By Gerald L. Maatman, Jr., Michael L. DeMarino, and Andrew Cockroft

Seyfarth Synopsis: Complex class actions often present a scenario in which some or most of the putative class members are subject to arbitration agreements, but the named plaintiff is not. In Gembarski v. PartsSource, Inc., No. 2018-0125, 2019 Ohio LEXIS 1639 (Ohio Aug. 14, 2019), the Supreme Court of Ohio concluded that because the defendant could not have raised an arbitration defense against the named plaintiff prior to class certification, such a defense did not have to be raised in the Answer. For this reason the defendant was not precluded from raising arbitration as a defense to class certification for putative class members.


In Gembarski v. PartsSource, Inc., No. 2018-0125, 2019 Ohio LEXIS 1639 at 2 (Ohio Aug. 14, 2019), Plaintiff filed a class action complaint against his employer, PartsSource, alleging that the company improperly withheld commissions that he and other putative class members earned while working as account managers. PartsSource filed an answer to the complaint, denying any wrong-doing and denying that the suit could be maintained as a class action. Id. at 4.

Eventually, Plaintiff filed a motion to certify the case as a class action and PartsSource opposed the motion. Specifically, PartsSource argued that Plaintiff could not meet the typicality or adequacy requirements for class certification because, unlike members of the putative class, Plaintiff did not sign an arbitration agreement agreeing to arbitrate claims on an individual basis. PartsSource argued that Plaintiff’s interests were divergent from those putative members who were subject to an arbitration defense.  Id. at 5-6.

Plaintiff, however, argued that PartsSource had waived its arbitration defense because PartsSource had not asserted an “arbitration defense” in its answer prior to raising it at the class certification stage. Id. at *7. PartsSource countered that it never had a right to demand arbitration from Plaintiff and contended that it would have been premature to raise any argument related to arbitration prior to the class certification phase of the litigation. Id.

The Decision

The Ohio Supreme Court ultimately agreed with PartsSource, holding that, when a case originates with a single named plaintiff and that plaintiff is not subject to an arbitration agreement that was agreed to by unnamed putative class members, the defendant need not raise a specific argument relating to arbitration in the defendant’s answer.

The Supreme Court explained that “[a]rbitration as a defense to an action is a concept that is separate from arbitration as an attack on a plaintiff’s” satisfaction of the requirement to certify a class.  Id. at 12. Because PartsSource had no duty to raise with specificity a class certification argument in its Answer, such an argument was not waived by failing to raise it at that time. The appropriate time to raise such an argument was precisely when PartsSource did so: at the certification stage. Id. at 21.

Implication For Employers

The decision in Gembarski gives employers more time to investigate and contemplate unique defenses to class certification. However, the best practice for employers battling class actions is to raise arbitration as a defense in an answer, as that will altogether preclude plaintiffs from asserting a waiver argument. Outside of the potential for waiver, employers must be sure to investigate every potential avenue for defeating the class as early as possible in the case. Arbitration defenses and other similar defenses that can defeat class certification should be developed and flagged early in every class action.

By James M. Hlawek, Shireen Wetmore, Gena Usenheimer, and Richard L. Alfred

Seyfarth Synopsis: Today the Supreme Court issued a 5-4 decision in the Lamps Plus, Inc. v. Varela class action arbitration case.  The holding and rationale are important to employers because the Court decisively ruled that class arbitration “fundamentally” changes the nature of the “traditional individualized arbitration” envisioned by the Federal Arbitration Act and, for that reason, requires an express agreement of the parties to be compelled. In so ruling, the Court rejected the basis of the Ninth Circuit’s contrary ruling, which had found the arbitration agreement at issue to be ambiguous and, applying California state contract law that contractual ambiguities should be construed against the drafter, held that the agreement allowed for class arbitration. Relying on its prior class action arbitration decisions, the Court found that such an approach is “flatly inconsistent with the ‘foundational FAA principle that arbitration is a matter of consent.’” How this part of today’s decision will impact Plaintiffs’ efforts to use state laws to invalidate arbitration agreements will undoubtedly be the subject of future litigation, but it is now clear that courts can no longer order class arbitration unless there is an arbitration agreement expressly authorizing it. 

What Did The Supreme Court Hold?

The Supreme Court held today that courts cannot order an arbitration to be conducted on a class-wide basis unless there is an arbitration agreement that expressly authorizes class arbitration. The Supreme Court previously held in its Stolt-Nielsen decision that a court may not compel class arbitration when an agreement is “silent” on the availability of such arbitration. Now the Supreme Court has gone a step further. Courts cannot compel arbitration when an arbitration agreement is ambiguous about the availability of class arbitration.

The parties — Lamps Plus and Varela, an employee of Lamps Plus — had an arbitration agreement that was ambiguous about the availability of class arbitration. Certain phrases, particularly the use of “I” and “my” throughout the agreement, seemed to contemplate purely individual arbitration. Other phrases, such as one stating that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment,” the employee argued, were broad enough to suggest class arbitration. The employee sued Lamps Plus on behalf of a class of employees whose personal information had allegedly been compromised.

The Ninth Circuit affirmed the district court’s order compelling not individual arbitration, as the company had sought, but class arbitration. In deciding whether to compel class arbitration, the Ninth Circuit relied on California state law principles in applying a doctrine know as contra proferentem, which means that ambiguous terms in a contract should be construed against the drafter. In applying this doctrine, the Ninth Circuit found that the ambiguous terms of the parties’ agreement should be interpreted against Lamps Plus — the drafter of the agreement — and in favor of the employee, who argued for class arbitration.

The Supreme Court reversed the Ninth Circuit’s decision with five justices joining in the opinion. Relying on its past decisions in Stolt-Nielsen, Concepcion, and Epic Systems, the Court made clear that class arbitration “fundamentally changes” the nature of “traditional individualized arbitration” envisioned by the Federal Arbitration Act in several ways, including making the process slower, more costly, and “more likely to generate procedural morass than final judgment.” Because arbitration under the Federal Arbitration Act is strictly a matter of the parties’ consent, the Court found that applying contra proferentem to allow class arbitration under an ambiguous agreement is “flatly inconsistent with the ‘foundational FAA principle that arbitration is a matter of consent.’”  The Court, therefore, found that the Ninth Circuit decision ordering class arbitration was improper and reversed.

No Decision On Who Should Decide Whether An Agreement Allows For Class Arbitration  

In a footnote, the Court stated that it was not deciding whether the availability of class arbitration is a “question of arbitrability” that is presumptively for courts (rather than arbitrators) to decide. The Court pointed out that the parties had agreed that a court should decide the issue, and therefore concluded that the question was not at issue. Thus, while every circuit court that has addressed the issue has found that the availability of class arbitration is a “question of arbitrability” for courts to decide in the absence of an express agreement to the contrary, the Supreme Court still has not decided the issue.

What Does The Lamps Plus Decision Mean For Employers?

The decision is an important victory for employers. Courts can no longer order class arbitration under the Federal Arbitration Act unless the employers’ arbitration agreement unambiguously authorizes class arbitration. Under the Lamps Plus decision, employers no longer face the risk that ambiguous phrases in their agreements will lead to class arbitration. Only express agreements can lead to class arbitration. While many employers have revised existing arbitration agreements or adopted new ones since Epic Systems that include express class arbitration waivers, those employers with older clauses using generic language to the effect that all employment disputes are subject to arbitration benefit from today’s opinion.

The decision did not, however, close the door on future litigation as far as the availability of class arbitration. Plaintiffs will likely continue attempts to use principles of state contract laws to invalidate arbitration agreements. Lamps Plus, however, should significantly narrow the successful use of such laws to the extent they “target arbitration either by name or by more subtle methods…” In this light, even general contract principles such as unconscionability cannot stand in the way of arbitration enforcement if they over-ride the “foundational FAA principle that arbitration is a matter of consent.”

Additionally, Justice Ginsburg argued in her dissenting opinion that Congress should act to “correct” the elevation of the FAA over “the rights of employees and consumers” to bring class actions. Congress could, therefore, someday pass legislation that would make class arbitration more widely available.

Thus, despite the fact that the Lamps Plus decision makes it less likely that employers will face class arbitration, we continue to urge employers to have their employment agreements reviewed by experienced counsel and revised consistently with this and prior Supreme Court opinions.

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  In the midst of a legal landscape that is seemingly pro-arbitration, employers should recognize that employees still have a few strategies to oppose arbitration or invalidate an arbitration agreement. The recent ruling of the U.S. District Court for the Northern District of California in Buchanan, et. al. v. Tata Consultancy Services, Ltd., 15-CV-01696 (N.D. Cal. Jul. 23, 2018), is a good reminder for employers that arbitration agreements are still susceptible to challenges like waiver and unconscionability. Employers faced with class actions involving a mix of class members who signed and did not sign arbitration agreements should be careful to preserve their right to enforce the agreements. 

At the same time, this decision in Buchanan is important because it held that a private, individual plaintiff is not entitled to rely on the pattern and practice burden shifting framework articulated in Teams Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977) – an issue that the Ninth Circuit has not yet addressed.


In Buchanan, et. al. v. Tata Consultancy Services, Ltd., No. 15-CV-01696 (N.D. Cal. Jul. 23, 2018), four plaintiffs sued Tata Consultancy Services, Ltd. (“TCS”), alleging disparate treatment under Title VII of the Civil Rights Act of 1964. Specifically, plaintiffs claimed that TCS, which is headquartered in India, maintained a pattern and practice of intentional discrimination in its United States workforce by favoring persons who are South Asian or of Indian National Origin. TCS provides consulting and outsourcing services, and plaintiffs claimed that TCS favored individuals who are predominately South Asian when assigning individuals to open client projects. After class certification briefing, the district court certified a class consisting of all individuals “who are not of South Asian race or Indian  nation origin who were employed by [CTS]  . . . and were terminated . . . .” Id. at 6.

After the class was certified, TCS brought a motion to bifurcate the claims of Plaintiff Buchanan from those of other plaintiffs and a motion to compel arbitration. The district court granted both motions.

The Decision

As a threshold matter, the district court held that Plaintiff Buchanan was not entitled to rely on the pattern and practice framework for proving employment discrimination under Int’l Bhd. of Teamsters v. U.S., 431 U.S. 324, 360 (1977). Buchanan was not a member of the class because, unlike the class, he was never employed by TCS. Under the Teamsters framework, the burden shifts to the employer to defeat a prima facie showing of a pattern or practice by demonstrating that the plaintiffs’ proof is either inaccurate or insignificant.

Although the Ninth Circuit has not addressed whether an individual private plaintiff may use the Teamsters framework, the district court held that pattern and practice method of proof is not available to private plaintiffs. “To allow this expansion of Teamsters,” the district court reasoned, “would ‘conflict with the Supreme Court’s oft-repeated holding . . . that ultimate burden of persuading the trier of fact that the defendant intentionally discriminated against plaintiffs remains at all times with the plaintiff.” Buchanan, et. al. v. Tata Consultancy Services, Ltd., at 8. Because Plaintiff Buchanan, as an individual private plaintiff, was subject to a different burden shifting framework than will govern the claims of the class, the district court concluded that bifurcating his claims from those of the class would avoid confusion at trial and support judicial economy.

As to TCS’s motion to compel arbitration, plaintiffs argued that TCS waived its right to demand arbitration and that the arbitration agreement contained impermissible waiver and unconscionable provisions. Addressing plaintiffs’ waiver argument, the district court concluded that although TCS waited until the fourth amended complaint to assert its right to arbitrate, TCS had notified plaintiffs of its intent enforce the agreement as soon as plaintiffs implicated a potential plaintiff to whom the agreement applied. Hence, the district court concluded that plaintiffs were on notice and granting TCS’s motion would not prejudice plaintiffs.

The district court similarly rejected plaintiffs’ contention that the arbitration agreement contained an impermissible prospective waiver of an employee’s federal anti-discrimination rights. The district court ultimately disagreed that Teamsters pattern and practice burden-shifting framework is a substantive right. The district court likewise rejected plaintiffs’ argument that the arbitration agreement was unconscionable because of a “selective[] overlay [of] a pro-Defendant subset of the Federal Rules of Civil Procedure. ” Id. at 14. Plaintiffs challenged the arbitration agreement because it did not provide employees the opportunity to file motions to strike or motions for judgment on the pleadings. The district court, however, concluded that these limitations did not rise to the level of unconscionability. It reasoned that “[m]otions to strike are disfavored . . . . and Motions for judgment on the pleadings are easily recast” into motions for summary judgment. Id.

Implication For Employers:

This case is a valuable reminder for employers with arbitration agreements that it is still best practice to avoid acting inconsistent with the right to arbitration, lest you supply plaintiffs with a waiver argument. Employers facing a class mixed with employees who signed and did not sign arbitration agreements should be careful preserve their right to enforce arbitration agreements. This may include notifying plaintiffs of the existence of the arbitrations agreement and your intent to enforce the agreement as soon as a plaintiff enters the case to whom the agreement is applicable.


By Gerald L. Maatman, Jr.

Seyfarth Synopsis: On April 30, 2018, the U.S. Supreme Court granted a writ of certiorari in Lamps Plus Inc. v. Varela, No. 17-988. This matter, which involves the interpretation of workplace arbitration agreements, has the potential to significantly impact class action litigation. In today’s video, Partner Jerry Maatman of Seyfarth Shaw explains the legal framework of this case, as well as its importance for employers.

Lamps Plus Inc. v. Varela began as a putative class action filed in 2016 after a phishing incident at Lamps Plus. Specifically, Plaintiff Frank Varela’s tax information was compromised when an unknown individual posed as a company executive and gained access to confidential employee data. However, Lamps Plus argued that the company’s arbitration agreement signed by Varela mandated that his claims be handled through arbitration on an individual basis, thereby precluding his class action. Both the U.S. District Court for the Central District of California and the U.S. Court of Appeals for the 9th Circuit agreed with Varela’s argument that the arbitration agreement allowed for class arbitration.

The major question in this case regards the circumstances in which class arbitration can be compelled under the Federal Arbitration Act (“FAA”). Though the Supreme Court agreed to review this question in the near future, it answered nearly the same question in 2010 in a case entitled Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which it held that class arbitration is authorized only when all parties specifically agree to it. Within the next 6-12 months, we can expect the Supreme Court to again a decision on this important class action topic.

Implications For Employers

Employers and human resources personnel who handle employment contracts should keep a close eye on this case. The decision in Lamps Plus Inc. v. Varela may very well impact an employer’s process in drafting arbitration clauses.

Furthermore, the Supreme Court’s decision to review this matter, while also considering Epic Systems Corp. v. Lewis, No. 16-285, indicates a significant interest in class action issues. Both of these matters have the potential to greatly impact employment class action litigation. Make sure to watch the video above for a detailed explanation of the Varela debate, and stay tuned to our blog for the latest updates!

250px-US-CourtOfAppeals-8thCircuit-SealBy Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis:  After thirty-three former employees who signed release agreements requiring individual arbitration of ADEA claims collectively sued their employer for age discrimination, the employer moved to compel individual arbitration. The District Court denied the company’s motion. The U.S. Court of Appeals for the Eighth Circuit reversed because it found that the ADEA did not contain a “contrary congressional command” overriding the FAA’s mandate to enforce arbitration agreements.


Case Background

In McLeod, et. al. v. General Mills, Inc., No. 15-3540, 2017 WL 1363797 (8th Cir. Apr. 14, 2017), thirty-three former employees of General Mills (the “Company”) were offered severance packages and signed release agreements in which they agreed to individually arbitrate claims relating to their termination—including, specifically,  ADEA claims. Id. at *1. Despite agreeing to individual arbitration, the employees collectively sued the Company in the U.S. District Court for the District of Minnesota, alleging various ADEA violations. The Company moved to compel arbitration, and the District Court denied that motion.  Id.

On appeal, the Eighth Circuit reversed the District Court’s denial of the Company’s motion to compel arbitration. The Eighth Circuit held that Section 626(f) of the ADEA does not contain a contrary congressional command to override the Federal Arbitration Act’s (“FAA”) mandate to enforce arbitration agreements. Id. at *2-3. At the core of this holding was the Eighth Circuit’s decision that the “right” to a jury trial and the “right” to proceed in a collective action, are not substantive ADEA rights. Id

This decision is important because it addresses the fundamental question of whether employment agreements that require individual arbitration run afoul of the ADEA and its provisions authorizing plaintiffs to sue collectively.

Unlike other decisions involving the clash of arbitration agreements and 29 U.S.C. § 216(b), the Eighth Circuit’s decision in McLeod resolves the tension between, on the one hand the FAA’s mandate to enforce arbitration agreements, and on the other hand, the ADEA’s requirement in  § 626(f) that a party must prove in a “court of competent jurisdiction” that the waiver of ADEA rights was “knowing and voluntary.”

Because the Eighth Circuit determined that the “waiver” of rights in Section 626(f) refers only to the waiver of substantive ADEA rights and because the “right” to a jury trial and the “right” to proceed in a collective action are not “rights” under § 626(f), it held that there was no “waiver” for purposes of  § 626(f).

Case Background

In 2012, the Company terminated 850 of its employees. These employees were offered severance packages in exchange for signing release agreements. Id at *1. The release agreements required the employees to release the Company from all claims related to their termination, including claims under the ADEA. Id.

The release agreements also contained a dispute resolution provision that required the employees to submit any claim covered by the release agreement to arbitration on an individual basis. Id.

Thirty-three of the employees who were terminated in 2012 sued the Company in the U.S. District Court for the District of Minnesota. Specifically, the employees sought a declaratory judgment that the releases were not “knowing and voluntary,” as required by 29 U.S.C. § 626(f)(1). The employees also asserted collective and individual claims for alleged ADEA violations. Id.

The Company moved to compel arbitration of the employees’ claims, and the District Court denied that motion. Id. The Company subsequently appealed to the Eighth Circuit.

The Eighth Circuit’s Decision

On appeal, the employees argued that ADEA §  626(f) contains the necessary “contrary congressional command” to render their release agreements invalid. Id. at *2. Specifically, the employees relied on two related sections of the ADEA to argue that compelling arbitration results is an effective waiver of their substantive rights under the ADEA. Id. These two sections are § 626(f)(1) and § 626(f)(3).

Section 626(f)(1) of the ADEA prohibits the waiver of any ADEA right or claim — unless the waiver is “knowing and voluntary.” 29 U.S.C. § 626(f)(1). Whereas, § 626(f)(3) describes how to prove a “waiver,” requiring that the “the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary . . . .”  Id (citing 29 U.S.C. § 626(f)(3)). (emphasis added). 

The employees argued that, by moving to compel arbitration of their claims, the Company was asserting the validity of a waiver — by forcing them to forego their “right” to a jury trial and their “right” to proceed by class action. Id.

The Eighth Circuit rejected this argument. “In § 626(f),” it explained, ‘“waiver’ refers narrowly to waiver of substantive ADEA rights or claims — not, as the former employees argued, the ‘right’ to a jury trial or the ‘right’ to proceed in a class action.” Id. (emphasis in original).

In reaching that decision, the Eighth Circuit cited 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009). In that case, the Supreme Court interpreted § 626(f)(1)’s references to “‘right[s] or claim[s]’ to mean substantive rights to be free from age discrimination, not procedural ‘rights’ to pursue age discrimination claims in court.” Id. Noting that Penn Plaza controls, the Eighth Circuit explained that the “specific ‘rights’ the former employees cite are not ‘rights’ under § 626(f)(1).” Id. The Eighth Circuit therefor decided that no “rights or claims” are “waived” by agreeing to bring claims in arbitration. Id.

The Eighth Circuit also rejected the employees’ argument that § 626(b), by incorporating 29 U.S.C. § 216(b), gives them a “right” to bring a collective action. Id. at 3. Before making short shrift of this argument, the Eighth Circuit noted that the ADEA borrows the procedural collective action mechanism from § 216(b) of the Fair Labor Standards Act (“FLSA”). Section 626(b) incorporates § 216(b), which allows an employee to sue on behalf of himself “and other employees similarly situated.” 29 U.S.C. § 216(b). Thus, the Eighth Circuit explained that § 626(b) expressly allows employees to bring collective actions for age discrimination. McLeod, 2017 WL 1363797 at *3.

Although the Eighth Circuit acknowledged that the ADEA expressly authorizes employees to sue collectively, it held that § 626(b) does not create a non-waivable, substantive right to do so. Citing its decision in Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052 (8th Cir. 2013), the Eighth Circuit first explained that “[s]tanding alone, § 216(b) does not create a non-waivable substantive right; rather, its class-action authorization can be waived by a valid arbitration agreement.” Id.  The Eighth Circuit then found no convincing reason why § 626(b)’s incorporation of § 216(b) would “elevate the procedural class-action authorization to a substantive § 626(f)(1) ‘right.’” Id.

Ultimately, the Eighth Circuit concluded that the ADEA does not provide a “contrary congressional command” overriding the FAA’s mandate to enforce agreements to arbitrate ADEA claims, and that the District Court should have granted the Company’s motion to compel arbitration. Id.

Next, the employees argued that an arbitration panel could not grant them their declaratory relief — i.e., decide the question of whether their waiver of substantive ADEA rights was “knowing and voluntary.” Id. at 4. Specifically, the employees argued that this question can only be resolved in court because of § 626(f)(1)’s mandatory language “shall have the burden of proving in a court of competent jurisdiction.” Id. (emphasis added).

The Eighth Circuit declined to decide this issue, finding, instead, that the question was not justiciable. Id. Because the Company had not yet asserted that any of the employees had in fact waived their ADEA claims, and because the employees were seeking declaratory relief only “if and to the extent” the Company asserted that defense, the Eighth Circuit concluded that the employees’ declaratory relief was hypothetical. Id. “No Article III case or controversy arises,” it explained, “when plaintiffs seek a ‘declaratory judgment as to the validity of a defense’ that a defendant ‘may or may not, raise.’” Id. Accordingly, the Eighth Circuit held that the District Court did not have jurisdiction to decide whether the employees’ waiver was “knowing and voluntary.” Id.

Implication For Employers

This decision is important for employers, but less so for the reasons one might imagine. The reality is that this decision does little to alter the ADEA judicial landscape. More than two decades ago the Supreme Court held in Gilmer v. Interstate/Johnson Lane Corp. that ADEA claims could be subjected to compulsory, individual arbitration, even though collective actions are permitted under the ADEA by the identical statutory language as the FLSA. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991). While Gilmer did not specifically touch on the interplay between § 626(f) and the FAA, it is a bit surprising that a discussion of Gilmer is altogether absent from the Eighth Circuit’s decision.

One take away is that employers can remain confident that provisions requiring individual arbitration of ADEA claims will not result in a prohibited waiver of an employees’ rights under the ADEA.

This decision also sheds light on an important strategy consideration. Employers that assert waiver as a defense may find themselves litigating the validity of that waiver (i.e., whether the waiver was knowing and voluntary) in court — even though the employees agreed to arbitrate their claims. Hence, employers will likely need to weigh the advantages and disadvantages of defending an ADEA violation on the merits in arbitration versus adopting a waiver defense in court.

By Christopher Cascino

On December 23, 2014, in Ruiz v. Moss Brothers Auto Group, Inc., 2014 Cal. App. LEXIS 1176 (Cal. App. Ct. 4th Dist. Dec. 23, 2014), the California Appellate Court joined a number of other state and federal courts in holding that employers need to provide strict proof that electronically signed employment arbitration agreements were, in fact, signed by the complaining employee.

Workplace arbitration agreements are becoming increasingly important as risk management tools in defending against class actions. This case is a reminder for employers that, though electronically signed employment arbitration agreements are generally held to be valid, employers need to make sure that they can prove with certainty under the laws of their respective states that their employees are the ones who electronically signed these agreements.

Background Of The Case

The plaintiff, Ernesto Ruiz, filed a putative class action against his employer, Moss Brothers Auto Group, alleging that Moss Brothers failed to pay himself and other employees overtime and to provide required meal and rest breaks. Ruiz sought civil penalties for these violations on behalf of himself, his fellow employees, and the State of California.

Moss Brothers moved to compel arbitration because, according to Moss Brothers, Ruiz had electronically signed an arbitration agreement. That arbitration agreement provided that Ruiz would have to bring any employment dispute before an arbitrator, and further provided that the arbitrator could “hear only . . . individual claims” and had no authority to “consolidate[] the claims of others into one proceeding.”

Ruiz opposed arbitration and submitted a declaration in which he said that he did not recall signing the arbitration agreement and that, moreover, he would not have signed any agreement that would have limited his ability to sue Moss Brothers.

Moss Brothers countered Ruiz’s declaration with a declaration of its own, stating that “Each employee is required to log into the Company’s HR system — each with his or her unique login ID and password — to review and electronically execute the Employee Acknowledgement form, which includes the arbitration agreement. While all employees are required to sign the form, they are free to review it at their leisure while logged into the HR system.” It also produced a copy of the arbitration agreement at issue in the case with the phrases “Ernesto Zamora Ruiz (Electronic Signature)” and “9/21/2011 11:47:27 AM” under the signature and date lines of the agreement.

The Court’s Ruling

The Court of Appeal upheld the trial court’s finding that Moss Brothers had not proven by a preponderance of the evidence that Ruiz was the one who electronically signed the arbitration agreement. Specifically, the Court of Appeal found that it could not infer that Ruiz signed the arbitration agreement simply because the arbitration agreement was “presented to all Moss Bros. employees . . . and each employee is required to log into the company’s HR system, using his or her unique login ID and password, to review and sign the Employee Acknowledgment form.” It said that, without some additional explanation of how this would prove that it was Ruiz who signed the agreement, there was a “critical gap” that prevented the Court from concluding that Ruiz signed the agreement.

Other courts have made similar rulings. For example, in Kerr v. Dillard Store Servs., 2009 U.S. Dist. LEXIS 11792 (D. Kan. Feb. 17, 2009), an employee who brought a racial discrimination claim against her employer claimed that the arbitration agreement she allegedly signed electronically must have been signed on accident by a secretary who was logged into her computer because she would have refused to sign the agreement. The court refused to enforce the employment arbitration agreement because the employer “did not have adequate procedures to maintain the security of intranet passwords, to restrict authorized access to the screen which permitted electronic execution of the arbitration agreement, to determine whether electronic signatures were genuine or to determine who opened individual emails.” The court went on to find that, as a result, “it is not inconceivable [the secretary] or a supervisor logged on to plaintiff’s account and executed the agreement,” and thus that the employer had not proven by a preponderance of the evidence that the employee had signed the arbitration agreement.

Similarly, in Neuson v. Macy’s Department Stores Inc., 249 P.2d 1054 (Wash. App. 2011), an employer tried to enforce an electronically signed employment arbitration agreement, arguing that the fact that the employee’s social security number, birth date, and zip code were entered on the electronic signature showed that the agreement was signed by the employee. The Washington Appellate Court disagreed because the employer could not show “how or why the information on th[e] electronic signature would be unavailable to anyone other than” the plaintiff.

Implications for Employers

While courts generally find that complaining employees did, in fact, electronically sign employment arbitration agreements, employers should, in light of cases such as Ruiz, Kerr, and Neuson, take steps to make sure that they can prove that electronically signed employment arbitration agreements were signed by each of their employees. The question of whether an arbitration agreement exists is generally a question of state law. See Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987). Because of this, employers should look to cases in their own state finding that employers proved that their employees had electronically signed employment arbitration agreements and implement the procedures used by the employers in those cases. By doing so, employers can not only greatly reduce the risk of an adverse ruling on whether an arbitration agreement was electronically signed but also the unnecessary expense of litigating that issue.

By Courtney Bohl and Laura Maechtlen

On June 25, 2014, in Sandquist v. Lebo Automotive, Inc., Case No. B244412 (Cal. App. Ct. June 25, 2014), the California Court Of Appeal for the Second Appellate District reversed a trial court’s order dismissing class claims with prejudice, holding that whether the parties agreed to class arbitration was an issue that should be decided by the arbitrator, not the trial court.

This decision is a reminder for employers to include an express prohibition on arbitration of class action claims in their arbitration agreements. Otherwise, employers may find themselves arguing the arbitrability of class claims in front of an arbitrator, not a court.

Factual Background

Plaintiff Timothy Sandquist filed suit on behalf of a putative class of people of non-European descent, or “employees of color,” in 2012 against Lebo Automotive, Inc. (“Lebo”) alleging violations of California’s Fair Employment and Housing Act and Unfair Competition Law. Id. at 3-4. Sandquist sought damages as well as injunctive and declaratory relief. Id. at 4.

After the suit was filed, Lebo filed a motion to compel arbitration pursuant to multiple arbitration agreements Sandquist entered into with Lebo at the start of his employment. Id. at 5. Notably, the arbitration agreements at issue were silent on the permissibility of class arbitration. Id. 

On August 14, 2012, the trial court granted Lebo’s motion (“August 14th Order”). The trial court also dismissed Sandquist’s class allegations without prejudice, finding that since Sandquist was subject to individual arbitration, there is no longer a class representative. Id. at 5. The trial court gave plaintiff 60 days to amend the complaint to bring forth a class representative, noting if plaintiff failed to do so, defendant could request dismissal of the case with prejudice. Id. 

Plaintiff was unable to find any Lebo employee that had not entered into the same arbitration agreements as Sandquist, and thus on October 5, 2012, the trial court dismissed the class claims with prejudice (“October 5th Order”). Id. at 6.

Sandquist appealed the August 14th Order, but did not include a notice of appeal of the October 5th Order.

The Appellate Court’s Ruling

The Appellate Court first held that under the “death knell” doctrine—a doctrine which allows a plaintiff to appeal any order that is “tantamount to a dismissal of the action as to all members of the class other than the plaintiff”—the October 5th Order was appealable. Id. at 9. The Appellate Court noted that although the August 14th Order compelling arbitration was not appealable because it did not finally terminate the class claims, it was clear that Sandquist intended to appeal the underlying judgment, i.e., the October 5th Order. Id. 

The Appellate Court next held that the arbitrator, not the trial court, should determine whether the arbitration agreement entered into between Sandquist and Lebo provides for class arbitration. Id. at 15. The Appellate Court, citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), distinguished between situations where contracting parties would likely have expected a trial court to decide the gateway matter, such as the issue of whether the parties are bound by a given arbitration clause, and situations where the parties would not likely expect that an arbitrator would decide the gateway matter, such as procedural questions which grow out of the dispute and bear on its final disposition. Id. at 11. The Appellate Court stated that only in the former can a trial court decide the gateway matter. Id. 

The Appellate Court then noted that the U.S. Supreme Court has yet to determine whether the issue of class arbitration, when an arbitration agreement is silent on the issue, is a gateway question for the court or for the arbitrator. The Appellate Court elected to follow the reasoning of a plurality of four justices in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003). Id. at 11-12. Citing Bazzle, the Appellate Court concluded that when an arbitration agreement is silent on class arbitration, but where the parties agreed to submit “all disputes, claims or controversies arising from or relating to this contract” to the arbitrator, the arbitrator decides whether the agreement precludes class arbitration. Id. The Appellate Court noted that this ruling is consistent the idea that a class action is a procedural device, which under Howsam is presumptively “not for the judge but for the arbitrator to decide.”  Id. at 13.

Implications For Employers

The Lebo decision is an important one for employers as it shows that an arbitrator, with limited judicial review, may decide the issue of whether class claims can be arbitrated if the employer’s arbitration agreement is silent on the issue.  Accordingly, employers should ensure that their arbitration agreements are clear and leave no procedural issues, especially class arbitration, up for interpretation.


By David Baffa, John Collins, and Gerald L. Maatman, Jr.

Recently, Wolters Kluwer Law & Business published our article “Guidance for Employers Considering Mandatory Arbitration Agreements with Class and Collective Action Waivers” in its Employee Relations Law Journal, Vol. 39, No. 3 Winter 2013

In the article, we discuss how the Supreme Court’s rulings in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. __ (June 20, 2013), and Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (June 10, 2013), have changed the legal landscape when it comes to arbitration agreements, and what employers should keep in mind when deciding whether to pursue arbitration as a general policy that includes a class or collective action waiver. Although the Supreme Court’s decisions in AmEx and Oxford Health did not address arbitration issues in an employment context, both cases shine light on arbitration issues facing employers.

Here are the key points:

  • Particularly relevant to wage & hour cases, in American Express Co. v. Italian Colors Restaurant, the Supreme Court ruled that, even if individual arbitration is economically unfeasible, and thus prevents vindication of federal statutory rights, class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA). The AmEx case shows that a class action waiver in an arbitration agreement is enforceable where a plaintiff’s costs of individually arbitrating a federal statutory claim exceed the potential recovery. AmEx bolsters the Supreme Court’s previous AT&T Mobility LLC v. Concepcion ruling, that enforcement of a class arbitration waiver under the FAA trumped a California statue that sought to preclude class waivers, and communicates that collective actions are not necessary to effectively vindicate federal statutory rights.
  • The Supreme Court’s ruling in Oxford Health Plans LLC v. Sutter clearly communicates that if an employer requires employees to arbitrate disputes, but not on a class basis, it must explicitly state that class or collective arbitration is impermissible within the arbitration agreement. Although Oxford Health resembles Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., as the arbitration agreements in both cases were silent on the issues of class arbitration, the Supreme Court noted that the facts of the Oxford Health case were starkly different from those in Stolt-Nielsen, in that the arbitrator in Oxford Health based his decision on the parties’ contract, which the parties had authorized him to interpret; and, therefore, he did not exceed his powers as arbitrator. Thus, if an arbitration agreement is silent on whether disputes may be arbitrated as class actions, and the parties leave the issue to an arbitrator to decide, an arbitrator can interpret a silent arbitration clause to permit class arbitration.

Should you, as an employer, implement an arbitration policy that includes a class or collective action waiver? While the pros and cons of immediately implementing an alternative dispute resolution policy with non-class final and binding arbitration are numerous, and we recommend that you weigh them here; below are key points and questions that employers should consider before adopting class action waivers as a general policy.

  • In early 2012, the NLRB issued a decision outlawing employment agreements and policies requiring class or collective action waivers in employment disputes as a condition of employment. Although, the judicial trend has strongly favored enforcement of class or collective action waivers, D.R. Horton was recently reversed by the U.S. Court of Appeals for the Fifth Circuit. To the extent employers particularly vulnerable to union organizing and advocacy group challenges had been waiting until D.R. Horton was overturned before proceeding with plans for implementation, they now have a “green light.”
  • Has your company been sued in a class or collective action, and do you consider your organization at risk for additional lawsuits? In the wake of AmEx and Concepcion, the benefits of avoiding a class action lawsuit in the future may outweigh risks associated with arbitration.
  • Are there any class or collective actions pending now, at the pre-certification stage? It may be possible to enter into arbitration agreements with putative class members that include class action waivers (both in court and in arbitration) even with regard to an existing class action.
  • As far as non-class action cases go, how many employment-related lawsuits do you expect in a year? As the number of claims rises, the likelihood that your overall employment litigation costs will be reduced through arbitration, also rises.
  • What is your organization’s philosophy with regard to defending employment-related lawsuits? The advantages of arbitration are amplified, when employers commit to taking certain cases to judgment, rather than seeking settlement.
  • In what jurisdictions are you generally sued by your employees? Some jurisdictions offer significant opportunity for favorable and cost-effective results on summary judgment, while others remain unfriendly to employers.
  • Does arbitration make sense for all employees at all levels of your organization? Arbitration provisions may make sense for particular groups of employees, but not for others.
  • How does arbitration fit within your overall employee relations strategy? The implementation of an arbitration policy may result in push back from employees. Thus, you should consider whether such a policy is in line with the organizations employee relations goals and philosophy.
  • Should your arbitration program include an “opt-out” provision that allows employees to opt-out within a certain period of time after hiring? Such an approach, though apparently unhelpful to overcome an NLRB challenge, may help avoid successful challenges in California.

Employers that have decided to move forward with an arbitration policy should consider these elements in crafting an enforceable arbitration program.

  • Formation & Consideration – Controlled by state contract law, proving formation and consideration requires that employers demonstrate an offer, acceptance, and supporting consideration. The acceptance requirement is generally satisfied by an employee’s signature on an arbitration agreement. While supporting consideration can be more difficult to prove, making the duty to arbitrate employment-related disputes binding on the employee and employer can often solve consideration issues. The mutual forbearance of the right to proceed in court acts as consideration to support the arbitration agreement. California employers should take notice that a shared duty to arbitrate employment-related claims is required in California. Lastly, employers should be cautious using language that reserves the right to modify, amend, or revoke the policy at any time, with or without notice, as such agreements have been attacked on the ground that the contract to arbitrate is misleading. Instead, a policy should include a notice period and other processes that place limits on the timing and method for modifying the arbitration agreement.
  • Fairness – For those employers that operate across multiple jurisdictions, an effective arbitration policy must meet the fairness requirements of each jurisdiction; most importantly, those jurisdictions where you anticipate a significant number of claims to arise. To be fair, an arbitration agreement must clearly specify what claims are covered, the statute of limitations or time allowed to assert a claim, and the arbitration process to be followed to resolve a claim – which, must also be considered “fair.” The California Supreme Court and the D.C. Circuit have communicated that, at a minimum, an employer must provide that it will pay all of the forum costs, including arbitrator fees; provide for the selection of a neutral arbitrator, and meaningful discovery; allow for all types of relief that would be available in court; and require a written award to allow for adequate judicial review.
  • Class Action Waivers – If, despite current NLRB law, an employer decides to implement a class or collective action waiver, the waiver should be clear, conspicuous, and include language waiving class, collective, or other representative actions filed in court and brought before an arbitrator, and prohibit an arbitrator from presiding over those actions. We recommend that employers include language that carves out the right of employees to file administrative charges (for example, with the NLRB), and a disclaimer clarifying that employees, notwithstanding their waiver, have a right to file a class or collective action under the NLRA without fear of retaliation. Lastly, employers should include language communicating that if a waiver of class, collective or representative actions is found to be unenforceable, then court is the only forum for such an action.
  • Other Exclusions & Carve-Outs – To increase the likelihood that an arbitration agreement will survive judicial or administrative challenge, consider including language regarding an employee’s right to file worker’s compensation or unemployment claims, and administrative charges. Federal contractors that have upwards of $1 million contracts with the Department of Defense  should note that the Department’s Appropriations Act of 2010 requires arbitration agreements to exclude claims brought under Title VII of the Civil Rights Act of 1964 or any tort related to sexual assault or harassment. Lastly, the Dodd-Frank Wall Street Reform and Consumer Protection Act precludes certain types of whistleblower claims from mandatory pre-dispute arbitration.

Seal_of_the_U_S__District_Court_for_the_Eastern_District_of_Pennsylvania.pngBy Rebecca Bjork and Gerald L. Maatman, Jr.

It is often good strategy to try and get rid of a class or collective action case early on, preferably at the pleadings stage. This is so because discovery and class certification can be a very complicated and lengthy process, one that any defendant who has a large workforce knows will involve risk and often take months or years to get to a tipping point. One recent opinion, which you can read here, underscores these stakes. 

In MacDonald v. Unisys Corp., No. 12-CV-1705, 2013 U.S. Dist. LEXIS 82361 (E.D. Pa. June 12, 2013), the court considered a motion to dismiss and to compel arbitration filed by the defendant, who was accused of a scheme to violate the Age Discrimination in Employment Act (ADEA) in relation to the outsourcing of a portion of its internal IT function to Hexaware Technologies, Inc. (Hexaware). Id. at *2-3. Plaintiffs alleged that all internal IT employees in the U.S. that the company decided to terminate were immediately offered employment with Hexaware. Id. at *2. If they did not accept employment with Hexaware, they would have been considered to have voluntarily resigned. Id.

Of the 77 U.S. employees terminated, 70 were age 40 or over. Id. at *3. They were terminated in April 2010; their employment agreements with Hexaware stated their employment with Hexaware would begin on May 1, 2010; and the agreements contained mandatory arbitration clauses. Id. at *3-4. Less than a year later, according to the taken-as-true allegations of the complaint, Unisys directed Hexaware to terminate the six named plaintiffs. Id. at *4.   

They subsequently filed a collective action, alleging that their “termination by Unisys, immediate hiring by Hexaware, and eventual termination by Hexaware constituted a ‘sham transfer’ which was orchestrated by [Unisys] in an effort to eliminate older workers from its workforce.” Id. at *4-5 (quotation marks in original). They brought two counts: Count I alleged that Unisys violated the ADEA when it terminated internal IT employees in April 2010, and in Count II, they alleged that Unisys violated the ADEA when it directed Hexaware to terminate its employees who had formerly worked for Unisys in its internal IT department. Id. at *8-9. 

Unisys brought the motion to dismiss and compel arbitration under Fed. R. Civ. P. 12(b)(6). Id. at *6. For Count I – whether Unisys violated the ADEA by terminating the plaintiffs in April 2010 – Unisys sought to compel arbitration by pointing to the arbitration agreements with Hexaware, coupled with plaintiffs’ own allegation that their terminations were part of a continuing scheme culminating in Hexaware ultimately terminating them. The court rejected this argument and denied the motion with prejudice, noting that the arbitration clause did not apply to the April 2010 terminations, as the agreements did not take effect until May 1, 2010. The court explained, “[w]ithout a doubt, the arbitration provisions Plaintiffs entered into with Hewaware that mandated arbitration of employment disputes arising out of or related to their employment that began on May 1, 2010 did not cover Plaintiffs’ pre-May 1, 2010 terminations from Unisys.” Id. at *14, 24. 

Count II was, as it turns out, tricky for the company to shake as well. Both sides agreed that valid arbitration agreements existed between the plaintiffs and Hexaware. But Hexaware had not moved to dismiss and was not a party. Unisys, therefore, could only prevail in dismissing this count if it could show it was a third party beneficiary of the arbitration agreement or the doctrine of equitable estoppel applies. The court concluded that it could not make this assessment on a motion to dismiss because “the applicability of equitable estoppel and/or third party beneficiary theories depends upon materials outside the sphere of those that can be considered in a motion to dismiss.” Id. at *22-23. Accordingly, the court denied the motion to compel arbitration without prejudice to Unisys to renew it under the summary judgment standard “after relevant discovery has occurred[.]” Id. at *24.  

As defense counsel and in-house attorneys who are defending class or collective action cases understand, the scope of “relevant discovery” can often be much, much more than what a defendant, an arbitrator, and even a court or a bargained for. We suspect that as a result of the motion to dismiss ruling in this case, it may continue to churn along for some time. 

supreme-court-seal.pngBy  Gerald L. Maatman, Jr. and Jennifer A. Riley

This morning the U.S. Supreme Court issued its long-awaited decision in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. ___ (2013). The Supreme Court reversed the Second Circuit’s prior decision and held that merchants must arbitrate their antitrust claims on an individual, bilateral basis, even though the cost of pursing those claims would exceed their potential recovery. 

In doing so, the Supreme Court upheld the general validity of arbitration agreements containing class action waivers and reaffirmed the notion that the Federal Rules of Civil Procedure do not establish any entitlement to class proceedings. 

Factual Background

Plaintiffs, merchants who accept American Express cards, filed a class action suit against Amex alleging that Amex used its monopoly power in the market for charge cards to force them to accept credit cards at rates approximately 30% higher than the fees of its competitors. Id. at 1-2. 

Plaintiffs’ agreement with Amex contained a clause that required all disputes between the parties to be resolved by arbitration. The agreement provided that “there shall be no right or authority for any Claims to be arbitrated on a class basis.” Id. at 1.

Amex moved to compel individual arbitration under the Federal Arbitration Act (“FAA”). In opposition to the motion, Plaintiffs submitted a declaration from an economist stating that the cost of an expert analysis necessary to prove the antitrust claims would be “at least several hundred thousand dollars,” while the maximum recovery for an individual plaintiff would be $12,850, or $38,549 when trebled. Id. at 2. 

The district court granted the motion and dismissed the suit. The Second Circuit reversed, holding that, because Plaintiffs showed that they would incur prohibitive costs if compelled to arbitrate on a bilateral basis, the class action waiver was unenforceable and arbitration could not proceed. Id.

The Supreme Court initially vacated the judgment and remanded for further consideration in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), but on remand, the Second Circuit stood by its reversal.  Id. at 3. Our prior posts on those rulings are here and here.

The Supreme Court granted certiorari for a second time to consider whether the FAA permits courts to invalidate arbitration agreements that do not permit class arbitration of federal claims. Id.

The Supreme Court’s Opinion

In an opinion authored by Justice Scalia, the Supreme Court upheld the validity of Amex’s class action waiver and reversed the Second Circuit by a 5-3 decision. 

At the outset, the Supreme Court noted that arbitration is a matter of contract and that courts must “rigorously enforce” arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which the arbitration will be conducted. Id.

The Supreme Court rejected Plaintiffs’ argument that requiring them to litigate their claims individually – as they contracted to do – would contravene the policies of the antitrust laws, noting that the antitrust laws “do not guarantee an affordable procedural path to the vindication of every claim.” Id. at 4.

The Supreme Court also rejected Plaintiffs’ argument that congressional approval of Rule 23 established an entitlement to class proceedings. The Supreme Court noted that, “it is likely” that such an entitlement would “abridge or modify” a substantive right – something forbidden by the Rules. But, it found no evidence of such an entitlement in any event because the Rules impose “stringent requirements for certification that in practice exclude most claims.” Id. at 5. 

Finally, the Supreme Court addressed the “judge-made” exception to the FAA which allows courts to invalidate agreements that prevent the “effective vindication” of federal statutory rights. The Supreme Court clarified that the exception applies to arbitration agreements that “operat[e] . . . as a prospective waiver of a party’s right to pursue statutory remedies.” Id. at 6. 

That Supreme Court held that, whereas this exception “would certainly cover” a provision forbidding the assertion of certain statutory rights – and perhaps cover unreasonably high filing and administrative fees attached to arbitration – “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.” Id. at 6-7.

Justice Kagan authored a strenuous dissent noting that, by so ruling, the Supreme Court effectively allowed a monopolist to use its monopoly power to insulate itself from antitrust liability by insisting on a contract that effectively deprived its victims of legal recourse. 

Implications For Employers

The decision in American Express v. Italian Colors seems to pave the way for employers to institute mandatory arbitration programs that require employees to bring claims on an individual basis. This is no small matter for workplace litigation, for the enforceability of class action waivers – and the future of workplace arbitration – is of major significance in controlling risks and costs in the workplace class action context.

The debate over whether this is good or bad for workplace disputes (and civil rights matters and consumer fraud litigation) is likely to continue and find its way into the halls of Congress again in terms of possible legislative responses to class action litigation issues.

It is also expected that class arbitration waivers will continue to face assault from legislative initiatives and from federal agencies such as the National Labor Relations Board (“NLRB”). Following the directive of former NLRB General Counsel Meisburg in a Memorandum issued on June 16, 2010, the NLRB has issued complaints against companies that maintain class actions waivers in pre-dispute arbitration agreements on the theory that such agreements interfere with employees statutory right to engage in concerted activity. Litigation over the NLRB’s position continues in the lower federal courts.

It is also expected that other federal enforcement agencies, such as the EEOC, may consider taking active steps to attack class action waivers relative to employers they deem to be violating federal law (and, of course, such waivers cannot block the EEOC from litigating lawsuits in its name against employers, even if the alleged victims for whom the Commission sues are parties to a workplace arbitration agreement with their employers).

In light of AT&T Mobility v. Concepcion and American Express v. Italian Colors, it behooves employers with pre-dispute arbitration agreements in employment contracts to consider inserting class-action waivers if their agreements do not already contain them. Employers without arbitration programs are likely to consider adopting them as a means to manage the risk of employment discrimination class actions.