By Eric H. Rumbaugh and Anne Carroll

Perhaps the most important case in the contingent labor arena in the last several years is one that does not mention employment at all. In AT&T Mobility v. Concepcion, the U.S. Supreme Court held that arbitration agreements that bar class claims are valid, and that federal law preempts state laws that bar class action waiver agreements. Although Concepcion dealt with a consumer contract, the decision appeared applicable to arbitration clauses in employment contracts, a notion that was strengthened by the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant. In it, the court held that a class action waiver in arbitration agreements between the credit card company and several businesses was enforceable and barred a proposed class action antitrust suit. The court stated that neither federal antitrust laws nor the Federal Rules of Civil Procedure prevent parties from agreeing to arbitrate their disputes on an individual basis, even if individual suits are unaffordable.

While arbitration is far from perfect, the thought that mandatory arbitration programs can greatly reduce the threat of class actions is comforting to employers. However, issues related to the enforceability of arbitration agreements are by no means settled, and employers should pause before beginning a victory dance. Most courts have followed Concepcion and enforced arbitration agreements that bar class litigation, but other decisions have yielded inconsistent application of Concepcion’s principles.

Decisions Enforcing Arbitration Agreements
A California appellate court upheld an individual arbitration provision in an employment agreement that precluded class claims under the Fair Labor Standards Act (FLSA). In Jennifer Outland, et al. v. Macy’s Department Stores, Inc., a sales manager claimed she worked 50 or more hours per week and was not compensated for overtime, missed meal time, or rest periods because she was incorrectly classified as an exempt employee. She filed suit on behalf of herself and a class of all individuals employed with Macy’s in a similar position. Macy’s employment agreements, however, contained a waiver of employees’ rights to multi-party or class action arbitrations and required workers to participate in a dispute resolution program. The appellate court rejected an argument that federal labor law (FLSA) trumps the Federal Arbitration Act in the context of wage and hour litigation and ruled for Macy’s, finding that the reasoning behind Concepcion applies with equal weight to employment agreements.

In Raniere v. Citigroup, Inc. the Second Circuit also upheld an arbitration agreement’s class action waiver in the context of an FLSA action. The Second Circuit rejected the lower court’s finding that the waiver was unenforceable because the plaintiff’s statutory rights could not be vindicated if the matter proceeded on an individual basis. The Second Circuit cited to American Express and its own prior decision in Sutherland v. Ernst & Young LLP to support its holding that the FLSA does not preclude class action waivers.

Some Courts Have Refused to Follow Concepcion
Concepcion has not ended all dispute regarding the enforceability of arbitration agreements containing class action waivers. Courts that have refused to follow Concepcion’s lead have primarily focused on plaintiffs’ alleged inability to vindicate their rights in arbitration — the issue dealt with by the Second Circuit in Sutherland and Raniere. In Cruz v. Cingular Wireless, for example, the Eleventh Circuit suggested that a class action waiver in an arbitration agreement is unenforceable if it prevents a plaintiff from being able to vindicate statutory rights. The Cruz plaintiffs brought a class action under Florida law alleging that AT&T charged them for a roadside assistance plan they never ordered. The plaintiff’s agreement with AT&T contained the same arbitration agreement at issue in Concepcion. Although the Eleventh Circuit rejected the plaintiffs’ argument that agreements which waive class actions without determining whether individuals can individually vindicate their rights should be automatically invalidated, the court did not reach the question of whether Concepcion leaves open the possibility that, in some cases, an arbitration agreement may be invalid on public policy grounds where it effectively prevents an individual from vindicating a statutory cause of action.

Other federal courts have also refused to enforce arbitration agreements they find unconscionable or in violation of state law requirements. In Samaniego v. Empire Today LLC, for example, the California appellate court found that state law requirements survived Concepcion and that an agreement with an express class action waiver was unconscionable because it violated some of the requirements set forth under state law. When plaintiffs were hired, they were given contracts to sign, one of which contained an arbitration agreement. Empire tried to compel arbitration when plaintiffs filed a class action alleging, among other claimed violations, unlawful misclassification. The court based its unconscionability finding on the fact that the agreement was written only in English, yet one of the two plaintiffs could not read English and the other had only limited English skills. The court also admonished Empire for failing to provide employees with a copy of the arbitration rules specified in the agreement, for failing to include a separate heading in the agreement designating the arbitration provision, and for shortening the limitations period and requiring that employees pay attorneys’ fees incurred by Empire for enforcement efforts. 

Whether cases like Samaniego will survive further review is unknown, but employers should take their holdings as a reason to exercise caution when drafting arbitration agreements. Taking certain steps like ensuring that employees are provided with copies of what arbitration rules will govern disputes and that non-English speaking employees are provided with translation services before signing arbitration agreements might help ensure that such agreements will hold if ever challenged in court.

In our next article, we’ll discuss how the National Labor Relations Board has approached Concepcion’s application to employment agreements.

Eric Rumbaugh is a partner and Anne Carroll is an attorney with Michael Best and Friedrich LLC (www.michaelbest.com). They represent lawyers in employment law matters.