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.

supreme-court-seal.pngBy Rebecca Bjork and Gerald L. Maatman Jr.

Let’s say you are in a dispute covered by an arbitration agreement that is vague as to whether class action arbitrations can be brought. You want to ensure that any class claims end up in a court of law instead of before an arbitrator, because you want the right to a rigorous review of any class certification decision that does not go your way. Well, as of today, unless you can convince your opponent to sign a new agreement, you have two choices: (1) find a way to get them to stipulate that the two of you agree that you have never reached any agreement about whether your agreement allows class arbitration (good luck with that); or (2) ask a court to decide the complicated and unsettled question of whether an arbitrator or a court should decide that issue in the first place (get ready to enter the “arbitrability” fray). 

So said the Supreme Court today said on a 9-0 vote in Oxford Health Plans LLC v. Sutter, No. 12-135 (2013). To be sure, the Supreme Court did not directly lay out the two choices as we have.  But as a practical matter, when we read today’s opinions — Justice Kagan wrote for the Supreme Court, and Justice Alito wrote separately to concur, with Justice Thomas joining him — they seem to be the likely consequences of this ruling, which has significantly limited the reach of the Supreme Court’s previous decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010), to the point where Plaintiffs are likely to argue that it will carry little, if any, precedential weight.   

The Supreme Court considered whether an arbitrator exceeded his authority by finding that the arbitration agreement at issue provided for class arbitration. Oxford Health, slip op. at 1. That agreement does not specifically mention class actions, but says in relevant part, “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.” Id. at 2. 

The Supreme Court reasoned that once the parties submitted the question of interpreting this language to the arbitrator, the narrow scope of judicial review under section 10(a)(4) of the Federal Arbitration Act limits a court to simply asking whether or not the arbitrator construed the agreement.  In other words, courts may not second-guess the correctness of an arbitrator’s construction of an arbitration clause.  See Oxford Health, slip op., at 5 (“the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong”). 

Moreover, the Supreme Court concluded that Oxford Health misread Stolt-Nielsen when arguing that the “‘high hurdle’ of section (10)(a)(4) is overcome when an arbitrator imposes class arbitration without a sufficient contractual basis.” Id. at 6.  Stolt-Nielsen was different, the Supreme Court said, having “overturned the arbitral decision . . . because it lacked any contractual basis for ordering class procedures, not because it lacked, in Oxford’s terminology a ‘sufficient’ one.” Id. at 6. The parties in Stolt-Nielsen had entered into “an unusual stipulation” that they had never reached an agreement on class arbitration. Id. See also Oxford Health, slip op. at 3 (“The parties in Stolt-Nielsen had stipulated that they had never reached an agreement on class arbitration. Relying on § 10(a)(4), we vacated the arbitrators’ decision approving class proceedings because, in the absence of such an agreement, the arbitrators had simply . . . imposed [their] own view of sound policy.” (internal quotation marks and citation omitted) (alterations in original)). In Oxford Health, the opposite was true: the parties disputed the meaning of the arbitration clause. Id.

The arbitrability option arises from footnote 2, where the Supreme Court explains that the outcome might have been different had Oxford Health asked a court to decide whether the question submitted to the arbitrator was even arbitrable. Id. at 5 n.2. There, Justice Kagan points to the Supreme Court’s plurality opinion in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452 (2003), as a guide. (Anyone who has read it knows it will be a murky guide, at best.) Had one of the parties asked a court to rule on the arbitrability of the issue of whether they consented to class arbitration, the court’s standard of review would have been de novo, absent clear and unmistakable evidence that the parties wanted an arbitrator to decide it. But even if this route had been taken, the Supreme Court made clear that it has not yet decided whether the availability of class arbitration even is a question of arbitrability. Id., slip op. at 5 n.2. This case did not give the Supreme Court an opportunity to decide that question because Oxford Health twice asked the arbitrator to make the decision. “In sum, Oxford chose arbitration, and it must now live with that choice.” Id. at 8.

Clearly, this footnote reflects an internal debate in the Supreme Court. Justice Alito wrote, “Today’s result follows directly from petitioner’s concession [that whether class arbitration is allowed is an arbitrable question] and the narrow judicial review that federal law allows in arbitration cases.” Id., slip op. at 1 (Alito, J., concurring). Then he wonders whether absent class members would ever have an opportunity to “agree” to class arbitration. Id. (“absent members of the plaintiff class never conceded that the contract authorizes the arbitrator to decide whether to conduct class arbitration. It doesn’t.”). If the class proceeds on an opt-out basis, “it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide” on a classwide basis how to conduct the arbitration. Id. at 2. As a result, he worries about such arbitrations being subject to collateral attacks and in that situation, class members would not be bound by an unfavorable decision, but would benefit from a favorable one. Id. (citing Am Pipe & Constr. Co. v. Utah, 414 U.S. 538, 546-47 (1974)). 

Implications Of This Decision

As the strategic choice of defending a high stakes workplace class action in a federal court or in an arbitration setting is stark, corporate counsel will watch closely to see how courts apply this decision going forward.

secondcircuit.jpgBy Gerald L. Maatman, Jr., Jennifer A. Riley, and David B. Ross

On March 21, 2013, the Second Circuit issued its long-awaited decision in Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. Mar. 21, 2013). In a significant ruling for employers, the Second Circuit held that a plaintiff has no substantive right to pursue a pattern or practice claim via a class action and, therefore, must arbitrate her discrimination claims on a bilateral basis in accord with her arbitration agreement. 

We previously have discussed the uncertain fate of arbitration agreements that prohibit class claims in prior posts (read more here, here, and here). Other cases addressing this issue continue to work their way through the Second Circuit and the Supreme Court. 

The outcome of these cases has important implications. If other courts align with Parisi, employers may be able to limit employees’ ability to pursue certain types of high-stakes class or collective actions through well-crafted arbitration agreements. 

Factual Background

Lisa Parisi and two other female employees brought a class action against Goldman Sachs alleging that the company engaged in a pattern and practice of discrimination against female employees with respect to compensation, business allocations, promotions, and other terms and conditions of employment in violation of Title VII. Id. at 2.

Parisi signed an arbitration clause agreeing that “any dispute, controversy or claim” arising out of, based upon, or relating to her employment with Goldman Sachs would be “finally settled by arbitration.” Id. 

In November 2010, Goldman Sachs moved to enforce Parisi’s arbitration agreement and compel bilateral arbitration of her claims. The company relied upon the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), that a party cannot be compelled to arbitrate on a class basis where the relevant arbitration clause is silent as to class claims. Id. at 3.

The district court denied the motion. It adopted the magistrate’s conclusion that the arbitration agreement’s preclusion of class arbitration made it impossible for Parisi to arbitrate a Title VII pattern or practice claim and, consequently, operated as a waiver of a substantive right. Id. Goldman Sachs appealed.

The Second Circuit’s Opinion

On appeal, Parisi argued that she had a substantive right under Title VII to pursue a pattern or practice claim and, because she could not proceed on a class-wide basis in arbitration, she must be permitted to proceed in court via a class action. The Second Circuit disagreed. 

The Second Circuit acknowledged that, by agreeing to arbitrate a statutory claim, a party does not forgo substantive rights afforded by statute. Id. at 5. However, it found only two case precedents where arbitration prevented plaintiffs from vindicating statutory rights: a complex antitrust case (read more here) and cases where arbitration agreements interfered with recovery of statutorily authorized damages. Id.

The Second Circuit found that Parisi had no “right” to bring a pattern or practice claim under Title VII.  Id. at 6. The term “pattern or practice” simply refers to “a method of proof.” Id. at 7.  Because private plaintiffs do not have the right to bring pattern or practice claims, the Second Circuit reasoned that “there can be no entitlement to the ancillary class action procedural mechanism.” Id. 

Parisi, accordingly, will have to offer to the arbitrators evidence of discriminatory patterns, practices or policies, if any, that she contends support her claim. Id. at 8. 

Implications For Employers

The Second Circuit’s decision is favorable news for employers. The impact of the decision, however, remains unclear, as additional cases work their way through the Second Circuit and the Supreme Court. The Supreme Court is currently considering the Second Circuit’s earlier decision in In Re American Express Merchants’ Litigation, 667 F. 3d 204 (2d Cir. 2012), where the Second Circuit found that an arbitration agreement containing a class action waiver prevented an antitrust plaintiff from effectively vindicating his rights.  And, the Second Circuit is still considering cases like Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294, 311-14 (S.D.N.Y. 2011), and Sutherland v. Ernst & Young, LLP, 768 F. Supp. 2d 547, 550-54 (S.D.N.Y. 2011), where district courts refused to compel arbitration of overtime collective action claims under the FLSA. The future of class action waivers in arbitration, accordingly, is still uncertain. Stay tuned.   

1st_Circuit_seal.pngBy Lynn Kappelman and Anthony Califano

In Awuah, et al. v. Coverall North America, Inc., No. 12-1301 (1st Cir. Dec. 27, 2012), the First Circuit reversed a district court’s ruling and ordered arbitration of workplace disputes for certain franchisees even though they had not signed, received, or reviewed an arbitration agreement. The First Circuit found that the district court had erroneously adopted a special heightened notice requirement for arbitration clauses that does not exist and, even if Massachusetts law had imposed such a notice requirement, the FAA would preempt it. Id. at 4. The decision is important for employers in the context of workplace arbitration agreements.

The Facts Of The Case

Coverall North America, Inc. (“Coverall”) contracts to provide commercial janitorial cleaning services to building owners or operators, and its “franchisees” do the cleaning. In their complaint, the franchisees asserted a variety of state law claims against Coverall including breach of contract, misrepresentation, deceptive and unfair business practices, misclassification as independent contractors, and failure to pay the wages due to them. Many (but not all) of the franchisees signed Franchise Agreements with Coverall providing that, with certain exceptions not implicated here, “all controversies, disputes or claims between Coverall . . . and Franchisee . . . shall be submitted promptly for arbitration.” Id. The district court readily enforced the arbitration agreements in those instances where a franchisee signed a Franchise Agreement containing an arbitration clause. Id. at 7. 

However, the Franchise Agreements also permitted franchisees to assign the Agreement to a person (‘the assignee’) meeting the qualifications established by Coverall for granting new franchises. Thirty-one  of the franchisees, including the sixteen appellees, did not enter into the Franchise Agreement with Coverall but rather became Coverall franchisees either by signing Consent to Transfer Agreements (“Transfer Agreements”) and Guaranties to Coverall Janitorial Franchise Agreements (“Guaranties”), or by signing only the latter Guaranties. Id. at 3-6. The sixteen appellees at issue in the appeal never even received a copy of the Franchise Agreement, but did execute the Transfer Agreements and/or the Guaranties, both of which incorporated the Franchise Agreement by reference.

The Underlying District Court Ruling

On September 22, 2011, the district court refused to enforce the arbitration agreement for certain of the franchisees and certified a class consisting of “all individuals who have owned a Coverall franchise and performed work for Coverall customers in Massachusetts at any time since February 15, 2004, who have not signed an arbitration agreement or had their claims previously adjudicated.” Id. at *7 (emphasis added) (citing Awuah II, 843 F. Supp. 2d at 174). On November 29, 2011, plaintiffs filed a motion for a ruling on the scope of the class, arguing that “those who purchased their Coverall franchises through certain ‘Consent to Transfer’ agreements[ ] that do not contain arbitration clauses” should be added to the class. Id. The district court found that some of the transferee plaintiffs had received copies of the Franchise Agreement and therefore had notice of the arbitration clause. Id. at 8. Thus, the district court’s resolution of whether or not to order franchisees to arbitrate was based on whether they had received copies of the Franchise Agreement containing the arbitration clause.

With respect to the sixteen franchisees who had not received copies of the Franchise Agreement, the district court concluded that “Coverall did not give the Transferees information sufficient to put a reasonably prudent employee on adequate notice of the agreement to arbitrate.” Id. at 9. Thus, the district court “expanded the class to include these new plaintiffs who had not been given copies of the Franchise Agreement, [although it was] referred to in the documents they did receive.” Id. The district court also held that a franchisee could not be bound to an arbitration clause if he does not have notice of it,” and that “Coverall . . . has not produced any evidence that the transferees were ever themselves shown the transferors’ franchise agreements or that they were in any other way informed about the existence of an arbitration clause.” Id. at 8. Coverall argued that “[p]laintiffs’ assertion that some specific level of notice is required before the Transferee-Owners may be bound by their agreements to arbitrate is contrary to settled law.” Id.

The First Circuit’s Decision

On appeal, the First Circuit agreed with Coverall, holding that while the Transfer Agreements did not all use the traditional language of “incorporating by reference” the arbitration clause of the Franchise Agreement, no such magic terms are required and other language in the agreements clearly communicated the purpose of incorporating the arbitration clause. Id. at 13. These agreements provided that the transferees “succeed to all of Franchisee’s rights and obligations under Franchisee’s Janitorial Franchise Agreement,” or “become liable with the Franchisee for all of the obligations imposed by the Janitorial Franchise Agreement.” Id. (internal quotation marks omitted). Moreover, the First Circuit held that the Transfer Agreements were not the only pertinent documents executed by the parties and other Transfer Agreements incorporated the responsibilities, duties, and obligations with respect to arbitration.

Implications For Employers

This case is an interesting one for employers because while it is always preferable to have an employee execute the arbitration agreement itself, this ruling implies that an employer may enforce an arbitration agreement where the employer has incorporated it by reference into another document it has provided to the employee.

gavel.jpgBy Jennifer Riley and David Ross

Many thought that the U.S. Supreme Court’s recent decisions in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), and CompuCredit Corp. v. Greenwood, 132 S.Ct. 665 (2012), had firmly established that private arbitration agreements with class action waivers were enforceable under the Federal Arbitration Act (“FAA”). However, the National Labor Relations Board and several courts – particularly in the Second Circuit – have interpreted such cases narrowly to avoid that result. The future enforceability of these waivers, and private arbitration of employment disputes overall, remains uncertain in the workplace class action context as these cases advance on appeal.

The Second Circuit’s recent ruling in In Re American Express Merchants’ Litigation, — F.3d —, 2012 WL 1918412 (2d. Cir. May 29, 2012), exposed the differing opinions of the judges in that Circuit, just as three controversial and conflicting lower court decisions make their way to potentially different Second Circuit panels on appeal.  At the same time, an appeal from the NLRB’s decision in D.R. Horton, which outlawed class action waivers altogether in employment cases, heads to the U.S. Court of Appeals for the Fifth Circuit. 

The outcome of these cases, and likely Supreme Court review, has important implications.  If courts refuse to enforce class action waivers, private arbitration of employment disputes will not survive in its current form.  Alternatively, if the courts align with recent Supreme Court opinions, employers may continue to limit their employees’ ability to pursue class or collective actions by requiring arbitration of claims on an individual basis.  Given the stakes, it is unlikely that employers will obtain certainty in this area until the Supreme Court revisits the issue.


Recently, the Supreme Court ruled in favor of arbitration and struck down a California state rule that deemed class action waivers in arbitration agreements unconscionable and unenforceable. AT&T Mobility v. Concepcion, 131 S.Ct. 1740, 1753 (2011) (discussed here). When confronted with a similar refusal to enforce class action waivers in a case brought under federal law (Credit Repair Organization Act), the Supreme Court likewise found an arbitration agreement enforceable according to its terms, reasoning that the federal statute lacked a clear “Congressional command” to the contrary. CompuCredit Corp. v. Greenwood, 132 S.Ct. 665, 670 (2012). In both cases, the Supreme Court found that the FAA mandate to enforce arbitration agreements was paramount. Nevertheless, the NLRB and several courts have refused to enforce agreements that waive class actions and require arbitration on an individual basis.

The NLRB’s Decision 

In D.R. Horton Inc., 357 NLRB 184, 2012 WL 36274 (NLRB Jan. 3, 2012), a two-member plurality of the NLRB held that Section 7 of the National Labor Relations Act prohibits employers from requiring employees to sign arbitration agreements that preclude class or collective actions. D.R. Horton required its employees, as a condition of their employment, to sign a Mutual Arbitration Agreement that precluded them from consolidating their claims, pursuing claims on a class basis, or obtaining group relief.  An employee filed an unfair labor practice charge asserting that D.R. Horton improperly interfered with his ability to engage in “concerted activities” within the meaning of the NLRA. The Administrative Law Judge dismissed the complaint, but a two-member plurality of the NLRB reversed, finding that “an employer violates the NLRA by requiring employees, as a condition of employment, to waive their right to pursue collective legal redress in both judicial and arbitral forums.” Id. at *15. The decision applies to union and non-union represented employees alike, irrespective of the federal or state law under which the claims are brought. The D.R. Horton decision is now on appeal in the Fifth Circuit.

The Second Circuit’s Chaos

Prior to AT&T, the Second Circuit articulated its own “anti-class action waiver” rule in In re American Express Merchants Litigation, 554 F. 3d 300 (2d Cir. 2009) (“Amex I”). In that case, in an opinion by Judge Pooler, the Second Circuit held that a credit card contract containing a class action waiver – which required parties to pursue all claims in arbitration on an individual basis – was unenforceable because it “would effectively preclude any action seeking to vindicate the statutory rights asserted.” Id. at 304. The Supreme Court vacated and remanded the Amex I decision in light of its intervening decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). 

On remand, in another decision by Judge Pooler, the Second Circuit relied upon an expert affidavit to find that the only economically feasible means to enforce the statutory rights in question was through a class action because the amount of an individual recovery was too small to justify pursuing claims on an individual basis. In re Am. Express Merchants’ Litig., 634 F.3d 187, 198 (2d Cir. 2011) (“Amex II”) (available here). The Second Circuit again concluded that enforcing the class action waiver would “flatly ensure” that no small merchant could challenge Amex’s arrangements and immunize Amex from federal antitrust laws – a result not intended by Congress. Id. at 199.          

Following the Supreme Court’s decision in AT&T, Judge Pooler authored a third opinion on the issue.  In Re Am. Express Merchants’ Litig., 667 F. 3d 204 (2d Cir. 2012) (“Amex III”) (available here). Although the Second Circuit acknowledged that it was “tempting” to interpret Supreme Court authority as rendering class action arbitration waivers “per se enforceable,” it reasoned that the Supreme Court had not yet addressed whether a class action arbitration waiver clause was enforceable where plaintiffs demonstrated that the practical effect of enforcement would be to preclude their ability to vindicate federal statutory rights. Id. at 212. 

The Second Circuit denied Amex’s petition for en banc review over two vigorous dissenting opinions from five judges. In Re Am. Express Merchants’ Litig., — F.3d —-, 2012 WL 1918412 (2d. Cir. May 29, 2012). Judge Jacobs, joined by Judge Cabranes and Judge Livingston, openly criticized the panel’s opinion in Amex III, accusing the panel of employing a “dubious” ground to distinguish AT&T and using a public policy – other than the public policy that the Supreme Court made paramount – to frustrate the goals of the FAA. Id. at *4-5. Judge Raggi, joined by Judge Wesley, dissented on the ground that Amex III created a split with the Ninth Circuit’s recent decision in Coneff v. AT&T Corp., 673 F.3d 1155 (9th Cir. 2012), warranting examination by the full court. Id. at *11. In Coneff, the Ninth Circuit rejected a similar invitation to make an exception to the enforceability of class action waivers where they prevent litigants from vindicating their statutory rights. Coneff, 673 F.3d at 1158-59. Against this backdrop, it seems certain that Amex will seek Supreme Court review.

Meanwhile, several controversial, anti-arbitration decisions are making their way on appeal through the Second Circuit. In Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294, 311-14 (S.D.N.Y. 2011), the district court concluded that a plaintiff’s ability to pursue overtime claims under the FLSA on a collective basis was a substantive right that could not be waived in an arbitration agreement – even though the court found that the potential recovery in an individual case was sufficient as a practical matter to allow claims to be brought on an individual basis. In Chen-Oster v. Goldman, Sachs & Co., No. 10 Civ. 6950, 2011 WL 2671813, at *3-4 (S.D.N.Y. July 7, 2011), the district court refused to compel arbitration of individual claims, finding that Title VII guaranteed the right to pursue pattern or practice claims on an class-wide basis. And in Sutherland v. Ernst & Young, LLP, 768 F. Supp. 2d 547, 550-54 (S.D.N.Y. 2011) (discussed here), also in the Southern District of New York, a district court rejected the holding in Raniere – that the right to collective actions under the FLSA was non-waivable – but still refused to compel individual arbitration under the Amex rule, because the cost to prosecute plaintiff’s individual claims was prohibitive.  Appeals in these cases are likewise before the Second Circuit.

If the history of Amex III is any guide, these three cases may yield different outcomes depending on the Second Circuit panel appointed for each appeal, making the future of class action waivers in arbitration increasingly difficult to predict in the Second Circuit. 


If allowed to stand, the decisions in Horton and Amex III would have the practical impact of greatly limiting arbitration of employment disputes, as employers refuse to institute arbitration programs that might allow bet-the-company class claims to be decided by an arbitrator with virtually no right of appeal. On the other hand, if the decisions are overturned, those rulings will pave the way for employers to institute mandatory arbitration programs that require employees to bring claims on an individual basis. The enforceability of class action waivers – and the future of arbitration – thus remain open issues of significance in the workplace class action context. 

560481-sm_seal.jpg  By Gerald L. Maatman, Jr., Jennifer Riley, and David Ross

On April 18, 2012, U.S. District Judge F. Dennis Saylor IV issued a decision in Karp v. Cigna Healthcare Inc., No. 11-CV-10361 (D. Mass. Apr. 18, 2012), granting a defense motion to compel bilateral arbitration of the Plaintiff’s claims in a proposed $100 million gender discrimination class action against Cigna. The ruling applies the two recent Supreme Court arbitration opinions – AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), and Stolt-Nielsen v. Animalfeeds International Corp., 130 S.Ct. 1758 (2010) – to eviscerate plaintiffs’ class action.

In Karp, Plaintiff brought suit on behalf of herself and other similarly situated employees contending that her employer, CIGNA Healthcare, Inc. (“Cigna”) engaged in systematic gender discrimination in violation of Title VII and Massachusetts General Laws. Finding no evidence of an agreement to arbitrate on a class basis, Judge Saylor enforced the parties’ arbitration agreement and compelled bilateral arbitration. In a significant win for employers, Judge Saylor refused to defer the decision about whether the arbitration agreement allowed class claims to the arbitrator and rejected Plaintiff’s attempts to block enforcement of the arbitration agreement by asserting a patternor practice workplace bias claim. 

Factual Background 

Plaintiff, a provider contract manager, joined Cigna in 1997. In November 2005, Cigna updated its Employee Handbook.  Plaintiff checked “yes” on an electronic receipt for the Handbook, which provided that Plaintiff “agreed” to resolve any dispute with Cigna under Cigna’s Employment Dispute Arbitration Program. Id. at 3. The receipt also stated that “I understand that any such Arbitration will be conducted pursuant to the CIGNA Employee Dispute Arbitration Rules and Procedures in effect at the time such arbitration is commenced.”Id. Neither the Handbook nor the receipt mentioned class claims. 

Cigna set forth additional detail as to the scope of arbitration – that it did not include in the Handbook – in its Arbitration Policy and Arbitration Rules and Procedures. In the Arbitration Policy, Cigna provided that no class-wide arbitrations were allowed, and in the Arbitration Rules and Procedures, Cigna provided that each party seeking resolution of its claims “must proceed individually” and “[t]here shall be no class or representative actions permitted.” Id. at 4-5. 

On March 3, 2011, Plaintiff brought an action on behalf of herself and other similarly situated individuals alleging that Cigna engaged in systematic gender discrimination by paying women less, denying promotions, giving women less preferable work assignments, and subjecting women to gender-based hostility. Defendant moved to compel arbitration and dismiss or, in the alternative, stay the litigation. 

The Court’s Opinion

Plaintiff did not dispute that she knowingly agreed to arbitrate her claims. Plaintiff, however, contended that she was entitled to assert a class-based pattern-or-practice claim, either through class arbitration or litigation, because she did not agree to waive class claims and because bilateral arbitration would not adequately vindicate her statutory rights under Title VII. 

At the outset, Judge Saylor noted that, because the arbitration agreement was not ambiguous, the determination of whether it barred or allowed class arbitration was a question for the Court to decide. Id. at 7 n.6. Relying on Supreme Court precedent, Judge Saylor found that, because “the ‘changes brought about by the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental,’” a party cannot be compelled to arbitrate class claims unless something in the contract indicates, at least implicitly, that it agreed to permit class arbitration. Id. at 7-8 (quoting AT&T Mobility LLC v. Concepcion, 131 S. Ct. at 1750).

The Court reasoned that although there was “certainly some question” about whether Cigna’s policies and procedures could be enforced against plaintiff, “there is no doubt that defendant did not agree to permit class arbitration.” Id. at 9. Accordingly, Judge Saylor concluded that he could not compel Cigna to submit to class arbitration. 

The Court next considered whether Plaintiff should be entitled to litigate her claims on a class basis in a judicial forum. Judge Saylor found that, in order to maintain a class action, a plaintiff must have an individual claim, and by agreeing to arbitrate her individual claim, Plaintiff waived her ability to serve as a class representative in a litigated action. Id. at 9-10. 

The Court rejected Plaintiff’s argument that arbitration would preclude her from vindicating her statutory rights under Title VII. Plaintiff contended that she would not be able to assert her pattern or practice discrimination claim in a bilateral proceeding because it is unavailable outside of the class action context. Id. at 11. The Court disagreed. Judge Saylor ruled that “a pattern or practice claim is clearly not a separate cause of action.” Id. at 16. Rather, a pattern or practice claim is “merely a method of proof – that is, a method of proving a Title VII claim.” Id. at 17. If a plaintiff can prove that she was the victim of an isolated incident of discrimination, “surely she should be allowed to prove that she was the victim of a more egregious form of discrimination.” Id. at 18. The “minor procedural difference” in burden-shifting that would accompany a bilateral assertion of a pattern or practice “is not sufficient to render the arbitration agreement unenforceable.” Id. at 19. 

For these reasons, the Court enforced the arbitration clause and compelled bilateral arbitration of Plaintiff’s discrimination claims. In so doing, Judge Saylor rejected the reasoning of Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, 409-10 (S.D.N.Y. 2011), where a magistrate judge reached the opposite result in a similar pattern-or-practice case.  Id. at 20 n.19.  

The “Vindication Of Statutory Rights” Gambit

While the result in Karp is a home run for the employer, defendants should be mindful that the plaintiffs’ class action bar is litigating a myriad of theories to “work-around” AT&T Mobility LLC v. Concepcion and Stolt-Nielsen v. Animalfeeds International Corp. This new phenomenon is the subject of recent media attention of several of our previous blog postings, such as the Advisen Front Page News article by Susanne Sclafane.

In this context, plaintiffs’ counsel have advanced the notion that a workplace arbitration agreement precluding a class action is void on account of its frustration of a worker’s ability to vindicate their statutory rights. Thus far, that argument has gained traction in the U.S. District Court for the Southern District of New York in Chen-Oster, which is the subject of an appeal to the Second Circuit. Signaling the importance of this issue, the U.S. Chamber of Commerce submitted an amicus brief for the defense on April 3, arguing that the vindication of statutory rights argument is incorrect, and that assertion of class claims or a pattern or practice theory does not gut an otherwise enforceable workplace arbitration agreement.

Implications For Employers  

The result in Karp is the polar opposite to Chen-Oster where the “effectuation of public policy” argument defeated the employer’s efforts to force a workplace class action into a single plaintiff bilateral arbitration. The Court’s opinion in Karp is a useful precedent for employers seeking to assert an arbitration defense under the Federal Arbitration Act in an employment discrimination class action. The Court rejected Plaintiff’s attempt to end-run an arbitration agreement by asserting a claim that, according to Plaintiff, could be litigated only on a class-wide basis. In so doing, the Court confirmed that a class action or pattern or practice claim are procedural devices – or “method of proof” – that do not allow plaintiffs to avoid bilateral arbitration.   

Co-authored by Alex S. Drummond and Brandon L. Spurlock

Since the U.S. Supreme Court’s ruling last year in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), the use of arbitration agreements to resolve employment disputes has been hotly debated, both in federal courts and elsewhere. A federal district court in Virginia – in Bennett et al. v. Dillard’s, Inc., Civ. A. No. 3:10-CV-39-JAG (E.D. Va. Mar. 10, 2011) [link to ruling] (“Bennett”) – recently ruled that the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f)(1) (the “OWBPA”), does not preclude an employer from compelling claims of age discrimination into an arbitral forum. In so holding, the Court in Bennett also rejected the notion that a pre-employment arbitration agreement prepared by an employer constitutes a contract of adhesion.

In Bennett, a group of four former employees of Dillard’s filed a multi-plaintiff lawsuit claiming they were unlawfully discharged in violation of the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq. (the “ADEA”). Id. at 1. Each of the Plaintiffs had executed pre-dispute arbitration agreements that specifically encompassed claims of age discrimination. Id. at 2. Dillard’s moved to dismiss Plaintiffs’ complaint or, in the alternative, to compel arbitration. In response, Plaintiffs claimed that the OWBPA precluded pre-dispute arbitration agreements covering ADEA claims. 

The OWBPA provides that employees “may not waive any right or claim under [the ADEA] unless the waiver is knowing and voluntary.”  29 U.S.C. § 626(f)(1) (emphasis added). The OWBPA then imposes specific requirements that must be met before a waiver is deemed “knowing and voluntary,” including that employees must be given at least 21 days to consider the agreement and 7 days to revoke it.  29 U.S.C. § 626(f)(1) (A) through (H). The arbitration agreements signed by the Plaintiffs in Bennett did not meet these requirements.  Nonetheless, the Court held that the arbitration agreements did not violate the OWBPA. Relying heavily on the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), Bennett held the OWBPA’s waiver requirements apply only to substantive rights. Id. at 4.

While this central holding is important, Bennett is instructive in another significant aspect. Since Stolt-Nielsen, plaintiffs in employment cases have attempted to distinguish the Supreme Court’s holding by contending that pre-employment agreements to arbitrate often are contracts of adhesion that should be construed against the employer. Accordingly, these plaintiffs argue that reading an assent to arbitrate class claims into pre-employment arbitration agreements is consistent with Stolt-Nielsen, even if the arbitration agreement is silent on the issue of class arbitration. Bennett deals a blow to this argument.

In Bennett, Plaintiffs argued the Dillard’s agreement was a contract of adhesion. Id. at 7.  The Court noted that a contract of adhesion involves an individual with no choice in the matter. Id. The Court reasoned that “Dillard’s employees had the option to work elsewhere, so the arbitration agreement is not a contract of adhesion or otherwise unconscionable.” Id. at 8.

Nonetheless, Bennett is not uniformly favorable to employers. In Bennett, Plaintiffs argued that arbitration did not provide an effective means of resolving their claims because they would need separate, individual arbitrations. Id. at 8-9. The Court, in dicta, noted that the Dillard’s agreement did not preclude “a single unified arbitration,” and opined that the case “appears to be a good candidate for a single arbitration.” Id.  Ultimately, the Court held that the time and effort needed for arbitration was not necessarily greater than the time for judicial proceeding. Id. at 9. More importantly, the Court never held or even suggested that a single arbitration was required in the face of silence.

For employers managing their risks of litigation, Bennett is significant in two ways. First, it reaffirms a line of cases finding that the OWBPA does not preclude arbitration of age discrimination claims under the ADEA, even if the underlying agreements do not comply with the OWBPA. Second, and more importantly, Bennett rejects the often advanced plaintiffs’ theory that pre-employment arbitration agreements are contracts of adhesion that must be construed against an employer. The holding in Bennett should be helpful to employers seeking to stave off class arbitrations where the agreements are silent on the issue.