Tag Archive for: arbitration agreements

Ninth Circuit strikes down California’s AB 51

In Chamber of Commerce of the United States of America v. Bonta, the Ninth Circuit struck down the California law known as “AB 51,” which, without explicitly invalidating mandatory pre-dispute employment arbitration agreements, would have made it a crime for employers to enter into such an agreement with its workers. The Court held that AB 51 is preempted by the Federal Arbitration Act, which the Supreme Court has held robustly permits arbitration agreements.

Supreme Court narrows federal courts ability to find jurisdiction to enforce arbitration awards under the Federal Arbitration Act

The Federal Arbitration Act is a nationwide law that authorizes arbitration of a number of types of claims, including many employment claims, such as discrimination and retaliation lawsuits. In recent years, the Supreme Court has taken an increasingly strong view of enforcing arbitration agreements, including in the employment context. But does a federal or a state court enforce the resulting arbitration award? In other words, say, the parties to a dispute agree that they are bound by an arbitration agreement, and they take the matter to arbitration, where one party loses, then that party tries to file a fresh lawsuit in court, where does the winner go to say, “Hey, I just litigated this in arbitration, I won, I shouldn’t have to litigate it all over again, please, court, enforce the award I just received from the arbitrator”?

Section 9 of the FAA authorizes federal courts to enforce an arbitration award, but it does not give the federal court substantive jurisdiction, meaning, the federal court has the power to enforce the arbitration award but it, first, must have jurisdiction over the parties before it can exercise that power. Federal court jurisdiction is a bit unusual. Unlike state court jurisdiction, which exists pretty broadly in all 50 states, federal court jurisdiction is limited to what is called (1) “diversity” jurisdiction, when the parties are from different states and at least $75,000 is at-issue, and (2) “federal question” jurisdiction, when, wherever the parties are from and whatever amount is at-issue, there is at least one federal law at-issue.

The FAA as a statute clearly did not create its own substantive federal law that would give rise to a “federal question” in every enforcement action. In other words, Congress did not intend that the winner in arbitration under the FAA would always be able to go to a federal court to enforce its award, Congress left at least some such enforcement actions to state courts.

But what if the underlying claim is itself a federal law claim, does that underlying federal law bootstrap the case up into a matter of federal-question jurisdiction? That was the issue in a recent Supreme Court case decided today. In Badgerow v. Waters, the employee worked for a securities company, and as such was to mandatory arbitration under the FAA pursuant to Financial Industry Regulatory Authority requirements. When she asserted claims arising out of her employment, the claims were accordingly submitted to arbitration, which she lost. Refusing to accept the arbitration award, she believed “that fraud had tainted the arbitration proceeding” (quoting the Supreme Court), she sued the company in state court. The company went to federal court and asked it to enforce the arbitration award by blocking the state court lawsuit. In support of its assertion that the federal court had jurisdiction, the company argued the federal court could “look through” the paperwork to see that the underlying employment claims asserted by Badgerow included federal law claim issues, thus raising a federal question.

The Supreme Court held that the federal court could not “look through” the paperwork to find federal question jurisdiction. The Supreme Court noted that the company could still establish diversity jurisdiction.

Interestingly for practitioners, the Supreme Court reaffirmed its prior ruling that “look through” is permitted when a party is seeking to enforce the arbitration agreement. In other words, had Badgerow refused to arbitrate her claims, the company could have sued in federal court, and a federal court could have “looked through” the paperwork at her underlying claims to determine that she was asserting a federal question. That would have given that hypothetical federal court jurisdiction to enforce the arbitration agreement by ordering her to go to arbitration. However, the Supreme Court held the language in the FAA that permitted “look throughs” in cases seeking enforcement of arbitration agreements is not present for cases involving enforcement-vacation of arbitration awards.

The Supreme Court’s ruling was near unanimous, with just one dissent. The majority anticipated this limitation will not likely blunt the enforcement of arbitration agreements or arbitration awards. Indeed, it is arguably a relatively obscure procedural twist in the sense that lawsuits to enforce arbitration awards are relatively rare, and even rarer are those asserting fraud as grounds to vacate an arbitration award.  The decision does not suggest that the Supreme Court is backing away from enforcing arbitration agreements under the FAA.

President Biden signs new law allowing employees to opt out of mandatory pre-dispute arbitration agreements in cases of sexual harassment and sexual assault

President Biden signed H.R.4445 (the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act”), which allows employees to opt out — on their own behalf or as a class representative — of mandatory pre-dispute arbitration agreements in any “sexual harassment dispute or sexual assault dispute.” Both types of dispute are defined broadly to encompass any such kind of violation of federal, tribal or state law. The Act does not allow individuals opt-out rights for other types of claims such as racial discrimination.

How this Act will apply when a person asserts both a sexual harassment claim and some other kind of claim, say, a race discrimination claim is not clear. The Act says in one place that a “case” involving a “sexual harassment dispute or sexual assault dispute” can be litigated (is not arbitrable), suggesting that the entire “case” might enjoy opt-out rights, but that very same sentence then says that is so only if the other claims “relate to” the sexual harassment/assault claims. The courts will need to decide in future litigation what all of that means and how it will apply to particular cases.

The Act does not appear to explicitly require employers to take action, such as revising their existing arbitration agreements or giving notice of this new right to employees.

The Act is effective only as to disputes and claims that arise and accrue on or after March 3, 2022.

Supreme Court holds that mandatory pre-dispute arbitration agreements mandate arbitration and can block class-collective actions despite California law to contrary

Since at least 2019, it has been clear under Supreme Court precedent that mandatory pre-dispute arbitration agreements entered into with employees are binding and enforceable, even if it means the employee cannot bring a class- or collective-action as part of her claims. California attempted to work around that caselaw with an innovative state law (“PAGA” ) unlike any other in any state, which purported to say the state itself had the right to bring class- and collective-actions and that an individual can bring the state’s claim as, what PAGA calls, a Private Attorney General. PAGA then added that individuals could not waive that right (in for example an arbitration agreement). In Viking River Cruises, Inc. v. Moriana, the Supreme Court ruled that, no, such an individual, if she has signed an arbitration agreement, even a mandatory pre-dispute arbitration agreement, must submit her own claims to arbitration and, once she has done so, has no mechanism under PAGA for attempting to bring a class-collective action in court.

In so ruling, the Supreme Court held that federal law preempts Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014).

The Supreme Court’s opinion’s wording has led at least some commentators to speculate that the California legislature may attempt to re-draft PAGA in response to the Supreme Court’s Viking River Cruises decision.

Supreme Court holds baggage handler is “engaged in foreign or interstate commerce” and therefore need not arbitrate wage claims and may instead pursue a class-collective action in court

The interplay between federal and state wage-hour laws versus the Federal Arbitration Act is a bit tricky. To be sure there are complicated nuances and conflicting state and local laws, but to simplify: Federal and state wage-hour laws permit employees generally to pursue a class-collective action in court; however, if they have entered in an arbitration agreement — even a mandatory pre-dispute arbitration agreement — the Federal Arbitration Act requires them to pursue their wage-hour claim instead only in arbitration, where they may pursue only their own individual claims (not a class-collective action). In turn, the FAA contains its own carveout for employees who are “engaged in foreign or interstate commerce.” If employees fall into that carveout, they drop back to the general rule and need not arbitrate wage claims and may instead pursue a class-collective action in court.

In this case, the Supreme Court had to decide where baggage handlers fall in that statutory scheme. The Circuit Courts were split. In a unanimous decision, Southwest Airlines Co. v. Saxon, the Supreme Court cautioned that some employees, like perhaps janitorial staff, may not fall into the interstate commerce exception, but baggage handlers do. Therefore, the plaintiff baggage handler was not required by the FAA to submit her wage-hour claims to individual arbitration; rather, she is, the Supreme Court held, entitled to pursue them in court and, there, may attempt to assert a class-collective action.

Supreme Court holds that prejudice need not be shown if a party waives its right to demand arbitration

The FAA (Federal Arbitration Act) permits a party to an arbitration agreement to demand, when sued in court, that the lawsuit be submitted to arbitration instead, but what if that party waives its right to demand arbitration by litigating the case in court for a while before deciding to demand arbitration? Must the other party show it was prejudiced by the delay? A unanimous Supreme Court held, no, the other party need only show that the party now demanding arbitration had knowingly relinquished its right to demand arbitration by acting inconsistently with that right. The case was Morgan v. Sundance, Inc.  The Supreme Court left to the lower courts to decide how its new rule would apply in particular circumstances, holding only that prejudice is not required.

Ninth Circuit holds Amazon drivers are not required to arbitrate

Following on the Third Circuit‘s ruling that gig-economy drivers, like those for Uber and Lyft, are not required to arbitrate, the Ninth Circuit held that so-called final mile drivers for Amazon, who deliver products from Amazon warehouses to their final destination also fall into the interstate transportation exception and therefore are not required to arbitrate. Although such drivers may, themselves, drive only intrastate, they are, in doing so, the Ninth Circuit held, merely completing the final leg of interstate transportation, at least where the goods do not “come to rest” in the in-state warehouse where such drivers pick them up for final delivery.

Source: Rittman v. Amazon, Inc., — F.3d — (9th Cir. 8/19/2020).

Arbitration agreement held enforceable despite impossibility of complying with governing-rules language

The Colorado Court of Appeals recently held that an arbitration agreement is enforceable even if complying with its governing-rules language is impossible. In the case, the parties entered into an arbitration agreement calling for any dispute to be governed by the rules of a particular arbitration company. One of those rules was that only that arbitration company could be the arbitrator applying its rules; in other words, one rule was that other arbitrators could not apply its rules. The problem was that the arbitration company did not do the kind of arbitrations that the parties intended. When a dispute later arose, they still did not. Therefore, it was impossible for the plaintiff to bring her case before that company, and, she contended and the trial court agreed, it would have been a violation of its rules — the rules agreed to by the parties — if a different arbitrator were to apply those rules. The Colorado Court of Appeals disagreed, holding that the parties had agreed to arbitrate, so arbitrate they must, though whoever they pick to be the arbitrator should still apply the other company’s rules for arbitration (despite the fact those rules prohibit other companies from apply those rules). The Court cautioned its conclusion might have been different if the parties had expressly stated that the prior company was their exclusive selection for an arbitrator.

Source: Johnson-Linzy v. Conifer Care Communities, 2020 COA 88 (6/4/2020).

Federal court freezes California’s new anti-arbitration law AB 51

A federal court in California has frozen California’s 2019 anti-arbitration law, numbered AB 51 (“Assembly Bill”). AB 51, which would have taken effect January 1, 2020, would have barred arbitration agreements entered into — even through an “opt out” clause — as a condition of employment, at least as to California state law claims. The court’s ruling is a welcome clarification since AB 51 stood in obvious contradition to and in apparent violation of the United States Supreme Court’s many rulings under the Federal Arbitration Act. AB 51’s effective date is now frozen pending further litigation.

Source: Order Granting Temporary Restraining Order And Setting Expedited Hearing on Preliminary Injunction, Case No.  2:19-cv-02456-KJM-DB  (12/30/19).

California attempts to ban mandatory (even opt-out voluntary) pre-dispute arbitration agreements

On October 10, 2019, the Governor of California signed into effect California’s AB 51, which bans mandatory pre-dispute arbitration agreements. This new law continues California’s struggle to find a way to limit pre-dispute arbitration, in direct conflict with the Supreme Court’s recent cases upholding such arbitration.

AB 51 prohibits even otherwise-voluntary pre-dispute arbitration agreements are banned if they would require an “opt out” or “any (other) affirmative action” by the employee to preserve the right to litigate not arbitrate, quoting sec. 432.6(c). AB 51 contains a 1-sided attorney fees clause, which allows a worker but not an employer to recover attorney fees if successful in litigation over the enforceability of an arbitration agreement. Additionally retaliation against a worker who refuses to agree to a pre-dispute arbitration agreement is prohibited, as is conditioning new or continued employment on such an agreement. According to sec. 432.6(h), AB 51 only applies to “contracts for employment entered into, modified, or extended on or after January 1, 2020,” at which time AB 51 will take effect.

It is anticipated that AB 51 will spark immediate litigation as it appears to stand in flat conflict with (and is therefore preempted by) the federal Fair Arbitration Act (FAA), as the Supreme Court has already ruled in a number of recent cases, including its recent decision in Lamps Plus and Epic Resources

Indeed it is so easy to anticipate such legislation that the California legislature itself preemptive responded to such challenges when it passed AB 51 by arguing it was somehow only addressing how pre-dispute arbitration agreements could be entered into in the state of Colorado, which seems to be the very thing that the Supreme Court has been saying states may not do as Congress preempted the field with its FAA. California’s argument frankly seems to make little sense and is expected to find no support within the Supreme Court’s recent line of arbitration cases.

Employers should carefully re-consider any arbitration agreement in California and anticipate that, unless AB 51 is blocked by the courts, they risk becoming a test case for litigation if they require pre-dispute arbitration agreements there after 1/1/2020, even if their agreement is otherwise-voluntary on the basis of an opt-out provision

NLRB implements Supreme Court’s 2018 decision on arbitration agreements

In 2018, the Supreme Court rejected, in a decision titled Epic Systems Corp. v. Lewis, the argument that Section 7 of the National Labor Relations Act’s protections for protected concerted activity somehow encompass a right to file class action and collective action lawsuits. There the Supreme Court held that, accordingly, employers can require pre-dispute arbitration agreements, even if it means such agreements block class and collective actions.

The Board recently was faced with a case on the issue and adopted the Supreme Court’s approach, restating that the NLRA does not bar arbitration agreements, even if they have that effect. In doing so, the NLRB clarified that employers are still prohibited from retaliating against employees who choose to act together by filing a class or collective action. “We reaffirm, however, longstanding precedent establishing that Section 8(a)(1) prohibits employers from disciplining or discharging employees for engaging in concerted legal activity, which includes filing a class or collective action with fellow employees over wages, hours, or other terms and conditions of employment.

Source:  Cordua Restaurants, Inc., 368 NLRB No. 43 (8/14/19).

Supreme Court rules arbitrator should, depending on language, decide arbitrability, but Colorado law might say otherwise?

Earlier this year, the Supreme Court held, in Henry Schein, Inc. v. Archer and White Sales, Inc., held that, depending on the language of the parties’ arbitration agreement, it is for an arbitrator, not a judge in court, to decide questions of arbitrability. The decision involved relatively common language saying, “Any dispute arising under o related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property…) shall be resolved by binding arbitration….” That language is sufficient, the Court held, to invest in the arbitrator, not the judge, the arbitrability of a complaint that sought in part injunctive relief (arguably falling into that language’s exception). The Supreme Court’s decision significantly shifted into arbitration an even larger chunk, as it were, of the kinds of issues that are frequently litigated in these cases. The Supreme Court relied on the Federal Arbitration Act’s broad policy of favoring arbitration.

A recent article in the Colorado Lawyer notes that CRS 13-22-206 of Colorado’s state arbitration act might suggest otherwise, at least as to cases seeking arbitration under state law versus the FAA, which the article notes might be a question. Section 13-22-206 of Colorado’s state law provides, in part, as follows:

(2) The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.

(3) An arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.

(4) If a party to a judicial proceeding challenges the existence of, or claims that a controversy is not subject to, an agreement to arbitrate, the arbitration proceeding may continue pending final resolution of the issue by the court, unless the court otherwise orders.

 

Gene Commander, Esq., author of the article, concludes with the helpful suggestion that drafters consider FAA preemption and further draft the agreement to clearly memorialize the parties’ intent as to whether and which arbitrability issues will be decided by a judge versus a court.

Supreme Court reaffirms its ruling on arbitration agreements as bars to class actions, begins chipping away at state laws to the contrary

The Supreme Court reaffirmed its recent ruling in Epic Resources that arbitration agreements, even mandatory pre-dispute arbitration agreements, bar class actions, even when silent on the subject. In doing so, the Supreme Court declined to adopt a standard that would have required such agreements to “clearly and unmistakably” permit class actions, ensuring the issue of just how much an arbitration agreement can and cannot say on the issue of class actions will continue to be litigated. For now, its decision, combined with Epic, mean, at least, that silence is itself a bar to class actions in arbitration.

In this decision the Supreme Court extended its Epic ruling even over what the lower courts had held was contrary California law. The lower courts had held that California law would permit arbitration of class action claims if the arbitration agreement was, although not silent, at least ambiguous on the issue. The lower courts had held that such amibiguity should be interpreted against the company, as the drafter of the agreement. The Supreme Court held here, no, federal public policy under the Federal Arbitration Agreement called for any ambiguity to be interpreted in favor of arbitration, without class actions.

The decision was a tough 5-4 split for the justices, with J. Kagan authoring a vigorous dissent.

The majority’s reasoning suggests other state laws that attempt to chip away at mandatory pre-dispute arbitration agreements are likely to fall if challenged. However, employers should remember that, at least as written, this decision does not expressly mandate the reversal of state laws like California’s notorious fairness factors (Armendariz).

Employers wishing to adopt language that expressly blocks class actions in arbitration, or even, for example, to delete their current opt-out (or opt-in) provisions, may wish to consider the effects first. As other employers have begun to see, blocking class action claims in arbitration can guaranty the filing of mass individual demands for arbitration, which may prove much more costly and time-consuming than the class action.

Source: Lamps Plus v. Varela, — S.Ct. —, case no. 17-988 (4/24/19).

California continues its contortions over arbitration agreements in employment cases

A trio of recent cases illustrateS how federal and state courts in California continue to struggle with their efforts to reconcile the recent pro-arbitration rulings by the Supreme Court with the historically anti-arbitration approach in California.

In NBCUniversal Media, LLC v. Pickett, the Ninth Circuit of the U.S. Court of Appeals held that an employee was required, under the Supreme Court’s 2009 14 Penn Plaza decision, to arbitrate individual employment discrimination claims under his union’s collective bargaining agreement’s arbitration clause, which read “neither the Union nor any aggrieved employee may file an action or complaint in court on any claim that arises under [an anti-discrimination clause], having expressly waived the right to so file.”

While that seemed to be a relatively straightforward application of the Supreme Court’s arbitration cases, the California Court of Appeals seemed to make the waters muddier in a pair of other cases.

In one case, Del Rosario Martinez v. Ready Pac Produce, Inc., the California Court of Appeals noted that the Supreme Court ruled in its 2011 Concepcion case and then in its 2018 Epic Resources case that an arbitration agreement is enforceable even if it means the employee is unable to pursue a class action. In line with those decisions, the Court held that the plaintiff was required to arbitrate her wage claims even though she was unable to pursue a class action.

However, in the other case, Ramos v. Superior Court of San Francisco County, the California Court of Appeals considered the same Supreme Court decisions and held they did not alter the fundamental underlying approach that California has taken against arbitration of employment claims, since the California Supreme Court’s 2000 decision in Armendariz. Under the Armendariz approach, the Court then held the arbitration agreement in this case was unconscionable and therefore unenforceable under California law, even though it would have been enforceable under federal law:

In sum, the arbitration agreement as applied to Ramos’s statutory and wrongful termination claims contains four unconscionable terms. The provisions requiring Ramos to pay half the costs of arbitration, pay her own attorney fees, restricting the ability of the panel of arbitrators to “override” or “substitute its judgment” for that of the partnership, and the confidentiality clause, are unconscionable and significantly inhibit Ramos’s ability to pursue her unwaivable statutory claims. Because we are unable to cure the unconscionability simply by striking these clauses, and would instead have to reform the parties’ agreement in order to enforce it, we must find the agreement void as a matter of law.

These three cases don’t answer every, or even most, questions about arbitration agreements in California employment cases. They do illustrate the federal and state courts continuing efforts to try to reconcile California’s Armendariz approach with the Supreme Court’s. Employers who wish to utilize arbitration agreements in California should carefully consider their options.

Would-be class action plaintiffs jujitsu Uber’s arbitration agreement

In a move Bruce Lee would have admired, a group of 12,501 drivers seeking to assert wage-hour and related claims against Uber — faced with having each executed arbitration agreements — have filed a Petition in the federal courts for the Northern District of California demanding just that, 12,501 individual arbitrations.

The Petition illustrates what is likely to become a powerful tactic for would-be class/collective action plaintiffs who find themselves otherwise stymied by arbitration agreements that do not permit class/collective actions. As reported here, the U.S. Supreme Court recently endorsed arbitration agreements as effective tools against class/collective action litigation. This move turns that tool back onto the employer itself.

The drivers allege that, as early as August 18, 2018, they began submitting claims to arbitration under the arbitration agreements. The drivers allege that, as of the time of the Petition, 12,501 demands for arbitration had been submitted.

Of those 12,501 demands, in only 296 has Uber paid the initiating filing
fees necessary for an arbitration to commence. Out of those matters, only 47 have
appointed arbitrators, and out of those 47, in only six instances has Uber paid the
retainer fee of the arbitrator to allow the arbitration to move forward..

Why hasn’t Uber (allegedly) paid the arbitrator’s retainer fees in the other cases? Well, if true, it might be related to the (alleged) fact that (according to the Petition, the fee in each such case is a “NON-REFUNDABLE filing fee of $1,500 for each.” As in, according to the Petition, a total of $18,681,000 (12,501-47x$1,500), just to start each of the 12,501 cases.

Are the Uber drivers asking the court to, therefore, let them out of their arbitration agreements? Are they asking the court to allow them to pursue a class/collective action in court? No, because that would be contrary to recent Supreme Court decision. Instead, they’re asking the Court to order Uber to comply with the (alleged) arbitration agreements, starting by paying the initial arbitration fees. The Petition seeks other relief to include an order requiring Uber to continue to participate in each of the 12,501 arbitrations and to pay the drivers’ attorney fees and costs in prosecuting their Petition.

 

Court may enter default judgment if party refuses in “bad faith” to pay arbitration fees

As noted in a previous post, arbitration isn’t just a private form of litigation. It’s a fundamentally different process than litigation. One major difference is that, in arbitration, one or both parties (depending on their arbitration agreement) pays the arbitrator’s fees, and those fees need to be paid as the case is being processed. The parties can’t typically just wait and decide whether to pay after they receive the arbitrator’s award. Refusal to pay those fees — held the Eleventh Circuit — can result in a judgment against a party, if in bad faith, as opposed to inability to afford them.

The case followed a bit of a contorted process.

  • The litigation began when a recently discharged worker (Hernandez) filed a wage claim lawsuit in court against his former employer (Acosta Tractors).
  • The company moved to compel arbitration and provided the court with a copy of the arbitration agreement that Hernandez had signed. The court agreed and ordered the case to proceed to arbitration.
  • Then, additional claims were filed, separately, by Hernandez’s attorney on behalf of other individuals, which also went to arbitration.
  • Acosta Tractors asked the arbitrator to consolidate the various proceedings, but the arbitrator refused.
  • Within a year, the various arbitrations were still being processed, going through pre-hearing discovery.  The arbitrator’s fees alone were nearing $100,000.
  • Acosta Tractors filed a motion back in court asking the judge to take the case back from the arbitrator, saying it was costing too much time and money in arbitration. Acosta Tractors said the whole arbitration agreement had been intended to provide a quicker, less expensive process than litigation, but, it said, at that point “the Arbitration in this matter has failed its essential purpose.”
  • The court refused. Acosta Tractors asked the court to reconsider, and it again refused.
  • Stuck with a process it no longer wanted, and possibly could not afford, Acosta Tractors refused to pay the arbitrator’s fees.
  • At that point the arbitrator cancelled further proceedings, and Hernandez asked the court to enter default judgment against Acosta Tractors on his wage claim. The court did so. Never having had its day in court, this left Acosta Tractors, not only owing the arbitrator $100,000 in arbitrator fees, to process matters that hadn’t even gone to hearing yet, plus owing Hernandez on his underlying wage claim, a claim in which Acosta Tractors had been denying liability.

How much was Hernandez’s underlying claim for wages? According to the Eleventh Circuit decision, he demanded only $7,293, a relatively small amount no doubt in light of the overall time, money and energy spent defending his claim, even before any actual hearing was held on the merits of the case.

On appeal the Eleventh Circuit held that, when a party refuses to pay the arbitrator’s fees, a court can indeed enter default judgment against that party, but only if the court finds, first, that the party’s refusal to pay was in “bad faith,” as opposed to an inability to afford the fees.

On remand, the District Court may well find that Acosta acted in bad faith in choosing not to pay its arbitration fees. After all, Acosta acknowledges it quit paying after the arbitrator failed to consolidate Mr. Hernandez’s case with the other cases brought by other Acosta employees, and because it thought the arbitrator had allowed too much discovery. Acosta also noted that arbitration was set to cost more than Mr. Hernandez’s claim was worth. A calculated choice to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping. And this type of behavior would surely be a factor the District Court could consider in deciding whether to sanction Acosta by entering a default judgment. At the same time, a party’s good faith inability to afford the arbitration fees would be a factor properly considered to weigh against such a sanction. See Tillman v. Tillman, 825 F.3d 1069, 1074 (9th Cir. 2016) (finding that plaintiff’s inability to pay arbitration fees was “not culpable and so does not merit a harsh penalty, particularly given the public policy favoring disposition of cases on their merits” (quotation omitted)).

The case is a powerful reminder that arbitration is an entirely different process than litigation, and in arbitration, the courts will rule that parties get what they get. Arbitration agreements are powerful and potentially useful tools. Their pros and cons should be carefully considered.

Source: Hernandez v. Acosta Tractors, Inc.case nos. 17-13057 and 17-13673 (11th Cir. 8/8/18).

You get what you get with arbitration, holds Colorado Court of Appeals

Employers considering adopting arbitration agreements might be interested in a recent decision by the Colorado Court of Appeals. The Court’s ruling highlights some of the major differences between litigating in courts and arbitrating before a private arbitrator.

The case involved an arbitration agreement that required arbitration of claims “arising” under the parties’ contract. One of the parties brought a claim for violation of the implied duty of good faith and fair dealing, which is a separate claim that sounds in tort, not contract. The argument was that, because it is a tort claim not a contract claim, it was not subject to arbitration. Even though the arbitration agreement’s language was narrower than the more customary phrase, “related to or arising out of,” the Court held it was, nonetheless, broad enough to require arbitration of the tort claim.

Next, the arbitrator’s ruling was challenged on substantive grounds. The party contended the arbitrator had gone so far as to improperly re-characterize its claim, then deny the claim as re-characterized. The party felt it had never gotten a ruling on its actual, original claim. However, arbitration does not generally provide for a right of appeal. There are only very limited grounds for appeal. Additionally arbitration does not typically involve a court reporter being present, so there is generally no transcript of testimony. The Colorado Court of Appeals held that, even if the arbitrator had erred, there was no way for the Court of Appeals to analyze the arbitrator’s ruling, since with no transcript of testimony, it had no way of knowing what had occurred in the hearing.

We know from the arbitrator’s award that the evidentiary part of the hearing lasted two days, two witnesses testified, the arbitrator admitted about fifty-five exhibits, and the parties gave their closing arguments over the telephone. But we do not know what anyone said during the hearing. As a result, we must, as we have previously concluded, presume that the transcript would support the arbitrator’s award.

The case is a good reminder that, for all its advantages, arbitration comes with its own set of disadvantages. It isn’t just a quicker more private version of litigation. Companies considering arbitration agreements should carefully consider both the pro’s and con’s of arbitration.

Source: Digital Landscape v. Media Kings, case no. 17 CA 1111 (Colo.App. 9/20/18).

Supreme Court upholds mandatory pre-dispute arbitration agreements, even when they bar class/collective actions

In a 5-4 decision the Supreme Court may have given employers — at least in some states — to block class and collective actions. The Court ruled that mandatory pre-dispute arbitration agreements are enforceable under the Federal Arbitration Act (FAA), even in employment cases, and even as a block against class/collective actions. The Court had previously so ruled in the context of consumer contracts. In this case, the Supreme Court extended that ruling to employment agreements.

This ruling means companies can now lawfully require — at least under federal law — both consumers (as a condition of buying their product or service) and now employees (as a condition of working for the company) to agree,

  • Before any dispute ever arises,
  • To submit any future possible disputes to arbitration,
  • Instead of litigating them in court, and
  • Unless otherwise spelled out in the arbitration agreement, to waive any future rights to participate in class or collective actions.

In extending its ruling to employment cases, the Court rejected the argument that the National Labor Relations Act protects an employee’s right to join class/collective actions.

Perhaps of greatest importance the Court signaled a sharp curtailing of precedent holding that courts must defer to administrative agencies. That principle is called Chevron deference (after the Supreme Court’s 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.). Chevron deference has become highly controversial and is seen by conservative legal theorists as the chief vehicle for creation of the so-called administrative state. Here the issue of Chevron deference was raised because the National Labor Relations Board had held that the statute it oversees, the National Labor Relations Act, does include protection for class/collective actions and therefore should have rendered illegal the agreement at-issue. Over a heated dissent, the Supreme Court rejected the argument that the Board’s interpretation of the NLRA was entitled to deference. Whether this portends an end to Chevron deference or will prove an isolated ruling remains to be seen.

A “collective” action is like a class action. Some laws, notably, some wage-hour laws (such as minimum wage and overtime laws) permit “collective” actions instead of class actions. Simply put, the difference is that in a class action, the judge declares the existence of a class, and class members opt out of the class if they do not wish to participate; whereas, in a collective action, members must opt in to join the class.

Employers that have previously been concerned about stepping into the waters of mandatory pre-dispute arbitration agreements may now wish to consult with counsel about doing so. Employers should remember that, although this is a strong case for employers, it does not necessarily apply to claims brought under state laws, and some states, notably both New York and California, have taken strong positions against this type of agreement.

Source: Epic Systems Corp. v. Lewis, case no. 16-285 (5/21/18)

Obama-era Executive Order 13673 (entitled Fair Pay and Safe Workplaces”) repealed

Congress has repealed regulations implementing President Obama’s 2014 Executive Order 13673, titled the Fair Pay and Safe Workplaces Act, and, as he signed that Congressional Resolution into effect, President Trump signed his own Executive Order repealing President Obama’s Executive Order itself.

This brings an end to Executive Order 13673 in its entirety. The executive order had been highly controversial. On one hand its proponents praised it as a means of protecting civil rights for workers at government contractors; on the other its critics called it unclear, impractical, ineffectual and harmful. Worse for the order, parts were quickly blocked by the courts as an unconstitutional Presidential overreach in violation of the Constitution’s separation of powers and speech principles.

The Executive Order’s now-defunct provisions had included a requirement that government contractors self-disclose labor and employment violations and a prohibition against government contractors entering into mandatory pre-dispute arbitration agreements.

Source: House Joint Resolution 37 and Executive Order dated 3/27/18.

Court, not arbitrator, decides if class arbitration is available

Where employers have entered into pre-dispute arbitration agreements with their workers, who decides if the workers can force the company to arbitrate class claims: a judge or an arbitrator? The answer can often drive the entire case. If an arbitrator gets to decide the question, it means the case effectively goes to the arbitrator, even if just for that issue. An employer that entered into an arbitration agreement, which does not permit class actions, finds itself having to arbitrate a class action, or at least having to arbitrate whether it should have to arbitrate a class action.

This was the reasoning by the Eighth Circuit in a recent decision where it observed that sending the case to the arbitrator, if even for just that one issue, would mean “(t)he benefits of arbitration are substantially lessened in a class arbitration proceeding.” Accordingly, the court joined the Third, Fourth and Sixth Circuits, holding that judges in court should decide, as a threshold of any arbitration action, whether any given arbitration agreement permits class actions. This leaves the California Supreme Court the lone holdout for the more plaintiff-friendly position that would send the case to an arbitrator.

Source: Catamaran Corp. v Towncrest Pharmacy

Tenth Circuit holds conflicting arbitration agreements mean no arbitration agreement

The company and a worker entered into six agreements, each of which contained an arbitration provision. While there was no doubt the parties intended to arbitrate any disputes between them covered by the agreements, the arbitration provisions were not identical. They differed in their details.

The agreements contain conflicting arbitration provisions. See Aplt. App. 167–87. Suffice it to say the conflicts involve (1) which rules will govern, (2) how the arbitrator will be selected, (3) the notice required to arbitrate, and (4) who would be entitled to attorneys’ fees and on what showing.

The Tenth Circuit held those differences were “irreconcilable” and as such established that there had been no meeting of the minds. Worse, as is often in contracts, there was no clause saying which agreement would control over the others in the event of a conflict. Accordingly the Court refused to compel arbitration.

The decision reminds parties to review all their agreements and to keep the terms of their arbitration provisions, in particular, consistent.

The case was Ragab v. Howard, case no. 15-1444 (10th Cir. 11/21/16).