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Posts Tagged ‘arbitration’

The Supreme Court Weighs in on Arbitrability, But Questions Remain

Posted on: January 31st, 2019

By: Ted Peters

As reflected in a prior article, the United States Supreme Court recently agreed to take another look at the issue of arbitrability. In the case of Henry Schein, Inc. v. Archer & White Sales, Inc., the Fifth Circuit concluded that the court, and not an arbitrator, had the power to decide the threshold issue of arbitrability. In its ruling, the circuit court embraced the “wholly groundless” argument, concluding that submission of the dispute to the arbitrator was unnecessary because the assertion of arbitrability was “wholly groundless.” This decision underscored the ongoing split of authority among the lower courts wherein some courts, but not all, recognize the “wholly groundless” exception. On appeal, the appellants sought to have the Supreme Court reject the exception as inconsistent with the Federal Arbitration Act (“FAA”), the purpose of which is “to ensure that private agreements to arbitrate are enforced according to their terms.”

On January 8, 2019, newly appointed Justice Kavanaugh delivered the opinion of the court vacating and remanding the Firth Circuit’s decision. Writing for a unanimous court, Kavanaugh determined that the “wholly groundless” exception to the general rule that courts must enforce contracts that delegate arbitrability questions to an arbitrator is inconsistent with the FAA and Supreme Court precedent. Not surprisingly, the opinion revisited a number of prior cases in which the Court repeatedly held that the “agreement to arbitrate a gateway issue is simply an additional… agreement the party seeking arbitration asks the federal court to enforce, and the [FAA] operates on this additional arbitration agreement just as it does on any other.” (Opinion at p. 4, quoting Rent-A-Center, 561 U.S. 63, 70 (2010)). Kavanaugh noted that the Court had frequently rejected the argument that a claim of frivolity can derail the parties’ agreement to vest questions of arbitrability with an arbitrator and not a court. Citing Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960), Kavanaugh stated: “A court has ‘no business weighing the merits of the grievance’ because the ‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’”

On January 15, 2019, the Court issued a ruling in yet another case involving arbitration, New Prime Inc. v. Oliveira. Justice Gorsuch delivered the opinion of the court. In an 8-0 decision (Kavanaugh took no part in the consideration or decision of the case), the high court affirmed the First Circuit’s determination that a court should determine whether the Federal Arbitration Act’s Section 1 exclusion for disputes involving the “contracts of employment” of certain transportation workers applies before ordering arbitration. Unlike Henry Schein, which addressed the delegation of “gateway” questions of arbitrability, New Prime Inc. involved the judicial assessment of a statutorily based objection to arbitration.

But wait… there’s (one) more: Lamps Plus Inc. v. Varela, Dkt. No. 17-988. That case, argued on October 29, 2018, addresses whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements. An opinion is expected at any time.

Coming full circle, it is fairly clear that the high court seems to remain firm in its embrace of arbitration agreements without permitting judicial meddling, provided there is “clear and unmistakable evidence” that the parties affirmatively agree to delegate the decision of arbitrability to the arbitrator. (Henry Schein at p. 6, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944). Yet, at the same time, the Justices appear receptive to judicial involvement as long as there is a reasonable statutory basis for it.

The takeaway? Parties to arbitration agreements should rest confident in their ability to affirmatively delegate disputes to arbitration provided that the statutory framework upon which arbitration is based leaves no basis for judicial tinkering. This may provide solace for some, but for many it leaves unanswered questions along with the risks and costs associated with uncertainty.

If you have questions or would like more information, please contact Ted Peters at [email protected].

Arbitration Agreements in New Jersey Need More Details

Posted on: November 16th, 2018

By: Chris Curci

On November 13, 2018, the Superior Court of New Jersey, Appellate Division, issued an important decision holding that an arbitration agreement between the employer and employee was not enforceable. Flanzman v. Jenny Craig, Inc., Docket No. L-6238-17.  The arbitration agreement read:

Any and all claims or controversies arising out of or relating to [plaintiff’s] employment, the termination thereof, or otherwise arising between [plaintiff] and [defendant] shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration. This agreement to arbitrate includes all claims whether arising in tort or contract and whether arising under statute or common law including, but not limited to, any claim of breach of contract, discrimination or harassment of any kind.

According to the Appellate Division, this agreement was unenforceable because it “failed to identify the general process for selecting an arbitration mechanism.” What exactly does that mean?

In its effort to clarify this standard, the Appellate Division stated that an employer is not required to “detail in the arbitration agreement the exact manner in which the arbitration” will proceed. However, an employer must identify the “forum” for the arbitration and clearly explain how the employee’s judicial rights to a jury trial are being replaced by the arbitration rights.

For example, the Court noted that it would be sufficient for an employer to (1) identify a forum such as the American Arbitration Association (“AAA”) or the Judicial Arbitration and Mediation Services (“JAMS”), and (2) adopt that forum’s rules and procedures. The Court opined that this would be sufficient because AAA and JAMS’s rules and procedures address numerous procedural issues, such as: (1) notification requirements, (2) how to initiate proceedings, (3) management conferences, (4) discovery, (5) the location of the hearings, (6) the number of arbitrators, (7) how to communicate with the arbitrator, (8) attendance requirements, (9) dispositive motions, (10) evidence, (11) modification of awards, (12) and applications for fees, expenses and costs.

In other words, while the arbitration agreement is not required to “detail the exact manner in which the arbitration will proceed,” an employer must specifically identify a forum such as AAA or JAMS and incorporate that forum’s rules and procedures. This allows the employee to fully understand how his or her judicial rights to a jury trial are being replaced by arbitration.

Employers should review their employee arbitration agreements to ensure their enforceability. If you need help with this or any other employment related question, Chris Curci practices Labor & Employment law in Pennsylvania and New Jersey and is a member of Freeman Mathis & Gary’s Labor and Employment Law National Practice Section. He represents employers in litigation and advises clients on all aspects of employment law. He can be reached at [email protected].

Employment Arbitration Agreements are Still Alive in California, At Least For Now

Posted on: October 4th, 2018

By: Rebecca Smith

As Freeman Mathis & Gary brought out in its August 24, 2018 Blog by attorney Dave Daniels, the California Senate had voted to approve Assembly Bill 3080 (“AB 3080”) intended to combat the use of mandatory arbitration agreements and confidentiality clauses to prevent the public disclosure of workplace sexual harassment.  September 30, 2018 was the last day for Governor Brown to sign or veto legislation passed by the California Legislature this year.  Included in the last day of vetoes, Governor Brown vetoed AB 3080.

AB 3080 sought to amend the California Fair Employment and Housing Act and the California Labor Code making it an unlawful employment practice to require an applicant, employee or independent contractor to agree to arbitrate claims arising under the Fair Employment and Housing Act and Labor Code.  AB 3080 would also have added Section 432.4 to the Labor Code, which would have barred any person from prohibiting an applicant, employee, or independent contractor, “as a condition of employment, continued employment, the receipt of any employment-related benefit, or as a condition of entering into a contractual agreement,” from “disclosing to any person an instance of sexual harassment that the employee or independent contractor suffers, witnesses, or discovers in the workplace or in the performance of the contract.”

In returning the bill unsigned, Governor Brown pointed to several recent court decisions that invalidated state policies which unduly impede arbitration.  “The direction from the Supreme Court,” Governor Brown indicated “has been clear – States must follow the Federal Arbitration Act and the Supreme Court’s interpretation of the Act.”  “Since this bill plainly violates federal law,” Governor Brown indicated in this statement, “I cannot sign this measure.”

So, at least for the time being, California Employers are still able to use arbitration agreements as long as they are drafted with care.  Employers should review all arbitration agreements and practices to ensure that the agreements they are using will withstand challenge, or to update their agreement to comply with recent authorities addressing arbitration agreements.  Additionally, this will, in all likelihood not be the last challenge which will be made to arbitrations in the employment context in California as bills similar to AB3080 have previously been introduced and undoubtedly will be introduced again in the future.

If you have any questions or would like more information please contact Rebecca Smith at [email protected].

California Attacks Arbitration Agreements …. Yet Again!

Posted on: August 24th, 2018

By: Dave Daniels

On August 22, 2018, the California Senate voted to approve AB 3080, a bill prompted by the #MeToo movement against sexual harassment. Nominally, the bill is intended to combat the use of mandatory arbitration agreements and confidentiality clauses to prevent the public disclosure of workplace sexual harassment, a practice vigorously opposed by the #MeToo movement. As written, however, AB 3080 goes much further, imposing a ban on mandatory arbitration agreements for all claims of employment discrimination, retaliation, and harassment, as well as wage and hour claims.

The bill is currently on Governor Jerry Brown’s desk, awaiting his signature or veto. If signed, the new law would apply to any employment contracts “entered into, modified, or extended” on or after January 1, 2019, and would make several sweeping changes to the California employment law landscape:

Ban on Mandatory Arbitration Agreements

Arbitration agreements are ubiquitous in employment contracts and provide for a low-cost, efficient means of resolving employment disputes.

AB 3080 would put a stop to this by adding Section 432.6 to the Labor Code, which would prohibit any person from requiring an applicant or employee, “as a condition of employment, continued employment, the receipt of any employment-related benefit, or as a condition of entering into a contractual agreement,” “to waive any right, forum, or procedure” for claimed violations of the California Fair Employment and Housing Act (“FEHA”) or the California Labor Code.

In other words, if AB 3080 is signed, it will be unlawful—indeed a misdemeanor—for an employer to require its employees to enter into mandatory arbitration agreements for any claims covered by FEHA (i.e., discrimination, retaliation, harassment) or the Labor Code (i.e., wage and hour claims).

While the bill only applies to mandatory arbitration agreements, Section 432.6(c) makes clear that employers will not be able to sidestep the new prohibitions by using opt-out clauses or otherwise requiring an employee to “take any affirmative action to preserve their rights.”  Moreover, Section 432.6(b) prohibits employers from threatening, terminating, retaliating against, or discriminating against any employee or applicant who refuses to voluntarily sign an arbitration agreement.

Finally, because these new provisions appear in the Labor Code, violations could subject employers to civil penalties under the California Labor Code Private Attorneys General Act, also known as PAGA.

Elimination of Settlement Agreements

Because AB 3080 prohibits any person from requiring an applicant or employee “to waive any right, forum or procedure” “as a condition of entering into a contractual agreement,” it arguably also eliminates or curtails employers’ ability to enter into settlement and general release agreements with their employees for FEHA and Labor Code claims.  Given that the vast majority of these types of claims are settled, the full extent of AB 3080’s impact remains uncertain.

Ban on Confidentiality Agreements for Sexual Harassment

AB 3080 would also add Section 432.4 to the Labor Code, which would bar any person from prohibiting an applicant, employee, or independent contractor, “as a condition of employment, continued employment, the receipt of any employment-related benefit, or as a condition of entering into a contractual agreement,” from “disclosing to any person an instance of sexual harassment that the employee or independent contractor suffers, witnesses, or discovers in the workplace or in the performance of the contract.”

In short, employers will no longer be able to impose confidentiality obligations on their employees or independent contractors with respect to claims of sexual harassment.

Individual Liability

Importantly, AB 3080 applies to any “person” who commits any of the above-noted violations, not just an employer.  An earlier version of the bill was restricted to “an employer,” but was subsequently amended to replace “an employer” with “a person,” signaling the Legislature’s intent to impose individual liability for violations.

What Employers Should Know Now

For the moment, as it awaits Governor Brown’s signature, AB 3080 is still not the law.  In 2015, Governor Brown vetoed a similar bill, AB 465, which would have outlawed the use of mandatory arbitration agreements as a condition of employment.  In his veto message, Governor Brown noted that there is significant debate about whether arbitration is less fair to employees, and explained that he was “not prepared to take the far-reaching step proposed by this bill.”  Remember, however, that Governor Brown’s term ends in January 2019, and a re-introduced version of the bill could find a more sympathetic audience in his successor.

Even if Governor Brown signs the bill, there will be immediate legal challenges arguing that the bill is unenforceable under the Federal Arbitration Act, which the United States Supreme Court has steadfastly enforced, most recently in Epic Systems Corp. v. Lewis. AB 3080 is just the latest in a long history of California’s antagonism towards arbitration agreements, both in the employment context and beyond.

Notwithstanding the hurdles that AB 3080 faces, employers should now begin reviewing their arbitration agreements and practices in light of these potential changes.  In particular, employers will want to think about best approaches to take during the period after the bill is signed and legal challenges work their way through the courts.

If you have any questions regarding the state of arbitration agreements in the Golden State, please feel free to contact Dave Daniels in our Sacramento office at 916-472-3301 or [email protected].

Arbitration Agreement Litigation Wins Continue to Fall Like Dominoes for Pizza Hut

Posted on: June 26th, 2018

By: Tim Holdsworth

Following the Supreme Court’s opinion in Epic Systems that class and collective actions waivers in arbitration agreements are enforceable, a federal court recently granted a motion to compel arbitration to one of the nation’s largest Pizza Hut franchisees in a lawsuit in Illinois.

In Collins et al. v. NPC International Inc., case number 3:17-cv-00312, in the U.S. District Court for the Southern District of Illinois, drivers from Illinois, Florida, and Missouri filed a collective action under the Fair Labor Standards Act asserting that their employer had failed to reimburse them for vehicle expenses. In May 2017, the judge stayed the franchisee’s motion to compel individual arbitration pending the Supreme Court’s ruling in Epic Systems. The franchisee renewed that motion after the Supreme Court’s ruling, and the judge granted it.

The drivers will now have to bring their claims individually against the franchisee in arbitration, likely saving the franchisee expenses and time.

Epic Systems gave credence to arbitration agreements containing class and collective action waivers, and employers using them continue to reap the benefits. If you have any questions about the issues above or want to learn more about implementing arbitration agreements, please contact me at [email protected], or any of Freeman, Mathis & Gary’s experienced labor and employment law attorneys.