Recent court decisions portend usefulness of these clauses
By Eric Rumbaugh and Anne Carroll
One of the most important cases affecting the staffing industry in recent years is AT&T Mobility v. Concepcion, in which 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.
While the case itself involved a consumer contract, the principles and rationale of 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 that case, the court stated that neither federal antitrust laws nor the Federal Rules of Civil Procedure prevents parties from agreeing to arbitrate their disputes on an individual basis, even if individual suits are unaffordable.
The American Express case signified that federal statutory claims are not special and that courts will enforce arbitration provisions even when federal claims are implicated. Thus, following Concepcion, the potential usefulness of arbitration agreements in employment contracts increased greatly, and employment arbitration agreements came back into style.
However, subsequent court cases have been inconsistent in their application of Concepcion.
Following Concepcion. In Jennifer Outland, et al. v. Macy’s Department Stores Inc., a sales manager filed suit against Macy’s on behalf of herself and a class of all similarly situated Macy’s employees claiming she was incorrectly classified as an exempt employee. 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. In its ruling in favor of Macy’s, the California appellate court found that the reasoning behind Concepcion applies with equal weight to employment agreements and rejected an argument that the Fair Labor Standards Act (FLSA) trumps the Federal Arbitration Act (FAA) in the context of wage and hour litigation.
Rejecting Concepcion. In Samaniego v. Empire Today LLC, 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. Empire, whose employment contracts included an arbitration agreement, tried to compel arbitration when plaintiffs filed a class action alleging unlawful misclassification, among other claimed violations. 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.
At Odds. The National Labor Relations Board, in the case of D.R. Horton and Michael Cuda, held that requiring employees to waive their right to file joint or class claims violates Section 7 of the National Labor Relations Act, which provides that employees have the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection.
The Fifth Circuit, meanwhile, overturned the NLRB’s decision in December 2013, recognizing an absence of any authority to support a finding that Section 7 prohibited class action waivers. The Fifth Circuit also considered the public policy considerations discussed by the U.S. Supreme Court in Concepcion, including the notion that a ban on class action waivers would discourage individual arbitration and necessitate class action procedures that would be inconsistent with the FAA.
The law in this area is certainly not settled, but courts are increasingly following Concepcion. Fortunately, employers have options. Employers should talk to their counsel to determine whether arbitration agreements fit their business’ needs and to craft agreements that minimize potential exposure to class claims.
Eric H. Rumbaugh is a partner at law firm Michael Best & Friedrich LLP. He can be reached at ehrumbaugh@michaelbest.com. Anne Carroll is an associate with Michael Best & Friedrich, she can be reached at amcarroll@michaelbest.com.
