Posts

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).