughout New York. The Decision can be appealed to New York’s highest court, the New York Court of Appeals.

On May 15, 2017, the U.S. Supreme Court reiterated the principle that the Federal Arbitration Act (FAA) requires states to treat arbitration agreements just as they treat other types of contracts. In Kindred Nursing Centers L.P. v. Clark, the Court reversed in part a decision of the Kentucky Supreme Court, which had instituted a new rule chipping away at the enforceability of arbitration agreements under certain circumstances.1 Justice Kagan wrote the majority 7-1 opinion and, moreover, was joined by other liberal-leaning members of the Court.2 While newly-confirmed Justice Gorsuch did not participate, the Kindred Nursing Centers decision reaffirms the Supreme Court’s continued commitment to uphold arbitration agreements under the FAA to the greatest extent possible.

Three cases making their way through the courts demonstrate that the question of arbitration clauses in long-term care (LTC) facility admission agreements is an active and developing area of the law.

In Ziober v. BLB Resources, Inc., 2016 U.S. App. LEXIS 18516 (9th Cir., Oct. 14, 2016), the United States Court of Appeals for the Ninth Circuit joined three other circuit courts in holding that the Uniformed Services Employment and Reemployment Rights Act (USERRA) does not prohibit the compelled arbitration of claims under the Act. The Ninth Circuit’s ruling helps solidify the right of employers to compel arbitration of USERRA claims under a valid arbitration agreement, particularly in light of this Circuit’s perceived hostility towards arbitration of employment-related claims. Ziober provides further support for the view that a properly drafted arbitration agreement provides employers with the ability to arbitrate USERRA claims and avoid litigation.