Bizarre Texas Tactic a Cautionary Tale for Employers 2019-05-09T16:15:50-07:00

Posted on May 9, 2019

Plaintiffs’ attorneys in Texas have come up with a not-so-clever, but potentially effective way to circumvent mandatory arbitration agreements. In Adcock v. Five Star Rentals/Sales, Inc., (Fourth Court of Appeals, Texas, April 18, 2019), Plaintiff’s attorney sent a pre-litigation letter to the employer asking whether the employer had an arbitration agreement with Adcock, but the letter did more. The letter demanded that the employer produce any such agreement within thirty days, and stated that failure to do so would constitute an agreement not to arbitrate the claims. The employer never responded, and Plaintiff filed his lawsuit instead of initiating arbitration. That’s when things got a little weird.

As the litigation proceeded, the employer produced personnel documents and – lo and behold – they included an arbitration agreement. Plaintiff decided that he preferred to be in arbitration, and he moved the court to submit the case to arbitration based on the arbitration agreement. The trial court and the Texas Court of Appeals held that Plaintiff could not move the case to arbitration. The Court of Appeals specifically held that the letter from Plaintiff’s counsel coupled with the employer’s failure to produce the arbitration agreement within thirty days as demanded in the letter, constituted a subsequent, enforceable agreement between Plaintiff and the employer to rescind the arbitration agreement. What?????

If this ruling stands, plaintiffs can completely circumvent valid arbitration agreements using this thirty-day letter canard any time an employer casually tosses such a letter in the old circular file. The simple lesson, for now, is to take these silly letters very seriously. While we would not expect too many other appellate courts to follow the holding of this case, it stands as a warning for employers to respond to these letters—even if it is just with a rejection of the very idea of waiver. Otherwise, employers risk undermining their arbitration covenants.

SCOTUS Restricts Class Arbitrations 2019-04-24T11:30:51-07:00

Posted on April 24, 2019

By John Alan Doran

In yet another pro-arbitration, employer-friendly decision, the U.S. Supreme Court ruled this morning that an individual cannot pursue claims in arbitration on behalf of a class unless the arbitration clause involved clearly and unequivocally permits class treatment of claims. Lamps Plus v. Varela, 17-988 (April 24, 2019).

Varela worked for Lamps Plus when a hacker successfully obtained tax information from Lamps Plus for some 1,300 employees, including Varela. Varela filed a class action in federal court. Lamps Plus moved to compel arbitration under Varela’s employment agreement, which included mandatory arbitration. The District Court compelled arbitration, but did so on a class basis, forcing Lamps Plus to defend Varela’s entire class action in an arbitral forum, rather than simply defending Varela’s own personal claim. The Ninth Circuit predictably upheld the District Court’s ruling, concluding that because Varela’s arbitration agreement was ambiguous with respect to class arbitration, the agreement must be construed against Lamps Plus and class arbitration must be inferred.

In a 5-4 decision, the Supreme Court reversed the decisions below. The Court criticized the Ninth Circuit for applying California contract law doctrines that undermine the powerful presumption that parties are bound to arbitrate only in the manner to which they specifically agreed. The Court noted the significant problems posed by class-wide arbitration, most of which undermine the very purposes of arbitration in the first place. Against this background, the Court held that parties to an arbitration agreement can only be forced into arbitration of class claims when the arbitration agreement unambiguously provides for class arbitration. Neither silence nor ambiguity on the subject will suffice to infer the parties’ agreement to class arbitration.

At a time when Congress, many states (especially California, over, and over, and over…), the media, and some large employers are questioning the future viability of mandatory arbitration outside the collective bargaining setting, our Supreme Court continues to emphasize the values of, and strong federal policy favoring arbitration agreements. Lamps Plus stands for the proposition that a court cannot infer consent to class arbitration when an arbitration agreement is silent or ambiguous on the topic. That being said, employers can avoid the question altogether by simply prohibiting class claims in their arbitration agreements.

SCOTUS HITS BRAKES ON I/C TRUCKER ARB 2019-01-16T13:40:28-07:00

Posted on January 16, 2019

By John Alan Doran

Yesterday the U.S. Supreme Court ruled against a large national trucking company in its attempt to enforce an arbitration agreement against one of its independent contractor truck-drivers. New Prime Inc. v. Oliveira, No. 17-340 (U.S. January 15, 2019). The lawsuit alleged that New Prime contractors were actually employees, but were not paid minimum wage. New Prime defended by seeking to enforce Mr. Oliveira’s arbitration agreement, which required all disputes, including disputes over the scope of the agreement, to be submitted to an arbitrator. Oliveira successfully argued at the trial court and in the Court of Appeals that the Federal Arbitration Act exempts from its coverage “contracts of employment” of certain transportation workers.

Before the Supreme Court, New Prime argued that the phrase “contracts of employment” in the FAA could not possibly apply to its independent contractor truck drivers because they are not employees in the first place. The Supreme Court disagreed in a unanimous decision (Justice Kavanaugh did not participate). First, the Court held that despite the agreement’s broad grant of authority to the arbitrator, the trial court (and not the arbitrator) should first determine whether an FAA exception applies to the agreement. Second, the Court held that the term “contracts of employment” must be defined based on its meaning back when the FAA was passed in 1925. Third, the Court concluded that, as of 1925, the phrase “contracts of employment” had a very broad meaning that included independent contractor relationships. So, despite the broad scope of the FAA and the strong federal public policy encouraging private arbitration, New Prime cannot enforce Oliveira’s arbitration agreement under the FAA.

The case is a game-changer for the trucking industry, as many interstate trucking companies rely on an independent contractor model coupled with mandatory arbitration. The case is also noteworthy as a rare example of the Supreme Court finding against an arbitration covenant, although the ruling is limited to contracts involving interstate transportation.

State Law Bars Conditioning Employment on Agreement to Arbitrate 2018-10-12T08:38:56-07:00

Posted on October 12, 2018

By Bill Wright

Recently, the Kentucky Supreme Court considered whether the Federal Arbitration Act (“FAA”) preempts a state law. The FAA prevents states from setting higher standards for entering into or enforcing arbitration agreements than for contracts generally. The Kentucky law at issue read: [N]o employer shall require as a condition or precondition of employment that any employee or person seeking employment waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled under” either federal or Kentucky law. On the face of it, this statute makes it harder to create an arbitration agreement and should run afoul of the FAA. But no! According to the Kentucky Court, this statute is only an anti-discrimination statute – it forbids employers from discriminating in employment against people who refuse to sign arbitration agreements (or any other agreement reducing their rights or benefits). N. Ky. Dev. Area Dist. v. Snyder, 2017-SC-000277-DG (Sept. 27, 2018)

The result is a counter intuitive. For most contracts, employers can use employment or continued employment as the quid-pro-quo for the employees’ promises. For example, the employee promises to comply with company policy or to work full time, and the company employs the employee. But not for arbitration or other agreements limiting employee rights or benefits. So, before you roll out that nationwide arbitration agreement with class waivers, consider any applicable state law.

Employer Narrows “Collective” Actions Thru Arbitration Agreement. 2018-08-17T10:27:31-07:00

Posted on August 17, 2018

By: Beth Ann Lennon

Last term, in Epic the Supreme Court ruled the National Labor Relations Act (“NLRA”) is not a “get out of arbitration free” card. Individual employees who sign an appropriate arbitration agreement can be compelled to arbitrate even their “concerted” claims.

Now, according to the Sixth Circuit, that ruling also tells us employees cannot avoid arbitration when they bring collective claims under the Fair Labor Standards Act (“FLSA”). While acknowledging that the FLSA “gives employees the option to bring their claims” as a “collective” action, the court explained, nothing in the FLSA requires collective action. Without a “clear and manifest” statement of congressional intent to the contrary, the Federal Arbitration Act (“FAA”) applies and an employee can sign away the right to proceed collectively. Indeed, the Sixth Circuit reiterated that, under Epic, the “fundamental attributes of arbitration” cannot be attacked, and it explained that one “fundamental attribute” is its “historically individualize nature.” Gaffers v. Kelly Services, Inc.

The takeaway? There is nothing illegal about an employee contracting away his or her “collective action” rights under the FLSA. “Employees who do not sign individual arbitration agreements are free to sue collectively [under the FLSA], and those who do sign individual arbitration agreements are not.”

SCOTUS Upholds Class-Action Waivers 2018-05-21T09:49:04-07:00

Posted on May 21, 2018

By Bryan Stillwagon

May employees and employers agree that any disputes between them will be resolved only through one-on-one arbitration? Today, the Supreme Court responded, “YES.”

In a 5-4 decision, the Court held in Epic Sys. Corp. v. Lewis, Ernst & Young LLP et al. v. Morris et al., and NLRB v. Murphy Oil USA, Inc., that employers may reach enforceable agreements with their employees that the employees will not bring class or collective actions. In recent years, employees have argued that the forced waiver of class- and collective-action procedures violated the Arbitration Act’s savings clause and the NLRA’s right to engage in collective action. Rejecting those arguments, the Court leaves intact a beneficial tool for employers in avoiding costly multi-plaintiff actions.

Read our full advisory here.

Benchslap for Blacklisting Rule 2016-10-25T14:46:49-07:00

Posted on October 25, 2016

By John Alan Doran

Yesterday a federal court put a temporary hold on the Obama Administration’s so-called Blacklisting Rule. Associated Builders v. Rung. In a previous blog we described in detail the Administration’s Executive Order and proposed rules. The Rule created onerous reporting requirements, imposed punishment including debarment on alleged violators, and prohibited pre-dispute arbitration agreements for federal contractors.

In this case, the court found that the employer association had shown a substantial likelihood of success on the merits because: (a) Congress chose not to debar employers from federal contracts for violations of the NLRA, anti-discrimination laws, and related federal employment statutes, and the Blacklisting Rule explicitly conflicts with these remedial schemes. (b) The Rule likely violates the First Amendment by forcing contractors to “publicly condemn” themselves by admitting to violations that are only alleged by the NLRB, the EEOC or other agencies. (c) Citing cases where, after years of litigation, the courts have found the agencies’ accusations completely unfounded, the court also noted that punishing contractors simply because they are the subject of NLRB or DOL proceedings violates basic notions of due process. (d) As icing on the cake, the court held that the Rule is arbitrary and capricious, and violates the Federal Arbitration Act. The court did not enjoin, however, the so-called “pay transparency” provision of the Rule, which requires contractors to give employees certain information related to pay.

With one minor exception, this court has issued an epic benchslap to the Administration and its attempts to enact legislation without going through Congress. This is a repeating theme with respect to this Administration’s view of Executive Power, and the courts’ decided disagreement with that view.

California Bans Out-of-State Law 2016-10-03T15:04:01-07:00

Posted on October 3, 2016

By Bill Wright

California has passed a novel piece of employment law. New section 925 of the California Labor Code prohibits employers from requiring employees to sign an agreement that (a) forces the employee to litigate or arbitrate outside California if the claims arise from events (e.g. living and working) inside California; and (b) specifies that the laws of another state governs any “substantive” legal issue. The bill exempts employees who are represented by counsel in negotiating the agreement. The law takes effect Jan. 1, 2017. http://www.leginfo.ca.gov/pub/15-16/bill/sen/sb_1201-1250/sb_1241_bill_20160925_chaptered.pdf

The consequence of using your same old employment agreement form in California now is that venue and choice-of-law provisions that specify states other than California are voidable, at the option of the employee. And employers get to pay any attorney fees the employee incurs in pointing out this issue to the employer. Be warned. Of course, this is yet another full-frontal assault on employment arbitration by the State of California. It appears that the state thrives on creating arbitration uncertainty that should ultimately be struck down by the U.S. Supreme Court.

Ninth Circuit Strikes Class Arb Waivers 2016-08-22T16:23:15-07:00

Posted on August 22, 2016

By John Alan Doran

The Ninth Circuit Court of Appeals weighed in, today, on the propriety of class action arbitration waivers under the NLRA. The Court held that such waivers violate Sections 7 and 8 of the NLRA in the context of a pending FLSA lawsuit.

Ernst & Young requires new employees to sign an agreement that requires employees to pursue any claims against the employer through arbitration, and such arbitrations must be pursued on an individual basis. The effect of the agreement is to prevent employees from bringing class or collective actions against the employer in court or in arbitration. But, the employees involved in this case brought a FLSA collective action lawsuit anyway. The employer moved to dismiss the lawsuit arguing that all of the potential class members had to arbitrate their respective claims separately as individuals. The trial court agreed, dismissed the case, and ordered individual arbitrations.

The Ninth Circuit reversed, however, finding that the arbitration provision violates Section 7 of the NLRA, which grants employees a statutory right to engage in “concerted” activities. The Court poo-pooed the import and impact of the Federal Arbitration Act, the stated purpose of which is to promote and enforce arbitration agreements. This is no surprise, as the Ninth Circuit has quite notoriously fought arbitration at every avenue when it comes to employment litigation. The dissenting judge in this case quite rightly describes the Court’s decision as “breathtaking in its scope and in its error”. Given the profound split on this issue between federal appellate courts, the continued vitality of this decision rests with SCOTUS, yet another point of significant interest in this election cycle.

The War on Employment Arbitration 2016-05-31T08:57:30-07:00

Posted on May 31, 2016

By Andy Volin

The Seventh Circuit just created a split in the Federal Courts of Appeals by ruling an employment arbitration provision that did not permit arbitration of collective claims was not enforceable because it violated the National Labor Relations Act. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016). This is the first federal appellate court that has agreed with the decision by the National Labor Relations Board in the D.R. Horton case (Read our blog post here). This decision only affects workers in states in by the Seventh Circuit – Illinois, Indiana, and Wisconsin. Epic Systems conflicts with decisions by several other Federal Circuits – the Fifth and Eighth Circuits. This makes it more likely that the Supreme Court will have to resolve the split in the circuits.

The Epic Systems decision is significant in several respects, but it should not be read as ending the ability of employers to require arbitration of employment claims, even in the 7th Circuit. Employers can still require employees to arbitrate most types of common employment claims, including wage and hour claims. But if a dispute arises in Illinois, Indiana or Wisconsin, the courts won’t enforce an arbitration clause with a class action waiver, at least until the Supreme Court takes the issue on.

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