Wednesday, August 24, 2016

Seventh Circuit Joins Fourth and Fifth Circuits in Disapproving of Racially Discriminatory Voting Restrictions


As a result of three new appellate court rulings, more voters of
color in Wisconsin, Texas, and North Carolina will likely be able 
to participate in the general election on November 8, 2016.
On Monday, the U.S. Court of Appeals for the Seventh Circuit denied Wisconsin’s motion to stay a district court ruling striking down a provision in the state’s voter suppression law that significantly reduced early voting, as well as assorted voter ID requirements in the law. As the district court found, in removing early voting on evenings and weekends, the Wisconsin legislature targeted African-American and Latino voters, who disproportionately took advantage of the extended voting hours. In particular, eliminating early voting on Sundays has become a common tactic to reduce African-American voting by directly targeting “Souls to the Polls” events where churches provide transportation to polling locations after Sunday services. The three-judge panel of the Seventh Circuit was composed entirely of Republican appointees, who denied the stay request without a written opinion.

Earlier this summer, the Fifth Circuit questioned the legitimacy of Texas’s strict voter ID law in an en banc ruling, noting that the law required forms of identification that voters of color were much less likely to possess. It further noted that Texas failed to take any reasonable steps to ameliorate the discriminatory effects of the strict voter ID requirement.

Just a few weeks ago, the Fourth Circuit struck down a much wider range of voting restrictions in North Carolina as racially discriminatory – including strict voter ID, a ban on same-day registration, and cutbacks in early voting (including Sunday voting). The Fourth Circuit took the district court to task for its “failure of perspective [which] led the court to ignore critical facts bearing on legislative intent, including the inextricable link between race and politics in North Carolina.”  The district court had approved the restrictions as grounded in partisanship rather than race, justifying them as “politics as usual.” Noting the strong correlation between party identification and race in North Carolina, the Fourth Circuit held that such an explanation “cannot be accepted where politics as usual translates into race-based discrimination.”

Both the Wisconsin district court and the Fourth Circuit found that the plaintiffs had met the difficult burden of showing that the voting laws were enacted with discriminatory intent, in addition to the discriminatory effect the laws would have on voters of color. The Fifth Circuit found that Texas’s law had a discriminatory effect, but remanded to the district court for reconsideration of whether the law also reflected the legislature’s intent to discriminate. Only a finding of discriminatory impact is required to obtain relief under the Voting Rights Act, but a finding of discriminatory intent allows for broader remedies.

The new rulings are a welcome development for voting rights advocates, who had been playing defense since the U.S. Supreme Court’s 2013 ruling overturning Section 5 of the Voting Rights Act of 1965 in Shelby County v. Holder. Section 5 required that jurisdictions – including both counties and entire states – with a record of racially discriminatory voting practices submit any proposed changes to voting laws to the Department of Justice for preclearance. Section 5 recognized the practical problem that an individual denied access to the polls on Election Day might have to wait years for the courts to sort out whether a violation had occurred. Section 5 instead placed the burden on the state seeking to introduce a new election law to show that it would not have a discriminatory effect on access to the polls. Despite of Section 5’s record of success (or perhaps because of it) and its bipartisan reauthorization by Congress in 2006, Justice Roberts wrote for a five-justice majority of the Court and concluded: “Our country has changed, and while any racial discrimination in voting is too much, Congress must ensure that the legislation it passes to remedy that problem speaks to current conditions.”*

The aftermath of Shelby County was predictable: with the protections of Section 5 gone, states across the country enacted (or began enforcing) voter suppression laws which directly targeted voters of color. For instance, the day of the Shelby County ruling Texas announced  that it would begin enforcing its strict photo ID law, which had been blocked by Section 5 due to its racially discriminatory effects. North Carolina then passed one of the most comprehensive voter suppression laws in the country after the legislature conducted studies which found that African-Americans would be impacted most by the new voting requirements. (Wisconsin was not covered by Section 5’s preclearance requirement.)

The spate of activity in the voting rights arena this summer has led many to ask: why now? An obvious answer may be that with the 2016 presidential election fast approaching, this summer marked the last reasonable opportunity for courts to intervene. Some commentators have pointed to the recent passing of Justice Antonin Scalia and the absence of a fifth vote on the high court to uphold racially discriminatory voting restrictions (or put more charitably, to interpret such restrictions as motivated by race). Linda Greenhouse of The New York Times argues that the decisions overturning voter suppression laws are part of a larger trend of federal courts being increasingly willing to look beyond phony motives offered by legislatures, particularly in the context of laws which purport to solve imaginary problems like in-person voter fraud. As Judge Catharina Haynes of the Fifth Circuit stated as to the Texas law: “We cannot say the district court had to simply accept that legislators were really so concerned about this almost nonexistent problem.” Similarly, Judge Diana Gribbon Motz of the Fourth Circuit reasoned with respect to North Carolina’s law: “Although the new provisions target African Americans with almost surgical precision, they constitute inapt remedies for the problems assertedly justifying them and, in fact, impose cures for problems that did not exist.”

Although the general election is only 75 days away, this story is far from over, as the Supreme Court may still intervene: North Carolina has already requested a stay of the Fourth Circuit’s ruling, and Wisconsin may yet seek similar relief. Still, it appears unlikely there are enough votes on the eight-member high court to disrupt these appellate court rulings before Tuesday, November 8.

The timing could not be more critical, with Republican nominee Donald Trump running an unprecedented campaign (at least, in recent history) founded on racist statements and appeals concerning Latinos, Muslims, and African Americans, among other groups. Thanks to an emerging consensus among the Circuit Courts of Appeal, a broader and more diverse community of Americans will be able to exercise their right to vote in Wisconsin, North Carolina, and Texas this November. Voters should seize the opportunity to send a clear message that such racist appeals have no place in American politics.

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* Technically, the Court struck down the coverage formula for Section 5 (contained within Section 4(b) of the Act) and left Section 5 in tact. However, without a coverage formula, Section 5 is toothless. In theory, Congress could pass a new coverage formula to put the teeth back in Section 5, but that would require Congress to agree on a new coverage formula.

Tuesday, August 23, 2016

D.R. Horton Rising: The Ninth Circuit Sides with the Seventh Circuit and the National Labor Relations Board on Class Action Waivers, in Morris v. Ernst & Young, LLP

In the Ninth and Seventh Circuits, employers cannot force
employees to sign class action waivers as a condition of 
employment, because the NLRA provides employees the 
right to vindicate employment rights collectively.
Yesterday, the Ninth Circuit took sides in a major split within the U.S. Courts of Appeals over the enforceability of class arbitration waivers. In Morris v. Ernst & Young, LLP, No. 13-16599, Slip. Op. (9th Cir. Aug. 22, 2016), the Ninth Circuit held that employers violate Sections 7 and 8 of the National Labor Relations Act (“NLRA”) by requiring employees covered by the NLRA to waive, as a condition of their employment, participation in “concerted activities” such as class and collective actions. (Slip Op. at 1.)

By this holding, the Ninth Circuit joins the Seventh Circuit, which in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. May 26, 2016) adopted the National Labor Relations Board (“The Board”) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012). Under this line of authority, the Federal Arbitration Act (“FAA”) does not mandate enforcement of a contract that waives the substantive federal right to engage in concerted action established in Section 7 of the NLRA. (Slip Op. at p. 18-19.) Bryan Schwartz Law blogged in detail about the Lewis v. Epic Systems Corp. decision, here.

In Morris, two employees filed a class and collective action alleging that their employer had misclassified workers as exempt and deprived them of overtime in violation of the Fair Labor Standards Act (“FLSA”) and California labor laws. As a condition of employment, the employees were required to sign contracts containing a “concerted action wavier” that obligated them (1) to pursue legal claims against their employer exclusively through arbitration and (2) to arbitrate individually in “separate proceedings.” Based on these agreements, the employer moved to compel the employees to arbitrate their claims individually. The U.S. District Court granted the employer’s motion. (Slip Op. at p. 4-5.)

The Ninth Circuit reversed, reviewing the decision to compel arbitration de novo. Chief Judge Sidney R. Thomas explained in the opinion:

This case turns on a well-established principal: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity – the right of employees to act together – is the essential substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly the concerted action waiver violates the NLRA and cannot be enforced.
(Id. at p. 6.)

The Ninth Circuit explained that the FAA does not dictate a contrary result. (Id. at 14.) While the FAA creates a “federal policy favoring arbitration” clause enforcement, the Act contains a savings clause that prohibits enforcement of arbitration agreements that defeat substantive federal rights, including the right to engage in concerted activity under the NLRA. (Id. at 15, 26.) In Morris, employees’ waiver was illegal not because it required the employees to pursue their claims in arbitration, but rather, because they could not do so in concert. (Id. at p. 16.)

Other circuit courts have taken a contrary position, enforcing employers concerted action waivers under the FAA. See Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772, 776 (8th Cir. June 2, 2016); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1053-54 (8th Cir. 2013); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 361 (5th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013).

As more circuits choose sides on whether class action waivers in arbitration agreements are enforceable, Supreme Court review becomes an inevitability. 

The High Court would also be wise to resolve a disagreement between the Ninth and Seventh Circuits regarding such waivers. In the Seventh Circuit, any “[c]ontracts that stipulate away employees’ Section 7 rights . . . are unenforceable.” Epic, 823 F.3d. at 1155. The Ninth Circuit precedent is narrower, making such contracts enforceable if employment is not conditioned on agreeing to the clause. (Slip. Op. 11, n. 4.) For example, if an employee has the opportunity to opt-out of a class action waiver and keep his or her job, but chooses not to, that waiver would be enforceable by the employer in the Ninth Circuit. (Id. (citing Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1076 (9th Cir. 2014))). The Seventh Circuit provides a clearer rule, one that better comports with the purposes of the NLRA, and one that the Supreme Court should adopt.

For now, workers in the Ninth and Seventh Circuits, as well as their advocates, should take note that employers cannot force employees to sign class action waivers as a condition of employment, because Epic and Morris tell us that the NLRA provides employees with the right to vindicate their employment rights collectively. 


Thursday, July 21, 2016

Bryan Schwartz Law Prevails at the Ninth Circuit: Court Affirms For-Profit Cosmetology School Waived Right to Arbitrate

BSL attorneys and co-counsel from Rudy, Exelrod Zief & Lowe and the Law Office of Leon Greenberg were successful in fending off Defendant’s appeal of the District Court’s order denying Defendants' Motion to Compel Arbitration in Paige Martin v. Gary Yasuda, et al.

The case is a class action wage and hour claim against Milan Institute, a for profit cosmetology school. Plaintiffs are individuals who enrolled in the cosmetology program at Milan Institute. Plaintiffs have filed actions under the FLSA and California’s wage and hour laws, alleging that they are entitled to compensation for tasks they performed in Milan’s salon for paying clients that weren’t related to their education—like cleaning, washing laundry, selling retail products, scheduling clients, and promoting Milan’s services.  Each student signed an enrollment agreement when they began at Milan Institute, which included an arbitration agreement.

Defendant’s filed an appeal after the district court denied Defendants' motion to compel arbitration by finding that Defendants' waived their right to arbitrate—arguing that the District court erred in denying their motion because (1) the issue of waiver should have been decided by an arbitrator and (2) the District court erred in finding waiver.

The Ninth Circuit affirmed the decision of the district court. On the first issue, the court explained that there are two categories of issues on motions to compel arbitration that govern whether a court or arbitrator should decide. The first category of issues is a “question of arbitrability.” This category includes issues that the parties would have expected a court to decide such as whether the parties are bound by an arbitration clause or whether an arbitration clause in a contract applies to a particular type of controversy.  The court explained that these type of disputes are for judicial determination unless the parties “clearly and unmistakably provide otherwise.” The second category—procedural issues—is presumptively not for the judge, but for an arbitrator, to decide—like whether the arbitral forum’s statute of limitations has run for a particular claim.

The court held that waiver by litigation conduct is part of the first category of issues because whether a party has waived its right to arbitrate on the basis of its litigation conduct is always a “question of arbitrability.” Thus, the court found it was proper for the District Court to decide whether Defendants had waived their right to arbitration.

For the second issue on appeal, the court also affirmed the District Court’s finding of waiver by Defendants by applying the three factor waiver test. A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to arbitrate, (2) acts inconsistent with that existing right, and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.  The court did not conduct analysis under the first prong because Defendants conceded that they had knowledge of their right to arbitrate.

For the second prong, the court found that Defendants' engagement in seventeen months of litigation before filing a motion to compel arbitration satisfied this element because Defendants took advantage of being in federal court.

Finally, the court also found that Plaintiffs satisfied the third element because if Defendants' motion to compel arbitration was granted, Plaintiffs would be forced to re-litigate an issue on the merits as to which they already prevailed. At the District Court level, Defendants filed a Motion to Dismiss that reached the merits of the case—focusing on a key issue: whether Plaintiffs were students and not employees of Milan as a matter of law. Plaintiffs defeated Defendants' Motion to Dismiss, and the District Court held that CA’s Cosmetology Act did not preclude Plaintiffs' arguments that they were employees under state wage laws as a matter of law. Accordingly, the Ninth Circuit affirmed the District Court’s decision that Defendants waived their right to arbitration.

Wednesday, July 13, 2016

Defense Secretary Ashton Carter Signals that Transgender Americans Can Serve Openly in the Military

Effective this month, transgender Americans may now serve openly in the U.S. military and can no longer be discharged or otherwise separated from the military just for being transgender.

This decision to allow transgender Americans is one of many recent changes  that has resulted in a transformation of the military.  The Department of Defense also recently opened all combat roles to women and appointed the first openly gay Army secretary.

Defense Secretary Carter said that the military's top leaders, including Gen. Joseph F. Dunford Jr., the chairman of the Joint Chiefs of Staff, were on board with ending the prohibition on transgender service.  Carter also said the Pentagon would cover the medical costs of those in uniform who are seeking to undergo gender transition, though it would expect new recruits who are transgender to spend at least 18 months in their transitioned gender identity before joining the military.

While the decision was heralded by LGBT groups and progressives, there remains stiff opposition to the change in policy from Congressional Republicans. Senator Jim Inhofe of Oklahoma, a Republican member of the Senate Armed Services Committee, called for the new policy to not be carried out until Congress could convene hearings. And Representative Mac Thornberry of Texas, the chairman of the House Armed Services Committee, released a statement saying he would examine “legislative options to address the readiness issues associated with this new policy.”

Secretary Carter said that while practicality played a role in the decision, it was also a "matter of principle."

“Americans who want to serve and can meet our standards should be afforded the opportunity to compete to do so,” Carter said. “After all, our all-volunteer force is built upon having the most qualified Americans. And the profession of arms is based on honor and trust.”

Ninth Circuit Allows CA Wage and Hour Class Action to Move Forward, Affirming the District Court's Grant of Class Certification


The Ninth Circuit recently affirmed the District Court’s certification of a wage and hour class action against Stoneledge Furniture, a wholly owned subsidiary of Ashley Furniture Industries. 
Stoneledge Furniture operates 14 retail furniture stores in California and employs about 600 sales associates, who primarily sell furniture and accessories to Stoneledge’s customers. Stoneledge paid its sales associates on commission.

Plaintiff Ricardo Vaquero, a former sales associate of Stoneledge, asserts that Stoneledge violates California’s minimum wage and hour laws because it requires sales associates to do many tasks unrelated to sales.   Vaquero alleges that Stoneledge requires sales associates to clean the store, attend meetings, and carry furniture.   According to Vaquero, Stoneledge does not pay its sales associates for such work, beyond what they earn in commissions, and this policy violates California wage and hour laws.

Under the Class Action Fairness Act  of  2005,  28  U.S.C.  § 1332(d)(2), Defendants removed the case to federal court, and Vaquero moved to be named a class representative.   He asked to represent four subclasses, three of which were derivative of the  first:    (1)  a  class  of  all  California  sales  associates employed from August 24, 2008, to the present who were paid less than minimum wage for non-sales time worked; (2) sales associates who were not provided with itemized wage statements; (3) former sales associates who were not paid all wages due at separation; and (4) sales associates who were  subject  to  unlawful  business  practices.
The district court granted class certification for all of the classes except for the third subclass. 

Defendant Ashley Furniture moved to appeal the district court’s decision to certify the remaining subclasses pursuant to Federal Rule of Civil Procedure 23(f). The sole issue before the court is whether the district court properly granted class certification.
Defendants argued that Vaquero failed to meet the requirements of Rule23(a), alleging that Plaintiffs failed to establish commonality and predominance of class claims among the class.  Defendants also asserted that class certification altered the parties’ substantive rights in violation of the Rules Enabling Act, 28 U.S.C. § 2072(b).

Defendants relied on Wal-Mart Stores, Inc. v. Dukes, arguing that commonality did not exist among the class.  However, the court disagreed, distinguishing Dukes from the present case.  Dukes involved a class action against Walmart for sex discrimination, alleging that the corporate culture and the retailer’s delegation of promotion decision to individual managers denied a class of female employees equal pay and promotional opportunities in violation of Title VII.  The Supreme Court held that subjective decision by many managers in different locations could not be considered a common injury across a class of more than one million plaintiffs.

Unlike in Dukes, the Ninth Circuit found that the class in Vaquero had commonality because the class all had the common contention that Defendant’s compensation structure violated California’s minimum wage laws for all such employees, a relatively small number of class members who all generally performed the same work.

Defendants also argued that Vaquero’s class failed to establish predominance, asserting that predominance cannot be reached when damage calculations cannot be performed on a class-wide basis. Defendant’s based their argument on Comcast Corp. v. Behrend, an antitrust case where the Supreme Court reviewed certification of a class of consumers that offered a complex damages model to show how customers were subject to anti-competitive pricing.

The Ninth Circuit has interpreted Comcast to mean that plaintiffs must be able to show that damages resulted from the Defendant’s conduct in order to establish predominance.  The Ninth Circuit found that Vaquero easily established predominance because the class alleges that Defendant’s consciously chosen compensation policy deprived the class of earnings in violation of California minimum wage laws.  The court also held that the Vaquero class’s inability to prove individual damages cannot alone defeat class certification and held that the permissibility of using representative or statistical models to establish damages turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disapproving the elements of the cause of action.

Defendants also argued—relying heavily again on Dukes—that allowing the class to use representative evidence to prove damages would inevitably change the substantive rights of the parties by preventing Defendants from individually cross-examining and challenging each class member’s claim.  In Dukes, the Supreme Court rejected plaintiffs’ trial plan to determine damages through statistical sampling because Wal-Mart would lose the right to litigate its statutory defenses to individual claims.
However, the Ninth Circuit found Ashley Furniture’s reliance on Dukes misplaced.  The court found that Defendants’ concerns about damages were hypothetical at this stage of the litigation and that the district court’s grant of class certification did not expand Vaquero’s substantive rights or those of the class. The court explained that Defendants could challenge the viability of Vaquero’s evidence at a later stage of the proceedings and that it was immature to decide at the stage of class certification.

Monday, June 27, 2016

U.S. Supreme Court Upholds University of Texas’s Race-Conscious Admissions Program

In a 4-3 decision Thursday, the Supreme Court affirmed that a race-conscious admissions program used by the University of Texas is legal under the Equal Protection Clause of the 14th Amendment—at least, as that program was implemented in 2008 when UT rejected Abigail Fisher’s college application. Justice Kennedy’s majority opinion in Fisher v. University of Texas (Fisher II) was far from an enthusiastic defense of the need for race-conscious admissions programs at public universities, but it affirmed the status quo in reiterating the narrow range of circumstances in which such programs are constitutionally permissible. For that reason, advocates for racial justice can mark Fisher in the win column.

Fisher first came before the Court during the October 2012 term (Fisher I), at which point Ms. Fisher had already graduated from Louisiana State University with a degree in finance. The Court set forth the principles the UT admissions program needed to satisfy under the 14th Amendment (discussed below), said that the Fifth Circuit had failed to apply those principles, and sent the case back for the Fifth Circuit to reconsider.

The Supreme Court first addressed the constitutionality of affirmative action in higher education when it struck down a quota system for applications to the University of California Medical School at Davis in 1978. However, that case, Regents of University of California v. Bakke, also established that affirmative action would be constitutionally permissible, at least in some circumstances. The Court did not clearly establish the applicable level of scrutiny until the mid-1990s, when the Rehnquist Court held that all racial classifications—without regard to whether those classifications were intended to hinder or help people of color—would be subject to the highest level of scrutiny (strict scrutiny) under the Equal Protection Clause. In dissent, Justice Stevens wryly chided the majority as unable to tell “the difference between a ‘No Trespassing’ sign and a welcome mat.”

More recently, the Court considered two race-based admissions programs at the University of Michigan in 2003. The Court (in two opinions by Justice O’Connor) struck down the undergraduate school’s use of a point system to boost applications from people of color while it upheld the Law School’s use of race as a “plus factor” as part of a flexible assessment of other “soft variables.” Those decisions also established “attaining a diverse student body”—for the benefit of all students—as the only permissible basis for an affirmative action program. An affirmative action program that sought to remedy the effects of past discrimination, for example, would not pass constitutional muster. These Michigan cases established the needle which UT needed to thread if it wanted to promote diversity at its flagship university while satisfying strict scrutiny under the Equal Protection Clause.

UT thus developed an intriguing strategy to diversify its student body, by taking advantage of widespread racial segregation in the state’s public schools: it would offer admission to all students who placed in the top 10% of their high school class, up to 75% of the class. UT would then admit the remaining 25% according to an individualized inquiry which would consider race as one factor among many, much like the Michigan Law School plan approved by the Court. In alleging that her rejection from UT was racially discriminatory, Ms. Fisher challenged only the latter aspect of the admissions program (as she did not place in the top 10% of her high school class).

In Fisher I, Justice Kennedy described three controlling principles to assess the constitutionality of a public university’s race-conscious admissions program. First, such a program would have to satisfy strict scrutiny under the Equal Protection Clause (that is, it must be narrowly tailored to achieve a compelling government interest, and diversity qualifies as such an interest). Second, courts should defer to a university’s academic judgment, accompanied by reasoned explanation, that a diverse student body would promote its educational goals. Third, the university bears the burden of proving that a race-neutral approach would not accomplish the same goals.

In Fisher II, Justice Kennedy determined that UT had met its burden with respect to all three principles. In large part, Kennedy appears to have been persuaded by the comprehensiveness of the data produced by UT in support of its need to go beyond the Top 10% program to achieve the educational benefits of a diverse student body, the modesty of the program (using race as “but a ‘factor of a factor of a factor’ in the holistic-review calculus”), and a desire to defer to UT’s academic judgment.

Justice Kennedy’s Fisher II opinion (much like his Fisher I opinion) is far from a model of clarity. Justice Kennedy went to great lengths to explain that UT’s admissions program was one-of-a-kind, that the Court’s ruling was meant only to capture a moment in time, and that the opinion had “limit[ed] value for prospective guidance.” Justice Kennedy referred to UT’s program as unique (he used the Latin), although it is unclear why he thinks other states will not adopt a similar approach now that the Court has given its seal of approval—Texas is not unique in its de facto racially segregated public schools. He also noted that the opinion did not intend to approve of UT’s admissions program today or in the future, explaining that UT should continually assess the need for a race-conscious admissions policy.

In doing so, he also fell prey to the same dubious assumption as Justice O’Connor in the Michigan cases: that racism in the United States will soon become a distant memory (Justice O’Connor stated that affirmative action would cease to be necessary by 2028). This premise was misleading, even before a major U.S. political party nominated an overtly racist demagogue as its standard bearer.

Still, Justice Kennedy should be commended for his evolution on affirmative action. He voted to strike down the use of race as a plus factor in the Michigan Law School case less than 15 years ago, and less than 10 years ago joined the majority in striking down Seattle’s use of race in school assignments to further Seattle’s goal of racially integrated public schools. In fact, Justice Kennedy has never before affirmed an affirmative action program. Particularly before the death of Justice Scalia, many commentators suspected that Fisher II would effectively end race-conscious admissions at public universities, and deny countless students of color a fair shake in the application process. Fisher II instead preserved the status quo, for which the four justices in the majority should be applauded.

Tuesday, June 7, 2016

Arbitration Class Action Waivers Challenged: Seventh Circuit Sides with The National Labor Relations Board on D.R. Horton, in Lewis V. Epic Systems


On May 26, 2016, in Lewis v. Epic Systems Corp., No. 15-2997, 2016 WL 3029464 (7th Cir. May 26, 2016), the Seventh Circuit, fueling a circuit split, sided in favor of the National Labor Relations Board (“the Board”) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012), holding that employers violate Section 7 of National Labor Relations Act (NLRA) by requiring employees covered by the Act to waive, as a condition of their employment, participation in class or collective actions.  Under Section 7 of the NLRA, employers are prohibited from interfering with employees’ right “to engage in…concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

In Epic Systems, Lewis, a technical writer, filed a suit in federal court in Wisconsin on behalf of himself and other technical writers alleging that his employer – Epic Systems Corporation – had violated the Fair Labor Standards Act (FLSA) by misclassifying workers as exempt and depriving them of overtime.  In response, Epic-Systems moved to dismiss Lewis’s claim and compel individual arbitration because he had signed an arbitration agreement that waived his “right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”  Lewis, however, responded that the agreement’s class and collective action waiver was unenforceable because it interfered with his right to engage in concerted activities under Section 7 of the NLRA.  The district court agreed with Lewis’s arguments and the Seventh Circuit affirmed.

Chief Judge Diane Wood explains in Epic Systems that “there is ‘no doubt that illegal promises will not be enforced in cases controlled by the federal law.’”  Epic Sys. Corp., 2016 WL 3029464, at *6 (quoting Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982)).  As reasoned in D.R. Horton, Section 7 grants employees the substantive right to act “concertedly for mutual aid or protection” and mandatory arbitration agreements that bar an employee’s ability to bring or join class or collective workplace claims restrict this substantive right. 

D.R. Horton adversaries claim that the Board and now the Seventh Circuit have expressly rejected the Supreme Court’s clear instructions on how to interpret the Federal Arbitration Act (FAA), which says that absent some specific “contrary congressional command” as to whether a claim can be arbitrated, the FAA “requires the arbitration agreement to be enforced according to its terms.”  CompuCredit Corp. v. Greenwood, 132 S.Ct. 665, 673 (2012).  However, as Chief Judge Wood explains in Epic Systems, “[b]efore we rush to decide whether one statute eclipses another, we must stop to see if the two statutes conflict at all.”  Epic Sys. Corp., 2016 WL 3029464, at *5.

The U.S. Supreme Court has made clear that “when two statutes are capable of co-existence ... it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.”  Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 533 (1995); see also Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 381 (1996) (implied repeal should be found only when there is an “‘irreconcilable conflict’ between the two federal statutes at issue”) (quoting Kremer v. Chem. Const. Corp., 456 U.S. 461, 468 (1982)).  Epic Systems elucidates that the FAA and NLRA are reconcilable by way of the FAA’s savings clause, which provides that if “the provision at issue is unlawful under Section 7 of the NLRA, it is illegal, and meets the criteria of the FAA’s savings clause for non-enforcement,” i.e., that an arbitration agreement’s conflict with federal law is grounds for invalidation.  Epic Sys., 2016 WL 3029464, at *6.  When Congress drafted the FAA, it anticipated that conflicts could arise between it and other Federal laws, and by including the savings clause, it created a means of harmonizing the FAA with laws such as the NLRA. 

The Seventh Circuit’s decision splits with last year’s Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015), in which the Fifth Circuit held the exact opposite, ruling that the employer did not commit unfair labor practices by requiring employees to sign its arbitration agreement or seeking to enforce that agreement in federal district court.  The Fifth Circuit rejected the Board’s position, but the Court did not profess to have the last word on the matter.  The Fifth Circuit wrote, “[a]n administrative agency’s need to acquiesce to an earlier circuit court decision when deciding similar issues in later cases will be affected by whether the new decision will be reviewed in that same circuit…We do not celebrate the Board's failure to follow our D.R. Horton reasoning, but neither do we condemn its nonacquiescence.”  Murphy Oil, 808 F.3d at 1018 (referencing Samuel Estreicher & Richard L. Revesz, Nonacquiescence by Federal Administrative Agencies, 98 YALE L.J. 679, 735–43 (1989)). 

The circuit split on the enforceability of class action waivers has the legal community reeling.  While D.R. Horton, Epic Systems, and the present judicial climate have emboldened the plaintiffs’-side employment law bar nationwide, the debate continues to arouse long-held sentiments that workers’ rights should be subjugated in the name of commerce and contractual rights.  The Supreme Court will likely have to address the conflict presented in D.R. Horton, Murphy Oil, and Epic Systems, and people in the labor and employment law community are on the edge waiting to hear who ends up in the seat formerly held by Justice Antonin Scalia.