U.S. Supreme Court’s Epic Decision Validates Class Action Waivers

On May 21 the U.S. Supreme Court resolved the question whether the National Labor Relations Act prevents an employer from enforcing an employee’s contractual waiver of the right to sue the employer on a class or collective basis. In a 5-4 decision, the Court held that arbitration agreements requiring the processing of claims one-by-one and prohibiting class actions must be enforced, and neither the Federal Arbitration Act’s saving clause nor the National Labor Relations Act “permits this Court to declare the parties’ agreements unlawful.”  Epic Systems Corp. v. Lewis; Ernst & Young v. Morris; NLRB v. Murphy Oil USA, Inc.

In each of these three cases, the employee signed a contract mandating the resolution of workplace disputes through arbitration on an individualized basis, and later brought collective action claims under the Fair Labor Standards Act for unpaid wages.  In seeking to void their class action waivers, the employees relied on the NLRB’s 2012 decision in D. R. Horton, Inc. and also argued that the FAA’s savings clause allowed the Court to deny enforcement of the arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”

In the D. R. Horton case, the NLRB ruled that the NLRA effectively nullified the FAA in cases where an employer seeks to compel arbitration of employee claims on an individual basis only, by expanding the definition of “concerted activity” to include the right to bring a class or collective action. The NLRB ruled that an agreement not to bring a class or collective action is unenforceable as violative of the NLRA, even though waivers of other NLRA rights are enforceable.

The Court majority rejected the NLRB’s holding and held that the NLRA focuses on the rights to organize unions and bargain collectively. The Court commented that it “has never read a right to class actions into the NLRA – and for three quarters of a century neither did the [NLRB].” Justice Gorsuch, writing for the majority, reasoned that it is “pretty unlikely” that the NLRA was intended to protect the right to bring class or collective actions, especially since the NLRA makes no mention of them, and as recently as 2010 the NLRB’s General Counsel opined that the NLRA does not protect these rights.

The Court also relied on the FAA’s policy favoring arbitration agreements and legal precedent acknowledging the “unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.” To hold all such provisions unenforceable, the Court stated, would cause arbitration to “wind up looking like the litigation it was meant to displace.”

This sweeping decision will likely eliminate some of the reservations and indecision that the employer community has had regarding including in their new employee orientation paperwork agreements requiring arbitration of employment-related claims on an individual basis only.

For more information regarding the value that mandatory arbitration agreements and class action waivers may add to your organization and how to design and roll out arbitration procedures that will survive legal challenge, please contact one of the Partners in the firm’s Labor Law Practice Group: James J. McGovern III, Esq., at jmcgovern@nullgenovaburns.com, Patrick W. McGovern, Esq., at pmcgovern@nullgenovaburns.com, Douglas E. Solomon, Esq. at dsolomon@nullgenovaburns.com, or John R. Vreeland, Esq., at jvreeland@nullgenovaburns.com  — or call us at 973.533.0777.

U.S. Supreme Court alert: American Express Co. v. Italian Colors Restaurant

Prior to its summer recess, the U.S. Supreme Court issued another decision concerning class arbitration which has implications for unionized and non-unionized employers with agreements to arbitrate workplace disputes.

In American Express Co. v. Italian Colors Restaurant, the Supreme Court held that the Federal Arbitration Act (FAA) does not permit courts to invalidate a contractual waiver of class arbitration simply because the plaintiffs’ cost of individually arbitrating their claims against the company exceeds their potential recovery. The Supreme Court reaffirmed its opinions in Stolt-Neilsen S.A. v. AnimalFeeds Inter. Corp., which held a company may not be compelled to submit to class arbitration without a contractual basis for doing so, and AT&T Mobility LLC v. Concepcion, which held the FAA preempts state laws that prohibit contracts from disallowing class arbitration.  

The plaintiffs in American Express were merchants who accepted American Express credit cards at their stores and restaurants. Their agreement with American Express contained a clause that required all disputes to be resolved through binding arbitration, and provided that “[t]here shall be no right or authority for any claims to be arbitrated on a class action basis.”

The merchants brought a class action suit against American Express alleging violations of various antitrust laws. American Express moved to compel individual arbitration pursuant to the clauses in its agreements with the merchants. The merchants certified to the trial court that the amount necessary to prove the antitrust claims could exceed one million dollars, whereas the maximum potential recovery for an individual was only $38,549. The trial court was not persuaded, and dismissed the merchants’ lawsuit pursuant to the class waiver provision. However, the Second Circuit Court of Appeals reversed, holding that because the merchants had shown they would incur “prohibitive costs if compelled to arbitrate under the class action waiver,” the waiver was unenforceable and class arbitration could proceed.

American Express appealed to the Supreme Court. The merchants argued there was a judge-made exception to the FAA, which allows courts to invalidate agreements that prevent the “effective vindication” of a federal statutory right — here, the fact that the cost of litigating the antitrust claims individually would be more than any recovery prevented the vindication of their rights. The Court rejected this argument, stating “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” In other words, the cost did not prevent the merchants from pursuing their antitrust claims, it simply made litigating the matter not worth their while financially. The Supreme Court ultimately held that arbitration agreements providing for a waiver of class arbitration may be enforced regardless of whether it is too expensive for plaintiffs to pursue their claims individually given the potential maximum recovery.

In light of recent Supreme Court decisions upholding class arbitration waiver provisions, employers should consider incorporating class waivers in employment agreements. However, particularly in light of the specificity required by courts and unresolved case law concerning class waivers on appeal from the National Labor Relations Board, employers should always confer with counsel when incorporating class waiver dispute resolution language in employment agreements to understand the risks and benefits of these provisions.

For more information on the implications of the American Express decision and preparing and implementing lawful class waiver provisions, please contact James J. McGovern, III, Esq., jmcgovern@nullgenovaburns.com, or Douglas J. Klein, Esq., dklein@nullgenovaburns.com, in the Labor Law Practice Group.

EASTERN DISTRICT COURT OF NEW YORK ENFORCES ARBITRATION AGREEMENT’S FLSA COLLECTIVE ACTION WAIVER

In the wake of the Eighth Circuit’s recent decision in Owens v. Bristol Care, Inc., the Eastern District Court of New York has joined the growing list of federal courts that have found FLSA collective action waivers contained in arbitration agreements enforceable.  In Torres v. United Healthcare Serv., 12 CV 923 (DRH) (ARL), 2013 U.S. Dist. LEXIS 14200 (E.D.N.Y. Feb. 1, 2013), the plaintiffs brought a collective action against the company claiming unpaid overtime. United Healthcare maintained an “Employment Arbitration Policy,” which required any dispute covered by the Policy to “be arbitrated on an individual basis” and provided that an individual employee could not “seek to bring his/her dispute on behalf of other employees as a class or collective action.”  Because each plaintiff had received a copy of the Policy upon hire and had electronically acknowledged that he or she read and agreed to the Policy’s terms, United Healthcare sought to compel arbitration.

The district court enforced United Healthcare’s Employment Arbitration Policy, holding that nothing in the language of the FLSA or its legislative history prevented an employee from waiving the right to pursue a collective action. The court found unavailing plaintiffs’ blanket assertion that the waiver would effectively prevent potential plaintiffs with small claims from bringing an FLSA claim due to the cost of individual arbitration. However, citing decisions of the Supreme Court and Second Circuit, the court recognized that such an agreement could be invalidated if the plaintiffs were able to offer sufficient evidence to establish that the cost of arbitration “would be prohibitively expensive.” Additionally, consistent with the Eighth Circuit’s position in Owens, the court declined to adopt the NLRB’s 2012 D.R. Horton decision, 2012 NLRB LEXIS 11, in which the NLRB found that collective action waivers violate employees’ right to engage in concerted activity guaranteed by Section 7 of the NLRA.  The court quoted Owens when it determined that the waiver at issue did not violate Section 7 because it did not prevent an employee from filing a complaint with the Department of Labor or other administrative agency, nor did it prevent such an agency “from investigating [or] . . . filing suit on behalf of a class of employees.”

While the United Healthcare decision is favorable for New York employers, the issue of the enforceability of FLSA class and collective action waivers is not yet settled. While the trend in federal courts is to find such waivers enforceable, the NLRB continues to use its holding in D.R. Horton to strike them down, and the Second Circuit and the United States Supreme Court have yet to address such a specific policy.  Accordingly, we advise all employers to confer with counsel over the risks and benefits of maintaining an FLSA class and collective action waiver policy and to ensure compliance with the specific holdings of these recent decisions.

For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Groupjvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.