Hunton Employment & Labor Perspectives

The legal path between employee arbitration agreements under the Federal Arbitration Act (“FAA”) and representative claims under the California Private Attorney General Act (“PAGA”) has been anything but smooth. A new (albeit unpublished and uncitable) case, Piran v. Yamaha Motor Corp., et al., No. G062198, 2024 WL 484845 (Cal. Ct. App. Feb. 8, 2024)(unpub.) (“Yamaha”), helps to illustrate the challenges and unanswered questions lingering in the wake of this rapidly-developing area of law.

On September 29, 2023, the U.S. Supreme Court granted certiorari in Bissonnette v. LePage Bakeries Park St. LLC, a case from the Second Circuit Court of Appeals involving application of the Federal Arbitration Act’s (“FAA”) exemption for transportation workers.

Last week, the Ninth Circuit issued a decision holding that California employers can require employees to enter into mandatory arbitration agreements as a condition of their employment.  In the decision, Chamber of Commerce v. Bonta, No. 20-15291 (9th Cir., Feb. 15 2023), a three-judge panel reversed the Ninth Circuit’s own prior decision and found that Assembly Bill 51 (AB 51), which sought to impose criminal and civil penalties on employers who require employees to enter into such agreements, is preempted by federal law.

Just days ago, the highest court in Massachusetts—the Supreme Judicial Court (“SJC”)— decided whether former food delivery drivers for GrubHub could escape their arbitration agreements and bring a wage and hour class action lawsuit in court. In excellent news for employers operating in the intrastate delivery sector, the SJC held that they could not. Archer v. GrubHub, Inc., SJC-13228. 2022 WL 2964639 (July 27, 2022) (“GrubHub II”).

Earlier this month, the U.S. Supreme Court in Southwest Airlines Co. v. Saxon unanimously held that a ramp supervisor who frequently handled cargo for an interstate airline company was exempt from coverage under the Federal Arbitration Act (FAA) because she belonged to a “class of workers engaged in foreign or interstate commerce.”  9 U.S.C. § 1.

On June 15, 2022, the U.S. Supreme Court issued its decision on Viking River Cruises, Inc. v. Moriana (Case No. 20-1573) reversing the California Court of Appeal’s decision to affirm the denial of Viking’s motion to compel arbitration Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims.

The United States Supreme Court has agreed to take a closer look at the enforceability of arbitration agreements that bar representative claims brought under PAGA, a California law that allows individual employees to police labor code violations.

On November 15, 2021, the U.S. Supreme Court agreed to hear Robyn Morgan v. Sundance, Inc. (No. 21-326), a lawsuit from a fast-food worker who asserts that her employer waived its right to compel arbitration by engaging in litigation conduct inconsistent with its purported contractual right to arbitration.  By granting review, the Court is poised to resolve a circuit split as to whether a party must prove prejudice when arguing that the other party waived its right to arbitration by acting in a manner inconsistent with the arbitration agreement.

On September 8, 2021, the House Education and Labor Committee issued proposed legislation in connection with the House’s new spending bill. Among other pro-union proposals issued in connection with the Protecting the Right to Organize (PRO) Act, the proposed legislation seeks to amend the National Labor Relations Act (NLRA) by banning class and collective action waivers.

The proposed legislation says that no employer shall “enter into or attempt to enforce” any express or implied agreement not to “pursue, bring, join, litigate, or support any joint, class, or collective claim” arising from the employment relationship.   This is unwelcome news to employers who rely on class and collective action waivers in their arbitration agreements.

Employers operating in California often ask employees to agree to arbitrate employment-related disputes as a term and condition of employment.  In its recent Chamber of Commerce v. Bonta decision, the Ninth Circuit took a significant step toward prohibiting such mandatory employment arbitration agreements.  However, the combination of a 2-1 panel decision (authored by a visiting judge from the Tenth Circuit), a scathing dissenting opinion, and a holding that splits with decisions from the First and Fourth Circuits all but ensures more litigation.  As a result, the case is far from over, so while employers eventually may have to consider changing their arbitration agreement practices, they very likely have some time to let the dust settle before doing so.

Over the past six months, the California Supreme Court as well as the State’s appellate courts have published a number of important decisions in the area of California labor and employment law. The California Supreme Court’s decisions published earlier this year in Donohue v. AMN Services, LLC (2021) 11 Cal.5th 58 and Vazquez v. Jan-Pro Franchising International, Inc. (2021) 10 Cal.5th 944 were previously covered in Hunton Labor & Employment perspectives. (See Link 1 & Link 2 [discussing the Ninth Circuit’s earlier 2019 decision].)

Since the Supreme Court’s 2018 Epic Systems ruling, employers increasingly rely on arbitration agreements for more efficient resolution of both single plaintiff and class action claims.  Prolonged judicial review of arbitration awards, however, can dilute that efficiency.  As a result, some employers include waivers of judicial review, in whole or in part, in their arbitration agreements.

But are such waivers permissible?  In a recent decision, the Fourth Circuit said “yes” as it relates to appellate review.

A recent Fifth Circuit opinion held that a company’s arbitration agreement did not prevent employees from pursuing their claims as a collective arbitration, rather than individual claims.  As class claims related to COVID-19 begin to surge, the opinion provides occasion for companies to review their arbitration agreements to ensure that the companies’ aims are clearly drafted.

 COVID-19

The harm COVID-19 has wrecked on workplaces is no secret.  As employees and employers grapple with remote work, pay reductions, and record unemployment, it is reasonable to expect a surge of employment litigation in the months ahead.

California’s law against arbitration remains in doubt after Eastern District Judge Kimberly Mueller extended the TRO issued on December 31, prohibiting the state of California from enforcing the law against agreements covered by the Federal Arbitration Act.  That law, known as AB 51, seeks to prohibit companies in California from requiring arbitration agreements as a condition of employment.

The body of law surrounding class action employment arbitrations received another jolt Monday when the Second Circuit revived an arbitration action with a potential class of roughly 70,000 employees.

In Jock v. Sterling Jewelers, the Second Circuit overturned the district court and upheld an arbitrator’s decision to bind absent class members to the arbitration provisions of the company’s agreement.  The case represents another significant development in the realm of class arbitrations and class waivers, which have been the subject of significant recent litigation.

As we have previously reported here and here, courts and the National Labor Relations Board (“NLRB”) have released a number of recent decisions favoring the enforceability of arbitration agreements in the employment context.

It is now settled law that class-action waivers in arbitration agreements do not violate the National Labor Relations Act (“the Act”) or infringe on employees’ Section 7 rights under the Act.  In a recent decision, the NLRB extended this holding to allow employers to implement arbitration programs—including those with class-action waivers—in direct response to litigation by its employees.

Earlier this year, we wrote about a proposed bill in California, AB 51, which would prevent employers from requiring their employees to bring all employment-related claims, including discrimination, harassment, retaliation, and wage and hour claims, in arbitration instead of state or federal court.  Earlier this month, Governor Newsom signed AB 51 into law.

This month, California Governor Gavin Newsom signed several employment-related bills into law. The laws go into effect January 1, 2020, and include an extension to the deadline to file certain state discrimination claims and address harassment training and prevention, as well as mandatory arbitration agreements.

The Fifth Circuit recently joined a majority of its sister circuits in holding that the question of whether arbitration agreements authorize class arbitration should be decided by courts.

In 20/20 Communications v. Lennox Crawford, the Fifth Circuit held that the availability of class-wide arbitration in a Fair Labor Standards Act case is a “gateway issue” of arbitrability.  The court reasoned that the fundamental differences between individual and class-wide arbitration required judicial determination as to which approach was available, absent “clear and unmistakable” language in the agreement delegating the decision to the arbitrator.

In a recent decision, the California Supreme Court refused to overturn an arbitrator’s award, despite finding the award was incorrect.  Specifically, the Court held that an arbitrator should have considered evidence of a rejected section 998 settlement offer and changed its cost award, even after issuing a final arbitration decision.  However, the Supreme Court determined a trial court does not have authority to correct this error. The ruling emphasized the broad scope of an arbitrator’s powers and narrow scope of judicial review when the parties choose arbitration.

Heimlich v. Shivji involved a dispute over legal fees between an inventor and his attorney.  The representation agreement contained an arbitration clause and during arbitration each party asserted claims for money owed.  

In  a 5-4 decision, the U.S. Supreme Court slammed the door shut on class arbitration unless specifically authorized by the parties.  The decision, Lamps Plus, Inc. v. Varela, reaffirmed the Court’s prior precedent that arbitration is a matter of consent, and that “[s]ilence is not enough” to infer consent to class arbitration. 

California has long been considered one of the most – if not the most – protective states of employee rights.  This continues to ring true, as the legislature has proposed another law aimed at prohibiting employers from requiring employees to sign mandatory arbitration agreements as a condition of employment.   In essence, Assembly Bill 51 (AB 51), would prevent employers from requiring their employees to bring all employment related claims, including discrimination, harassment, retaliation, and wage and hour claims, in arbitration instead of state or federal court.

In a recent case, Correia v. NB Baker Electric, Inc., the California Court of Appeal held that employers cannot require employees to arbitrate their representative claims under the California Private Attorney General Act of 2004 (“PAGA”), Labor Code § 2699 et seq., without the State’s consent.

In Correia, two former employees sued their employer, NB Baker Electric, Inc. (“Baker”), alleging wage and hour violations and seeking civil penalties under PAGA. Baker petitioned the trial court for arbitration pursuant to the parties’ arbitration agreement, which provided that arbitration would be the exclusive forum for any dispute and which prohibited employees from bringing “any class action or representative action” in any forum.

In a rare win for plaintiffs seeking to avoid arbitration, the U.S. Supreme Court rejected a trucking company’s attempt to compel arbitration in a driver’s proposed minimum wage class action.  The Court held that the Federal Arbitration Act’s exemption for interstate transportation workers applies not only to employees, but also to those classified as independent contractors.

The Supreme Court once again has shown its strong preference for enforcing the terms of arbitration agreements as written by the parties.  In Henry Schein Inc. v. Archer & White Sales Inc., Justice Kavanaugh’s first written opinion, the Court held that when an arbitration agreement delegates the threshold question of arbitrability to an arbitrator, the arbitrator, not a court, should decide the question, even if it is clear to a court that the dispute is not covered by the arbitration agreement.  This unanimous opinion adds to a growing body of recent Supreme Court case law making clear that the terms of arbitration agreements, like any other contract, should be enforced as written and without policy considerations or exceptions.  

Before the lame duck period of the 115^th Congress, Rep. Jerrold Nadler (D-NY) and a group of 58 Democrat co-sponsors, introduced the Restoring Justice for Workers Act (H.R. 7109), which would prohibit  employers from requiring employees to sign mandatory arbitration agreements.

As we previously reported, the United States Supreme Court held this past Term in Epic Systems Corp. v. Lewis that class action waivers in arbitration agreements do not violate the National Labor Relations Act.  In the wake of Epic Systems, courts have found that class action waivers are likewise permissible under the FLSA.  These cases make clear that class action waivers are here to stay.

In a major win for employers, the U.S. Supreme Court held that arbitration agreements with class action waivers do not violate the National Labor Relations Act (“NLRA”).  The Court’s narrow 5-4 decision paves the way for employers to include such waivers in arbitration agreements to avoid class and collective actions.

The U.S. Supreme Court voted to hear an appeal of the Ninth Circuit’s decision in Varela v. Lamps Plus, Inc.  The Court is expected to decide whether workers can pursue their claims through class-wide arbitration when the underlying arbitration agreement is silent on the issue.  The case could have wide-reaching consequences for employers who use arbitration agreements.

The United States Supreme Court has granted consolidated review of three cases to determine whether arbitration agreements that waive employees’ rights to participate in a class action lawsuit against their employer are unlawful. The Court’s decision to address the uncertainty surrounding class action waivers of employment claims follows a circuit split last year in which the Fifth and Eighth circuits upheld such waivers and the Seventh and Ninth circuits found that such waivers violate the National Labor Relations Act. Given the increasingly widespread use of class action waivers by employers to stem costly class and collective actions, the high court’s ruling is likely to have a significant nationwide impact.

The Ninth Circuit has joined both the Sixth and Fifth circuits in holding that USERRA claims are subject to arbitration pursuant to an employee’s agreement to arbitrate employment related claims.  See Ziober v. BLB Resources, Inc., 2016 WL 5956733 (9^th Cir. Oct. 14, 2016).  In doing so, the Ninth Circuit, a traditionally pro-employee circuit, has assuaged any fear of uncertainty that employers may have had with respect to their rights to compel arbitration of USERRA claims.

The U.S. Supreme Court refused on Monday to take up a challenge to the California Supreme Court’s holding that California Private Attorney General Act (“PAGA”) claims cannot be waived in employment arbitration agreements containing a class action waiver.

A California appellate court recently invalidated an arbitration agreement that an employee had voluntarily entered into on the basis that it contained an unenforceable waiver of the employee’s claims under the California Private Attorneys General Act (“PAGA”) and, under the parties’ agreement, that provision could not be severed.

Often times, the same set of underlying facts will give rise to both a contractual dispute between an employer and a union and an unfair labor practice charge. In these instances, an arbitrator usually decides the contract dispute, while it is the National Labor Relations Board's responsibility to determine the merit of the alleged unfair labor practice. Historically, however, the Board has commonly declined to hear unfair labor practice charges related to contractual disputes, and has instead deferred to arbitrators' earlier contractual rulings. Until recently, the burden fell on the party seeking to avoid Board deferral (usually the union) to prove that deferral was inappropriate. Practically, this ensured that employers could easily avoid addressing the same issues or facts in essentially duplicative litigation.

On June 23, 2014, the California Supreme Court announced a landmark ruling that arbitration agreements with mandatory class waivers are generally enforceable while carving out one notable exception.  That exception consists of representative claims brought under the Private Attorneys General Act (PAGA) which is unique to California.

Jurisdiction

Jurisdiction may be the most important factor organizations should take into consideration when offshoring.  Some countries do not recognize certain U.S. legal doctrines, such as confidentiality agreements, and without proper jurisdiction an organization may be unable to enforce its contract with a vendor.

When selecting an offshore country, organizations should consider whether the country permits a choice of law provision which would allow courts to apply U.S. law.  If the country permits choice of law provisions, the provision should be well defined in the contract so that there is no ambiguity.  Organizations should also consider working with counsel in the offshore country to assist with legal intricacies, even if a United States choice of law provision is permissible.

EMPLOYMENT DECISIONS

Vance v. Ball State University: Narrow Definition of Supervisor in Harassment Suits
In Vance, the Supreme Court announced a narrow standard for determining which employees constitute “supervisors” for purposes of establishing vicarious liability under Title VII. In a 5-4 decision, the Court decided that a supervisor is a person authorized to take “tangible employment actions,” such as hiring, firing, promoting, demoting or reassigning employees to significantly different responsibilities. The majority opinion rejected the EEOC’s ...

Last week, in American Express Co. v. Italian Colors Restaurant, the United States Supreme Court, in a 5-3 ruling, reversed the Second Circuit and held that a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act (FAA) even if the cost of proving an individual claim in arbitration exceeds the potential recovery.  In holding that a class action waiver in an arbitration agreement is enforceable, even as to federal anti-trust claims, this decision builds upon the trend set in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010), AT & T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012) – that arbitration agreements should be enforced according to their terms even for claims under federal statutes.

The Supreme Court has unanimously upheld an arbitrator’s ruling that a contract that required arbitration of “any dispute” constituted an agreement to class-wide arbitration. The Court’s narrow ruling turns on the parties’ express agreement to allow the arbitrator to decide whether their contract, which contained an arbitration provision but did not mention class proceedings, authorized class arbitration. However, the opinion has significant implications for companies desiring to avoid class arbitration—and class actions generally—through provisions ...

A 2-1 California Court of Appeal held on October 17 that drivers for a food service provider did not have to arbitrate their state statutory claims brought under the California Labor Code despite a binding arbitration agreement covering the “application or interpretation” of the driver agreements.  The drivers alleged that their employer, Mike Campbell & Associates, misclassified them as independent contractors, denying them wage law protections under the California Labor Code, and was thus liable for nonpayment of wages, illegal deductions, and recordkeeping violations.  Rather than challenge the trial court’s ruling that they were bound by the arbitration clause, the drivers argued that their statutory claims did not arise out of the arbitration agreement and thus did not require an interpretation of the arbitration clause. 

On June 4, 2012, the California Court of Appeal held that class-action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (“FAA”).  In Iskanian v. CLS Transportation Los Angeles LLC, the appeal court affirmed an order to compel arbitration of wage-and-hour claims in light of the 2011 United States Supreme Court case AT&T Mobility LLC v. Concepcion.  As a result, Iskanian provides employers with the necessary ammunition to argue for the enforceability of employment contract provisions providing for arbitration of claims and waiver of class-action lawsuits.

Two members of the National Labor Relations Board recently held that employers may not require employees to enter into arbitration agreements, as a condition of employment, that waive the ability to pursue class or collective claims. The Board’s ruling does not sound the death knell for class action waivers, however, as many Plaintiff’s lawyers have touted.

The class action under the Fair Labor Standards Act arguably is the employer’s most dreaded legal claim.  In April 2011, the United States Supreme Court provided a potential escape hatch for employers.  In AT&T Mobility v. Concepcion, the Supreme Court seemed to signal -- “seemed” being the operative word -- that employers need only enter into arbitration agreements in which employees disclaim their ability to file an FLSA class action (or, as it’s actually called in the FLSA, a “collective” action).

On April 27, the U.S. Supreme Court decided that the Federal Arbitration Act (“FAA”) preempts rules created by states, such as California, that classify most class action arbitration waivers in consumer contracts as unconscionable.  The Court’s 5-4 decision in AT&T Mobility LLC v. Concepcion, 2011 WL 1561956 (U.S. Apr. 27, 2011) could signal big changes for consumer − and potentially wage and hour − class action litigation.

Who decides whether an arbitration agreement is unconscionable when the agreement explicitly delegates that decision to the arbitrator?  According to a slim majority of the U.S. Supreme Court in Rent-A-Center v. Jackson, No. 09-497, ___ U.S. ___, slip op. (June 21, 2010), the arbitrator does, if a party challenges the enforceability of the arbitration agreement.  The district court may only intervene if a party specifically challenges the validity of the agreement to delegate that decision to the arbitrator.  The decision makes it more difficult for a current or former employee who has signed an arbitration agreement with a proper delegation provision to avoid arbitration and bring a private lawsuit.  That is a positive result for pro-arbitration employers.