Today’s decision means that employers that utilize arbitration agreements with their employees can compel individual arbitration even if the employee attempts to bring a lawsuit on behalf of a class of employees.

Employer Sued after Phishing Attack

In 2016, Lamps Plus was the victim of a computer phishing scam. The hacker convinced the company to discuss the tax information of about 1,300 company employees. After a fraudulent federal income tax return was filed in the name of respondent Frank Varela, a Lamps Plus employee, Varela filed a class action against Lamps Plus in federal court.

Relying on the arbitration agreement in Varela’s employment contract, Lamps Plus sought to compel arbitration—on an individual rather than a class-wide basis—and to dismiss the suit. The arbitration agreement at issue did not “class-action waiver,” which is an express provision preventing class-wide arbitration.

Although it’s not clear from the case, Lamps Plus likely did not include a class-action waiver in its employment agreements because the National Labor Relations Board had previously concluded that such provisions violated the National Labor Relations Act. However, the Supreme Court reversed that decision last year as we reported in U.S. Supreme Court Upholds Arbitration Agreements For Employees.

Both the District Court and Ninth Circuit Court of Appeal concluded that the absence of a class-action waiver could be construed against the drafter (here, the employer) and held that the arbitration could be construed to authorize class-wide arbitration. Accordingly, the lawsuit was dismissed but class-wide arbitration was approved.

Supreme Court Finds No Consent to Class-wide Arbitration

In reversing the lower courts’ rulings, the Supreme Court emphasized that class arbitration “sacrifices the principal ad-vantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.”

According to the Court, silence or ambiguity is not enough to find consent to class-wide arbitration:

Neither silence nor ambiguity provides a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself…[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a class-wide basis.

As a result, the Court mandated that the employee pursue his claims only in an individual arbitration.

Bottom Line

The Supreme Court’s decision is a clear win for employers whose arbitration agreements do not contain express class-action waivers. However, in order to compel such arbitrations, the arbitration agreement itself must of course still be enforceable. Employees continue to challenge the enforceability of arbitration agreements on a regular basis.

As a result, employers would be well-advised to have these agreements vetted regularly by counsel to ensure their enforceability.

The post Supreme Court Rejects Class Arbitration Unless Expressly Authorized appeared first on Felhaber Larson.

Last year, the Supreme Court ruled in Epic Systems Corp. v. Lewis that the Federal Arbitration Act (“FAA”) permits employers to require employees to submit their legal claims to private arbitration (rather than filing lawsuits), and to force them to pursue those arbitrations individually rather than as participants in a class actions. Employers everywhere hailed this as a road map toward swifter resolution of employment claims without the complexities of courtroom litigation or mass arbitration actions.

Detour Ahead

However, the Supreme Court may have just pumped the brakes on that line of thinking.  In a case entitled New Prime Inc. v. Oliveira, they determined that certain transportation workers are exempt from the FAA and cannot be forced to arbitrate their claims.  Specifically, they noted that the FAA does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” New Prime’s over-the-road truckers, who alleged that they had been misclassified as independent contractors, were clearly crossing state lines in hauling their freight and therefore could not be compelled to bring those claims in separate private arbitrations under the FAA.

New Prime argued that the exclusion for “contracts of employment…of any other class of workers engaged in foreign or interstate commerce” applied only to actual employees and did not cover independent contractors.  The Court reasoned that Congress knew how to use the word “employees” and that choosing the term “workers” instead indicated that they intended to exclude a broader class of individuals (and not just employees) from the FAA.  Therefore,

Bottom Line

While the Epic Systems case remains good law, the Oliveira decision appears to signal the Supreme Court’s intent to modify it a bit to narrow the FAA’s application.

The key question is just how narrowly the FAA will be applied in the future, and the answer probably will not come until the Supreme Court tells us which definition of “workers engaged in foreign or interstate commerce” they intend to use.  In some instances, that term is limited just to those who cross state lines when engaged in their business activities.  At other times, the term includes those who work on or handle goods that are within the “stream” of interstate commerce even if the employee never physically crosses from one state to the other.

Indeed, under the Fair Labor Standards Act (FLSA), employees are often considered to have engaged in interstate commerce even if they merely use the phone or the internet to order products or supplies from out of state.  It seems unlikely that the Supreme Court will apply that interpretation, however, since that would exempt the vast majority of U.S. workers from the FAA’s application.

It remains to be seen how big a road block the Supreme Court just set up for the use of mandatory arbitration agreements for employees.  Look for more signs ahead.

The post Supreme Court Says Trucking Company Cannot Steer Drivers into Arbitration Agreements appeared first on Felhaber Larson.

Legal experts were not sure how this decision would fall, so this is viewed as a major victory for thousands of companies that require their employees to sign arbitration agreements as a condition of employment.

What Was At Stake

Arbitration agreements present many benefits to employers. Arbitrations are usually resolved more quickly and are more streamlined than court proceedings.  They also are private, which prevents the release of damaging information or unflattering characterizations of the company.  Arbitrations also allow employers to avoid trials in front of juries, the majority of whom tend to favor employees.

Our newest Supreme Court Justice, Neil Gorsuch wrote for the majority, in a 5-4 ruling that actually decided three consolidated cases.  Justice Gorsuch wrote that the Federal Arbitration Act sets a strong policy favoring enforcement of arbitration agreements.

The National Labor Relations Board, joined by employee advocates, argued that barring employees from joining together violates the rights of employees to engage in “concerted activity”, a right protected under the National Labor Relations Act (NLRA).  The Court disagreed, writing that that the Federal Arbitration Act (FAA) sets a strong policy favoring the enforcement of arbitration agreements and that Congress did not intend the NLRA to preclude enforcement of arbitration agreements.

Bottom Line

What does this mean for employers?  We can expect more employers to consider the benefits of requiring arbitration agreements as a condition of employment.  These agreements can help streamline dispute resolution and prevent the procedural nightmares and massive liability exposure that class actions often pose.

The post U.S. Supreme Court Upholds Arbitration Agreements For Employees appeared first on Felhaber Larson.

Specifically, the NLRB held that an employer violated the National Labor Relations Act by requiring its employees (as a condition of employment) to sign an arbitration agreement, which precluded them from filing joint, class, or collective claims against the company in any forum (arbitration or the courts).  D.R. Horton, Inc., 357 NLRB No. 184 (2012).

The arbitration agreement provided (1) that the employee waived his/her right to file an employment-related lawsuit or civil proceeding against the company; (2) that arbitration would be the exclusive mechanism to resolve any disputes/claims relating to the employee’s employment; and (3) that the arbitrator would only be empowered to hear individual claims, and would not have the authority to decide class or collective cases.

The Board held that the employer violated Section 8(a)(1) of the National Labor Relations Act by requiring its employees to sign the arbitration agreement on the theory that it “unlawfully restricts employees’ Section 7 right to engage in concerted action for mutual aid or protection.”  In the Board’s view, an individual who pursues a class or collective action regarding hours or pay (or other working conditions) seeks to initiate or induce group action, and is therefore engaged in concerted activity that is protected by Section 7.  According to the Board, it was unlawful for the employer to require that the employees simultaneously waive their right to pursue employment litigation (including collective actions) through the courts, and their ability to pursue collective actions through arbitration.

Bottom Line

This is another example of the Board taking a broad view of what constitutes protected activity under the National Labor Relations Act.  The Board’s decision is controversial, and it will almost certainly be appealed.

The post Labor Board Strikes Down Employer’s Mandatory Arbitration Agreement appeared first on Felhaber Larson.

Arbitration agreements are often viewed as attractive alternatives to costly and unpredictable litigation. However, when large groups join together in class-wide claims, the benefits of arbitration vanish.  Therefore, arbitration agreements often include “class action waivers,” barring individuals from participating in group claims.

Some states won’t enforce these waivers, finding them “unconscionable” because the high cost of prosecuting individual claims for small amounts can effectively bar any real relief.  In California, this is known as the “Discover Bank Rule” from a decision on this issue involving Discover Bank.

States Must Respect Arbitration

In AT&T Mobility, LLC v. Concepcion, 09-893 (April 27, 2011), handed down on April 27, 2011, Vincent and Liza Concepcion claimed that AT&T improperly charged them $30.22 for sales tax. They tried to join a class action for false advertising, but AT&T claimed the class action waiver in their arbitration agreement required that they pursue individual arbitration. The lower courts invoked the Discover Bank Rule allowing the Concepcion’s to join the class action.

The United States Supreme Court overruled the earlier decisions, finding that the Discover Bank Rule was inconsistent with and preempted by the Federal Arbitration Act (“FAA”). Since the contract between the parties intended them to participate in a two-party arbitration, refusing to enforce the waiver of class arbitration changed the essential purpose of the contract.

The Supreme Court explained that class arbitration sacrifices the informality and efficiency that Congress contemplated in enacting the FAA. “Arbitration is a matter of contract,” the Court observed, “and the FAA requires courts to honor parties’ expectations.” The Court said the Discover Bank Rule must yield since it impedes “the accomplishment of the FAA’s objectives” of promoting arbitration and ensuring that arbitration agreements are enforceable according to their terms.

Bottom Line

The full implication of Concepcion is not entirely known but it could substantially restrict class actions in employment litigation. In particular, it could dramatically change wage and hour litigation which typically involves large groups suing for relatively small individual losses.  Without lumping all of these claims together, it may be hard for individuals to secure legal representation.

Employers with existing arbitration agreements should carefully examine them to determine whether they should be modified to obtain the benefits of Concepcion.  Employers that do not currently use arbitration agreements should weigh the pros and cons of adopting them.  We’ll know more when the Concepcion decision is considered and refined, but this could be a very beneficial tool in the battle against class-based claims against employers.

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