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Earlier this year the Fifth Circuit issued an important decision on the issue of whether an arbitration agreement that a single party can retroactively modify or terminate is illusory and invalid in Carey v. 24 Hour Fitness USA, Inc. A unanimous court allowed a proposed overtime class action against 24 Hour Fitness USA Inc. to go forward, holding that such an agreement is indeed invalid and, therefore, unenforceable.

Click through to read the entire article and see the opinion.

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Earlier this month, the National Labor Relations Board ("NLRB") issued a ruling that the National Labor Relations Act prohibits mandatory arbitration policies forcing employees to give up their rights to participate in class action lawsuits over workplace conditions.

The decision in D.R. Horton, Inc., 357 N.L.R.B. No. 184 notes as a jumping off point that the Board and the courts have previously held that Section 7 protects the right of employees to join together to pursue workplace grievances, including through litigation. The Board, embracing a narrow interpretation of the U.S. Supreme Court’s decision in Concepcion, then concludes that “employees who join together to bring employment-related claims on a classwide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA.” The Board therefore found that Horton, by making the arbitration agreement a condition of employment, explicitly restricted activities protected by Section 7.

You can read the entire decision here.

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In a big win for employers, the United States Supreme Court held last week that, under the Federal Arbitration Act, an arbitration agreement can prohibit an individual from commencing or participating in a class action.

   In the case, AT&T Mobility v. Concepcion, the California Supreme Court had established a rule that an employment arbitration agreement was not enforceable if it waived an individual’s right to file a class action.  U.S. Supreme Court, in a 5-4 decision, held that state laws cannot interfere with an arbitration agreement’s elimination of the class action mechanism to resolve disputes.  In my personal opinion the decision, which was authored by Justice Scalia, is extremely outcome-oriented.  It continues the conservative wing of the Court's pro states' rights (unless they inconvenience corporations) stance.  The dissenting opinion does a good job of outlining the logical inconsistencies in the majority opinion.  

   You can download a copy of the opinion here: AT&T Mobility v. Concepcion

   While this was not an employment case, its importance in the employment law arena cannot be overemphasized.  Employers may be able to use this decision to effectively eliminate all employment-related class actions, possibly including wage & hour collective actions for unpaid overtime.  On the other hand, arbitration still has many drawbacks for employers.  The cost of arbitration fees have steadily increased to the point where it is now quite a bit more expensive to arbitrate a case than to litigation in traditional courts.  Additionally, arbitration outcomes are largely unappealable.  These issues are not insignificant. 

   Despite its downsides, however, employers are increasingly inserting arbitration clauses with class-action bans into employment contracts, presenting them to employees on a take-it-or-leave-it basis. The Concepcion decision goes a long way towards eliminating an important means for enforcing longstanding civil rights and employee protections.  The Court's activist efforts fly in the face of public opinion as well:  according to recent polls, a solid majority of Americans (59%) opposes forced arbitration clauses in the fine print of employment and consumer contracts, including both men and women, as well as majorities of Democrats, Independents, and Republicans.

   So what is an employee to do if faced with an arbitration agreement?  First, don't just sign anything and everything that an employer puts in front of you. If your employer gives you an arbitration agreement and demands that you sign it, ask to take it home and read it.  Then, visit with your co-workers and consider refusing to sign the agreement as a group.  There is power in numbers.

   Second, call your U.S. senators and your member of congress and encourage him or her to support passage of the Arbitration Fairness Act (AFA) of 2011. The AFA would ban forced arbitration in employment, consumer, and civil rights disputes.

 Read More Related Stories After the Break . . . 

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Ellen Dannin of Workplace Prof Blog has the story of a mandatory arbitration notice posted to the door of a Whataburger fast-food restaurant.  The agreement states that:

"By entering these premises, you hereby agree to resolve any and all disputes or claims of any kind whatsoever, which arise from the products, services or premises, by way of binding arbitration, not litigation.  No suit or action may be filed in any state or federal court.  Any arbitration shall be governed by the FEDERAL ARBITRATION ACT, and administered by the American Mediation Association."

According to the article, it turns out that the "American Mediation Association" is just some guy.  Or more specifically, the law office of "Robert Smith & Associates."

Dannin writes "Years ago, I argued that the Supreme Court's arbitration jurisprudence would just about let a grocery store compel a customer's arbitration merely by printing an arbitration clause on a grocery receipt. It now appears that we have sunk so low."

So, now that the Constitution is officially an opt-out arrangement, maybe I should look into producing a line of clothing that has a mandatory arbitration clause printed right on the front of your shirt.  "By looking in my direction you hereby agree to give up your Constitutional rights and agree to arbitrate any and all claims by using this guy over here who is on my payroll." 

That sounds fair, doesn't it?
 

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The U.S. Supreme Court has agreed to hear the appeal in Rent-A-Car, West, Inc. v. Jackson.

The question before the Court will be whether the district court is in all cases required to determine claims that an arbitration agreement subject to the Federal Arbitration Act (“FAA”) is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this “gateway” issue to the arbitrator for decision.

The pendulum in the U.S. Congress has certainly been swinging away from enforcement of mandatory forced arbitration provisions in the employment context.  It will be interesting to see what the Court does with this threshold issue.

You can find the opinion of the 9th Circuit being appealed from here.  

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 We previously discussed the journey of the Franken Amendment through the halls of Congress.  (The Amendment would prohibit the award of DOD funds to any Federal contractor that forces its employees or independent contractors to submit to pre-dispute binding arbitration of Title VII and sexual-assault tort claims.)

This weekend, the amendment was signed into law by President Obama.  This means that most military contractors will no longer be able to enforce mandatory arbitration clauses in their employment contracts under a provision signed into law over the weekend.

The issue has been a high priority this year for trial lawyers and for consumer groups.  When speaking candidly, most employment lawyers would agree that clauses mandating the use of arbitration deny employees an impartial hearing in open court.  Supporters of forced arbitration argue that the process is both fair and efficient.  

The open question is whether the passage of the Franken Amendment will lead to an effort next year by Congress to outlaw forced arbitration of civil rights claims throughout the private employment context.  

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The Employee Rights Advocacy Institute For Law & Policy and Public Citizen have completed a National Study of Public Attitudes on Forced Arbitration.  The release is no doubt an effort to support the Arbitration Fairness Act, which is currently in Congress.

The study is based on a major national survey on mandatory arbitration of employment and consumer claims conducted by Lake Research Partners.

The survey of 800 likely voters nationwide found that:

• A solid majority of Americans (59%) opposes forced arbitration clauses in the fine print of employment and consumer contracts, including both men and women and majorities of Democrats, independents, and Republicans.
• Similarly strong majorities (59%) support the Arbitration Fairness Act. Support for the Act also crosses traditional gender and political divides.
• Even after voters hear arguments in favor of, and opposed to, forced arbitration, opposition to the practice holds firm. Just one-third of the electorate supports the practice.
• Roughly three-quarters of Americans believe they can sue an employer or company should they be seriously harmed or have a major dispute arise - even if they are bound by forced arbitration terms.
• Most Americans are unaware of the rights being taken away from them. Approximately two-thirds cannot remember seeing anything about forced arbitration in either Terms of Employment or Terms of Agreement for goods and services.

Here is a link to the study materials.

Here are more materials on the current version of the Arbitration Fairness Act.

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In a set back for unionized employees, the Supreme Court holds in a 5-4 decision ( 14 Penn Plaza LLC v. Pyett, No. 07-581 (April 1, 2009)) that where a collective bargaining agreement clearly and unmistakably assigns statutory discrimination claims to arbitration, the employee in the bargaining unit loses the right to proceed with an individual civil action and is left with arbitration as his or her only remedy.

The Plaintiffs in this case were members of the Service Employees International Union, Local 32BJ (Union). Under the National Labor Relations Act, the Union is the exclusive bargaining representative of employees within the building-services industry in New York City, which includes building cleaners, porters, and doorpersons. The Union has exclusive authority to bargain on behalf of its members over their “rates of pay, wages, hours of employment, or other conditions of employment,” 29 U. S. C. §159(a), and engages in industry-wide collective bargaining with the Realty Advisory Board on Labor Relations, Inc. (RAB), a multi-employer bargaining association for the New York City real estate industry. The agreement between the Union and the RAB is embodied in their Collective Bargaining Agreement for Contractors and Building Owners (CBA). The CBA requires union members to submit all claims of employment discrimination to binding arbitration under the CBA’s grievance and dispute resolution procedures.

The Union initially requested arbitration under the CBA, but after the initial hearing, withdrew the age discrimination claims on the ground that its consent to the new security contract precluded it from objecting to respondents’ reassignments as discriminatory. Respondents then filed a complaint with the Equal Employment Opportunity Commission (EEOC) alleging that petitioners had violated their ADEA rights, and the EEOC issued each of them a right-to-sue notice. In the ensuing lawsuit, the District Court denied petitioners’ motion to compel arbitration of respondents’ age discrimination claims. The Second Circuit affirmed, holding that Alexander v. Gardner-Denver Co., 415 U. S. 36, forbids enforcement of collective-bargaining provisions requiring arbitration of ADEA claims.

The Supreme Court held that a provision in a collective bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law. With Justice Clarence Thomas writing for the majority and joined by Chief Justice John G. Roberts and Justices Anthony G. Scalia, Anthony M. Kennedy, and Samuel A. Alito, the Court reasoned that ,here, the arbitration provision was a "bargained-for exchange" in the collective bargaining agreement and thus should not be interfered with by the courts. The Court went on to state that because the ADEA itself did not mandate such interference, the arbitration provision should be enforced.

Justice John Paul Stevens wrote a separate dissenting opinion. He noted that the majority opinion was a departure from Supreme Court precedent with respect to arbitration clauses in collective bargaining agreements. He went on to state that it was it was Congress' responsibility to reassess the policy arguments favoring arbitration rather than for the Supreme Court to decide. Justice David H. Souter also wrote a separate dissenting opinion and was joined by Justices Stevens, Ruth Bader Ginsburg, and Stephen G. Breyer. He reemphasized that Supreme Court precedent did not preclude the pursuit of an ADEA claim because of an arbitration provision in a collective bargaining agreement, as in this case.

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My take: In reality, this still leaves unionized employees in a better position than those without union representation.  Most non-union employees have absolutely no choice as to whether discrimination claims will be forced into arbitration.  In most states, a company can simply maintain an arbitration policy for its employees and force them to agree to same in order to continue employment.  At least in the case of unionized employees, workers can negotiate with the company, through their union, and either not agree to arbitration clauses or at least get some other concession or compensation in exchange for giving up the "right" to trial by jury.

More info:

• Supreme Court's Opinion

• Transcript of Oral Argument

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Citigroup v. Bacon is not an employment case but it is a very important case for employment lawyers nonetheless, as we all do a fair amount of arbitration work these days. 

Following an arbitration panel's order that Citigroup Global Markets pay Debra M. Bacon $256,000 in damages and attorney's fees, Citigroup sought to overturn that award in the District Court. Finding that the arbitrators had "manifestly disregarded the law," the District Court vacated the award. Bacon then appealed to the Fifth Circuit.

The question presented on appeal was whether, under the Federal Arbitration Act, "manifest disregard of the law" remains valid, as an independent ground for vacating an arbitration decision, after the Supreme Court's decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008). Hall, which was decided after the District Court issued its opinion in this case, unequivocally held that the 4 statutory grounds set forth in section 10 of the FAA are the exclusive means for vacatur of arbitration awards.  The Court held that Hall had effectively overruled Fifth Circuit case law recognizing "manifest disregard of the law" as a nonstatutory ground for vacatur.

What this means to practitioners is that it is now even harder to overturn an arbitration award, even when the arbitrator completely ignores applicable law (which happens more often than you might think).  Thus, under §10 of the FAA, courts are only permitted to vacate an arbitration award for four reasons. They are:

1. If the award was procured by corruption, fraud or undue means;
2. If there was evident partiality or corruption by the arbitrator;
3. If the arbitrator was guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced or;
4. If the arbitrator exceeded his/her powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made.

Insufficient evidence or even wholesale disregard of evidence by an arbitrator is not a sufficient basis for a court to vacate an award.

As a result of this decision and many many like it, both individuals and large corporations are increasingly coming to the conclusion that arbitration is not a very good substitute for the normal judicial process.  The fact that there is no viable appeal mechanism even if an arbitrator blatantly disregards applicable law should serve as a strong warning to companies that are considering implementing or continuing binding arbitration procedures with regard to employment or other types of disputes.  Arbitration can appear appealing at first but the complete lack of checks and balances in the system can, and often does, leave one side or the other stuck to pay a costly award that 99 our of 100 lawyers would agree is wrong under the law.

That's where Citigroup now potentially finds itself in this case. 

More info:

• Opinion in Citigroup v. Bacon
• Opinion in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008)
• Oral Argument in Hall Street Associates, L.L.C. v. Mattel, Inc., 128 S. Ct. 1396, 1403 (2008)

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