SCOTUS: The regular rules apply to waiver of arbitration

Yesterday, a unanimous Supreme Court issued an opinion in Morgan v. Sundance, Inc. The plaintiff filed a Fair Labor Standards Act (FLSA), nationwide, collective action, wage and hour claim against her employer, a Taco Bell franchise, in federal court. But, wait! She signed an arbitration agreement as part of her the employment application process.

Justice Kagan authored
the opinion.

Ordinarily, under the Federal Arbitration Act (FAA), the employer could get the suit tossed from federal court and sent to arbitration. Here, the employer first litigated the case for a bit. It filed a motion to dismiss, answered the complaint (without raising arbitration as an affirmative defense), mediated, discussed settlement . . . and only then, after eight months of litigation, did the employer move to stay the litigation and compel arbitration. 

The Eighth Circuit analyzed whether the employer had waived its right to arbitration by looking at two factors:

• Did the party know of the right and act inconsistently with that right?; and
• Was the other party prejudiced by the inconsistent actions?

The first factor is just standard federal waiver analysis for issues other than arbitration. But the second factor was an extra proverbial thumb on the scale that the court only applied to waiver of arbitration. The Eighth Circuit justified this extra factor base on the FAA's "policy favoring arbitration."

Well, SCOTUS disagrees. "the FAA’s 'policy favoring arbitration' does not authorize federal courts to invent special, arbitration-preferring procedural rules." Courts must instead strip away the arbitration-only prejudice requirement and instead focus on the conduct of the party that has potentially waived its right to arbitration. In other words - apply the regular waiver rules, not arbitration-specific rules. 

Judge Barrett and the case of the arbitrating Grubhub driver

 Back with another employment law(ish) opinion from Judge Barrett: Wallace v. Grubhub Holdings, Inc. A group of Grubhub drivers filed claims against the company, including FLSA overtime claims. Grubhub sought to enforce arbitration agreements under the Federal Arbitration Act. 

The FAA, however, is not universal. It does not apply to three categories of workers: 1. "seamen;" 2. "railroad employees;" and, at issue here, 3. "any other class of workers engaged in foreign or interstate commerce." Judge Barrett held that the Grubhub drivers did not fall under that third exemption. 

Although the drivers delivered goods that had traveled across state lines, they themselves did not engage in interstate commerce. Per Judge Barrett:

To show that they fall within this exception, the plaintiffs had to demonstrate that the interstate movement of goods is a central part of the job description of the class of workers to which they belong.

Thus, the drivers were bound by the FAA and their arbitration agreements.  

Third Circuit on the Federal Arbitration Act and Uber drivers

Do you love the arcane scope language of the Federal Arbitration Act (FAA)? Do you also love the convoluted mess of employee-independent contractor classification analysis? Who doesn't!? The Third Circuit just issued a precedential opinion in Singh v. Uber Technologies, Inc.

The plaintiff brought this putative class action on behalf of himself and other similarly situated Uber drivers in New Jersey. He claimed that Uber misclassified them as independent contractors, and that Uber owes them money for overtime and business expenses that they would be entitled to if they had been properly classified as employees. Classification of Uber drivers (and "gig" workers generally) is a hot topic these days.

But wait . . . before we get to that hot topic . . . the plaintiff driver had an arbitration agreement. So, Uber moved to compel arbitration. But double wait . . . the FAA excludes transportation workers that are engaged in interstate commerce. So, can Uber compel arbitration or not?

Standard of Review

Not official use. 

The first interesting issue in this case is the standard of review on a motion to compel arbitration. The Supreme Court recently held in New Prime Inc. v. Oliveira that the Court decides whether the FAA exemption applies (also relevant to this case, SCOTUS held that the exemption applies to both employees and independent contractors). But what standard of review applies? The Court has some options, including the motion to dismiss
standard (a low bar) and the summary judgment standard (a relatively high bar). Orrr, how about a hybrid?

[T]he motion to dismiss standard applies if the complaint and incorporated documents provide a sufficient factual basis for deciding the issue. But where those documents do not, or the plaintiff responds to the motion with additional facts that place the issue in dispute, the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing with an application of the summary judgment standard to follow.

(internal citations and quotations omitted).

Does the FAA exemption apply to Uber drivers? 

Here, the Third Circuit identified two issues regarding the coverage of the FAA:

(1) if § 1 [the exemption] only applies to transportation workers who transport goods, or also those who transport passengers, and  

(2) whether Singh belongs to a class of workers that are engaged in interstate commerce.

Cutting to the chase - the Third Circuit held that the FAA exemption applies to transportation workers regardless of whether they are transporting goods or people. Therefore, it would apply to Uber drivers "engaged in interstate commerce."

The Court's analysis stops there. The Court remanded the case back to the district court to allow the parties to engage in discovery to explore the issue of whether the driver was engaged in interstate commerce. 

Supreme Court limits arbitration in interstate trucker case

Yesterday, the Supreme Court issued an opinion limiting the scope of the Federal Arbitration Act (FAA) in New Prime Inc. v. Oliveira. Yes, you read that right - limiting. The Supreme Court actually ruled against arbitration. Is this it? The end times? Apocalypse? Only time will tell . . . .

The FAA generally requires courts to compel arbitration where the parties agreed to arbitrate their dispute. There are, however, exceptions. One of which is "contracts of employment of . . . workers engaged in . . . interstate commerce." Important sidenote: the Supreme Court had previously limited this exception to only include transportation workers. Welp, New Prime involved a driver, working for an interstate trucking company.

The Court was faced with two questions. First, if the parties agreed to delegate the arbitrability question to an arbitrator, then who decides whether the arbitration agreement falls under the FAA exception (arbitrator or court)? Justice Gorsuch, for a unanimous court (except Kavanaugh who did not participate) held that the court and not the arbitrator decides that issue. Why? Because the delegation of the arbitrability question is itself an arbitration agreement - and therefore, the court must first resolve whether the FAA covers the agreement (or instead falls under an exception) before compelling arbitration.

Second question: the company and the driver had a contract designating him an "independent contractor." So, does the contract count as a "contract of employment"? Modern lawyers will probably have a gut reaction of "heck no - we have a very clear distinction between 'employee' and 'independent contractor' under the law!"

Not so fast! The FAA was adopted in 1925, and we're dealing with a (mostly?) originalist Supreme Court! So, the question is not "What does 'contract of employment' mean now" - but, rather, "What did 'contract of employment' mean in 1925?" The answer is that 'contract of employment' was understood as a very broad phrase. Per Justice Gorsuch's opinion, "dictionaries tended to treat 'employment' more or less as a synonym for 'work.'" Court opinions and statutory text at the time also support this broad interpretation. The Court concluded that "contract of employment" therefore includes independent contractors as well as employees.

So, contracts of employees and independent contracts with interstate transportation companies are  excluded from the FAA's compulsory arbitration provisions. And, the court (not the arbitrator) determines whether the exclusion applies.

SCOTUS on the "wholly groundless" exception to the arbitrability question

Yesterday, Justice Kavanaugh issued his first Supreme Court opinion in Henry Schein, Inc. v. Archer & White Sales, Inc. The opinion was a relatively mundane and unanimous arbitration ruling. Of course, arbitration (just about) always wins at the Supreme Court. Frankly, I can't think of a single exception, but I'm adding the "just about" parenthetical just in case.

Justice Kavanaugh

Under the Federal Arbitration Act (FAA), parties can contract to resolve certain disputes via arbitration instead of court litigation. Sometimes, when a dispute arises, they disagree on the threshold question of whether the arbitration agreement covers their specific dispute. The arbitration agreement may specify that the arbitrability question itself is something that must be decided by an arbitrator.

Yesterday, the Supreme Court held:

When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.

Some courts had applied an exception to this general rule where the arbitrability claim was "wholly groundless." Yesterday, the Supreme Court rejected the "wholly groundless" exception - the arbitrability question goes to the arbitrator whether the court thinks the request to arbitrate is "wholly groundless" or not. 

Judge offers insight on (and criticism of) employment arbitration

If you're interested in employment arbitration agreements, then this is the opinion for you! In Styczynski v. MarketSource Inc., Judge McHugh (E.D. Pa.) provided a great overview of the law regarding unconscionability (both procedural and substantive) for employment arbitration agreements.

I found the analysis very interesting and helpful. What's getting all of the attention, however, is a concluding section in which Judge McHugh summarizes substantial criticism of employment arbitration agreements. Some of the main points:

• Roughly 20% of non-union employees have arbitration agreements (often imposed as contracts of adhesion);
• Employees win less often (compared to court litigation);
• Employees win less money when they do win;
• The forum deters many employees from even pursuing claims (with some data suggesting that arbitration is a greater deterrent than litigation).

His argument relied heavily on research following the Supreme Court's decision in 2001 in Circuit City (holding that the Federal Arbitration Act (FAA) covers employment contracts). Ultimately, of course, it's up to the Supreme Court to reverse the precedent holding that the FAA makes employment arbitration agreements enforceable (or for Congress to amend the FAA itself). 

Quoted in HR Dive on Arbitration (Plus Additional Commentary)

Important information from the Lawffice Space Department of Important Information: HR Dive quoted me extensively in Lisa Burden's article, Employers Shouldn't Rush to Adopt Arbitration Agreements in Light of 'Epic,' Experts Say. It's a good article with some nice insight from others as well.The article relates to the Supreme Court's recent ruling in Epic Systems (see, Supreme Court Okays Class Action Waivers in Arbitration Agreements). 

For those of you  who just can't get enough, here are my full comments:

On when employers should use arbitration

Not everyone likes arbitration. I happen to like it. Generally (though not always), arbitration will be faster and cheaper. Employers can also agree to confidentiality, and select a convenient geographic location. The big development in this case is that arbitration agreements can also mandate one-on-one arbitration, effectively precluding class or collective actions. Class actions, like state wage and hour laws for example, are generally “opt out” – meaning that employers can be on the hook for people who have never (and otherwise never would have) filed a claim. Even FLSA collective actions (which are “opt in”) may draw in employees who would not ordinarily file their own claims, but would opt in to a collective action. One-on-one arbitration agreements are a way to prevent any liability for those employees.

There are some downsides to arbitration. For example, there are very limited appeal options (great if you win, not-so-great if you lose). Also, employers may face serial claims that would be better handled in one consolidated class or collective case. Every time I say arbitration is faster and cheaper, somebody tells me I’m crazy – sometimes it is, sometimes it isn’t (I still think *on average* it’s faster and cheaper). You face the prospect of fractured rulings – you may win one case, but then lose the next one even though the facts (other than the identity of the employee) are exactly the same.

Others have pointed out that employers may face backlash from forcing employees into secret one-on-one arbitrations. For example, the #MeToo movement has been very critical of serial harassers essentially evading detection because their cases were repeatedly resolved in confidential proceedings, or with confidential settlement agreements.

Employers have many options though. They can require one-on-one arbitration, or allow collective actions. They can use jury trial waivers to avoid jury trials, but still litigate in court. Ultimately, employers should consult with their attorneys regarding their options. In my humble opinion, employers will generally be better off with arbitration agreements – especially if they can avoid class or collective actions.

On whether the Epic Systems ruling extends beyond the NLRA

Yes. The parties challenging the arbitration agreements focused on the NLRA (in Epic Systems). Their theory of the case was that the NLRA protects employees’ rights to engage in “concerted activities,” which they argued includes the right to bring class and collective actions – including class and collective actions under other statutes. In fact, Epic Systems itself was originally filed as an FLSA claim for unpaid overtime. Epic Systems sought to compel arbitration, but the District Court held that the waiver of class and collective actions in the arbitration agreements was unenforceable because it violated the NLRA right of employees to engage in concerted activities. In fact, Epic Systems is actually three cases consolidated by the Supreme Court. All three cases arose from FLSA wage and hour (overtime) collective actions (although NLRB v. Murphy Oil was separately filed as an unfair labor practice charge with the NLRB). Also, at least one of the cases (Ernst & Young LLP v. Morris) included a class action claim for overtime under California state law.

So, yes, this ruling is broad and will impact other labor and employment law cases outside of the NLRA. The heart of the holding is that employers and employees can enter into arbitration agreements that require individual (i.e. one-on-one) arbitration to resolve employment disputes. If an employee who signed such an agreement files a class or collective action claim in court, the employer can compel one-on-one arbitration instead. This result is driven by the FAA (Federal Arbitration Act), and is not specific to any one labor and employment law.

On whether Congress will do anything about it

This decision came with a fair amount of controversy. However, most of the criticism came from the “left” side of the political spectrum; and the four dissenting Supreme Court Justices were the traditional “liberal bloc.” In her dissent, Justice Ginsburg expressly calls for “Congressional correction.” However, realistically, the ideological opponents of this decision are simply not in power. Democrats hold only a minority of the House and Senate; and, of course, President Trump is a Republican. In this case, the Office of the Solicitor General actually switched positions after the changeover from President Obama to President Trump, and ultimately supported the employer side. Presumably, that is an indication of President Trump’s view of the case. In short, I doubt we’ll see legislative action any time soon.

New Whitepaper: Supreme Court Okays Class Action Waivers in Arbitration Agreements

Yesterday, the Supreme Court issued an important decision regarding arbitration agreements (specifically, agreements requiring one-on-one arbitration as opposed to class or collective actions). Read all about it in my new whitepaper: Supreme Court Okays Class Action Waivers in Arbitration Agreements.

SCOTUS to take on yet another arbitration case

The Federal Arbitration Act (FAA) generally allows parties to enter into binding contracts to arbitrate disputes that may arise later. However, under Section 1, 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.” 9 U.S.C. § 1.

Last week, SCOTUS granted certiorari (agreed to hear) New Prime Inc. v. Oliveira. The case presents two interesting FAA issues:

1. If the parties agree to arbitrate any disputes (including the arbitrability of the dispute), then who decides whether the exemptions in Section 1 apply? A court? Or an arbitrator?

2. Does Section 1's exemption for certain "contracts of employment" apply to independent contractors?

We should get answers next term. The case involves an independent contractor truck driver and could have important implications for arbitration agreements in the transportation industry.

Lawffice Links - FAA v. NLRA

The Supreme Court is back! On Monday they heard oral arguments in Epic Systems Corp. v. Lewis, or as I call it, FAA v. NLRA. The issue is:

Whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.

Here are some fresh-baked Lawffice Links on the topic:

• Oral argument transcript.
• Audio available here starting on Friday. 
• Analysis on Law.com: On SCOTUS Opening Day, 'Yellow-Dog Contracts,' Getting a Word In and More.
• SCOTUSblog argument analysis:  An epic day for employers in arbitration case?
• As always, check out the whole SCOTUSblog case page for more. 

My prediction: Closely divided court, with a slight edge for the FAA. 

Unconscionable Employment Arbitration Agreements

Well, we only have two weeks left in the semester in my employment law class at Penn State. Frankly, I'm disappointed in myself for not blogging more about the interesting cases and issues we're covering in class. I'm covering arbitration today, including a fairly recent Third Circuit opinion on the enforcement of employment arbitration agreements.

2-Step Analysis

In Nino v. The Jewelry Exchange, 609 F.3d 191 (3d Cir. 2010), the Court held that an employment arbitration agreement was unconscionable and therefore unenforceable. Analyzing unconscionability requires a two-step analysis:

1. The procedural component; and
2. The substantive component.

The Procedural  Component

"We have consistently found that adhesion contracts-that is, contracts prepared by the party with greater bargaining power and presented to the other party 'for signature on a take-it-or-leave-it basis'-satisfy the procedural element of the unconscionability analysis." This is a pretty low hurdle, and likely covers many employment arbitration agreements. Unless the employee is a professional negotiating a full contract, I suspect most employment arbitration agreements meet this standard.

The Substantive Component

"[A] party challenging a contract on unconscionability grounds must also show that the contract is substantively unconscionable by demonstrating that the contract contains 'terms unreasonably favorable to the stronger party.'"

The Court found several of the clauses in the arbitration agreement at issue in Nino objectionable:

• The agreement required employees to file grievances within 5 days - the Court noted that even 30 days was too short (meanwhile the employer had no notice requirements for any of its claims). 
• Another clause required the parties to bear their own attorney's fees, costs and expenses. This clause conflicted with Title VII's fee-shifting structure, and burdened the employee's ability to seek legal representation in a discrimination dispute.
• The agreement also had a lopsided system for selecting the arbitrator. The parties would request a panel of 4 arbitrators from the AAA, and then take turns striking one until one was left - starting with the employer. The obvious effect being that the employer strikes two and the employee only strikes one.

Severability

Finally, the Court analyzed whether the substantively unconscionable provisions could be severed from the agreement such that the Court could compel arbitration minus the bad parts. The analysis involves two "separate and independent" bases for declining to enforce the agreement as a whole:

The first of these is whether the unconscionable aspects “of the employment arbitration agreement constitute [ ] ‘an essential part of the agreed exchange’ of promises” between the parties. If the unconscionable aspects of the clause do not comprise an essential aspect of the arbitration agreement as a whole, then the unconscionable provisions may be severed and the remainder of the arbitration agreement enforced . . . . 

The second consideration for the question of severability . . . is whether the unconscionability of the arbitration clause demonstrates “a systematic effort to impose arbitration on an employee, not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.”

(internal citations omitted). The Court concluded that the agreement was so "pervasively one-sided" that it could not sever the unconscionable provisions, and therefore the entire agreement was effectively unenforceable.

NFL Cheerleaders Face Arbitration Motion

Last week, I blogged about the Buffalo Bills' cheerleaders filing a wage and hour claim, noting that the Oakland Raiderettes had filed a similar lawsuit earlier in the year. Now, the Raiderette lawsuit faces a significant hurdle: arbitration.

The Oakland Raiders recently filed a Motion to Compel Arbitration (available here). The Raiders claim that the cheerleaders signed an employment agreement that requires arbitrating "all disputes" through the NFL. To make matters even worse for the cheerleaders, the Raiders claim the Federal Arbitration Act (FAA) requires the cheerleaders to arbitrate their disputes individually.

Unfortunately, for employment law bloggers, arbitration could take some of these disputes out of the public eye. We'll have to wait and see whether the Courts actually compel arbitration under the circumstances.

SCOTUS: Arbitration Clause Prevails Over Class Actions (Shocker) - COTW #148

Well, the Supreme Court was extremely disappointing yesterday . . . they didn't decide a single case on my watch list. Since next week will likely be the last week of the term, things should get crazy around here with a number of important decisions.

The Supreme Court did, however, issue an opinion with employment law implications: American Express v. Italian Colors (opinion here). The case involved the enforceability of an arbitration clause, which is pretty much all you need to know to guess how this case turned out. SCOTUS LOVES ARBITRATION (at least a majority does).

So, what was the actual holding? I like the way Mike Gottlieb describes it on SCOTUSblog:

[A]n arbitration agreement that precludes arbitration brought by a class of plaintiffs is enforceable under the Federal Arbitration Act (FAA) even if the proposed class of plaintiffs proves that it would be economically infeasible for individuals to pursue arbitration on their own.

The case involved a credit card company against a potential class of merchants . . . so, what does this have to do with employment law?

Well, just maybe, employers want to include clauses in employment contracts that prohibit their employees from combining to file class action lawsuits . . . or say, FLSA collective actions. Thomas Kaufman has a nice rundown of arbitration decisions, noting:

[A]ny argument that FLSA collective actions are immune from class/collective action waivers because the FLSA (like the ADEA in Gilmer) itself provides for collective actions is also dead.

Michael Fox also has some "jottings" on the employment law implications of this case.

Bottom line: Class action waivers in arbitration clauses are starting to look pretty darned good . . . and enforceable.

BREAKING: SCOTUS Defers to Arbitrator on Class Arbitration

A few minutes ago, the Supreme Court released its opinion in Oxford Health Plans, LLC v. Sutter (opinion here). I think there was some hope/fear/expectation that SCOTUS would issue a groundbreaking opinion about when contracts provide for class arbitration.

Instead, the Court essentially just said (paraphrasing): "meh, whatever the arbitrator says is fine." Or, in the actual words of Justice Kagan for a unanimous court:

In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration. The arbitrator did what the parties requested: He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still, Oxford does not get to rerun the matter in a court. Under §10(a)(4), the question for a judge is not whether the arbitrator construed the parties’contract correctly, but whether he construed it at all. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants.

Affirming the Third Circuit. Justice Alito (joined by Justice Thomas) filed a concurring opinion.

Surprise! SCOTUS Drops Noncompete / Arbitration Opinion

In case you didn't know it yet, the Supreme Court loves arbitration. So, what do you think happens when a state court decides a noncompete is unenforceable despite an arbitration clause dictating that all disputes be resolved by an arbitrator (aka not the state court)? If you answered "Supreme Court per curiam benchslap," then congratulations! You're the big winner!

On Monday, the Court issued its brief 5-pager in Nitro-Lift Technologies, LLC v. Howard. I think the opening paragraph pretty much sums it up:

State courts rather than federal courts are most frequently called upon to apply the Federal Arbitration Act(FAA), 9 U. S. C. §1 et seq., including the Act’s national policy favoring arbitration. It is a matter of great im­portance, therefore, that state supreme courts adhere to a correct interpretation of the legislation. Here, the Okla­homa Supreme Court failed to do so. By declaring the noncompetition agreements in two employment contracts null and void, rather than leaving that determination to the arbitrator in the first instance, the state court ignored a basic tenet of the Act’s substantive arbitration law. The decision must be vacated.

The FAA, as federal legislation, is the "supreme law of the land." State courts can't usurp the arbitrator's power even where, as here, there is a clear state statute that makes the noncompete unenforceable.

Just In: Another SCOTUS Pro-Arbitration Decision

Earlier today, the Supreme Court issued its opinion in CompuCredit Corp. v. Greenwood. This is actually a credit card case, but it has some value in employment law because it involves the Federal Arbitration Act (FAA).

The plaintiffs' credit card agreements included clauses that required their claims to be resolved by binding arbitration. They filed lawsuits under the Credit Repair Organizations Act (CROA). The district court and Ninth Circuit held that Congress intended CROA claims to be nonarbitrable - therefore allowing the lawsuits to proceed without compelling arbitration.

Even if you know nothing about the law, there are two guiding principles for predicting the outcome here:

1. The Supreme Court loves arbitration clauses; and
2. The only thing the Supreme Court loves more than arbitration clauses is reversing the Ninth Circuit (a little sarcasm there... but not a lot).

True to form, the Court held (8-1 with only Justice Ginsburg dissenting) that:

Because the CROA is silent on whether claims under the Act can proceed in an arbitrable forum, the Federal Arbitration Act (FAA) requires the arbitration agreement to be enforced according to its terms.

So, if you had aspirations of carving out nonarbitrable causes of action - the statute had better be pretty explicit. Justice Scalia cites the example of the Commodity Exchange Act which provides, "No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section." Yup, that's pretty explicit.

Posted by Philip Miles, an attorney with McQuaide Blasko in State College, Pennsylvania in the firm's civil litigation and labor and employment law practice groups.

3rd Circuit Weighs in on Concepcion - COTW #56

The latest Case of the Week, Litman v. Cellco Partnership, 2011 WL 3689015 (3d Cir. Aug. 24, 2011), arises from a dispute regarding Verizon's contracts for cell phone service. A number of customers attempted to file a class action lawsuit based on allegedly unlawful "administrative charges." There's only one problem... each customer's contract provided: "This Agreement doesn't permit class arbitrations" and required individual arbitration.

There's another twist though: such class arbitration waivers are "unconscionable and therefore unenforceable under New Jersey (state) law." But just one more twist: the Federal Arbitration Act(FAA) makes arbitration agreements generally enforceable save certain defenses. So, how does this interplay between the FAA and state law play out?

Well, if you've been following the Supreme Court, you may remember a case called AT&T v. Concepcion. It had a very similar setup. In Litzman, the Third Circuit described the holding in Concepcion as follows:

We understand the holding of Concepcion to be both broad and clear: a state law that seeks to impose class arbitration despite a contractual agreement for individualized arbitration is inconsistent with, and therefore preempted by, the FAA, irrespective of whether class arbitration "is desirable for unrelated reasons."

Therefore, the New Jersey stat law is preempted by the FAA and the class arbitration waiver must be enforced.

What the heck do these cell phone cases have to do with employment law? As I wrote previously, analyzing Concepcion as employment law:

[R]eplace cell phone contracts with employment contracts. Would the analysis be different? It's tough to say for certain, but I suspect employers will view this as a green light (or at least a flashing yellow) to tie employees in to arbitration agreements with class waivers. And it gives them a solid argument for enforcing those agreements.

I'll keep an eye out for such an application in the future.

Posted by Philip Miles, an attorney with McQuaide Blasko in State College, Pennsylvania in the firm's civil litigation and labor and employment law practice groups.

AT&T v. Concepcion as Employment Law - COTW #48

OK, if you read the headline and you're familiar with AT&T v. Concepcion (opinion here), you're probably wondering: Why is a consumer contracts case from April the Case of the Week? Good question, two answers. First, it has important employment law implications; and second, I'm planning a Supreme Court employment law year in review and didn't have anything on this important case yet (and no, my review won't be in Haiku, Eric Meyer).

Concepcion arose from cellular telephone contracts that included arbitration clauses requiring arbitration of all disputes... but did not permit classwide arbitration. And there's the rub. Under California law (called the Discovery Bank rule), class waivers in consumer agreements were unconscionable in certain circumstances and therefore unenforceable. This rule conflicts with the Federal Arbitration Act, and as we see in Concepcion, it also conflicts with the Supreme Court's current love affair with arbitration generally.

There are times when arbitration agreements are unenforceable, including upon "such grounds as exist at law or in equity for the revocation of any contract." 9 U. S. C. §2. But here, the Supreme Court held that conditioning the enforceability of arbitration agreements on the availability of classwide arbitration procedures was not one of those times. Per Justice Scalia, writing for the five-Justice majority: "Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations." And, the Discover Bank rule "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" in the FAA. Therefore the state rule was preempted.

How does this tie-in to employment law? Well, replace cell phone contracts with employment contracts. Would the analysis be different? It's tough to say for certain, but I suspect employers will view this as a green light (or at least a flashing yellow) to tie employees in to arbitration agreements with class waivers. And it gives them a solid argument for enforcing those agreements.

Posted by Philip Miles, an attorney with McQuaide Blasko in State College, Pennsylvania in the firm's civil litigation and labor and employment law practice groups.

SCOTUS Addresses Arbitrability Determination

The Supreme Court issued a somewhat complicated one today, but I will do my best to simplify its holding. The case is Rent-A-Center v. Jackson (opinion .pdf). The setup:

• Employer and employee enter into an arbitration agreement that provides that an arbitrator (not a federal district court) will decide the enforceability of the agreement.
• Dispute arises - employee alleges employment-discrimination and files a claim in federal district court.
• Employer files a motion to compel arbitration under the agreement.
• Employee says the agreement is "clearly unenforceable in that it is unconscionable."

And so arises the question: Who decides the employee's argument? Is the issue of unenforceability due to unconscionability properly before the district court? Or is that for the arbitrator?

Without boring you with the gory Federal Arbitration Act (FAA) details, let's cut to the holding. It's a two-parter with a subtle distinction:

If a party challenges the validity . . . of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement.

Example: If the clause mandating that enforceability of the agreement be determined by an arbitrator was itself entered into via fraud in the inducement - then the Court decides. However,

if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator.

Get it? Challenge to the enforceability of the agreement to arbitrate enforceability -> Court. Challenge to agreement as a whole -> arbitrator.

For previous Lawffice Space coverage of this case, see: Arbitrability of Arbitrability Determination Under Arbitration Act Hits SCOTUS, and Arbitration Agreement Unconscionability Determination Hits SCOTUS.

Posted by Philip Miles, an employment lawyer with McQuaide Blasko in State College, Pennsylvania.

Perspectives on Pre-Dispute Arbitration Agreements

There exists an ongoing controversy in the field of employment law regarding the use of arbitration clauses in employment contracts. In short, employers make employees sign contracts when they begin employment indicating disputes will go to arbitration instead of court. There's legislation brewing in the Senate right now called the Arbitration Fairness Act of 2009. The key provision is pretty straightforward:

"no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment, consumer, franchise, or civil rights dispute."

So what's the problem with arbitration?

The proposed Act cites several reasons including the general lack of understanding on the part of employees/consumers (as compared to big employers), the lack of transparency, the lack of judicial review, and allegedly "unfair provisions" in the contracts. Or as The Consumerist describes it:

"mandatory binding arbitration is patently unfair to consumers. It is a joke of justice; a fake tribunal where injured consumers will almost always lose to corporations at the hands of a biased arbitrator."

Well, OK then.

So, what's right with arbitration? Or is it just a way for big business to suppress the little guy? In testimony before the Senate Judiciary Committee last week, Michael W.(not J.) Fox from Ogletree, Deakins, Nash, Smoak & Stewart, P.C. cited some positive statistics:

• Plaintiffs prevailed 46% of the time in arbitration versus 34% in the Courts;
• Median monetary awards were approximately equal ($100,000 in arbitration versus $95,554 in litigation); and
• Arbitration results were 33% faster.

Opponents are no doubt thinking, "There are three kinds of lies: lies, damned lies, and statistics." I think both sides would agree, however, that arbitration is faster and cheaper. That doesn't really address the problems identified above though.

While the debate rages on, the pre-dispute arbitration clauses are generally enforceable for the time being. Congress has at least started the process of changing the game.

Additional Resources

• One of the main cases behind the controversy is Circuit City v. Adams, 532 U.S. 105 (2001).
• Fellow employment law blogger, Joseph C. Markowitz has written some nice blog posts on this topic.