Reflections on International Women's Day

Today marks the 111th annual International Women’s Day. Bryan Schwartz Law is an ardent supporter of women’s rights, and has fought for working women since our firm’s founding in 2009. Supporting women in the workplace means more than just remedying cases of gender discrimination: it requires us to support Black women who are discriminated against because of their gender and race, to support disabled women who experience the dual marginalization of gender and disability, and to work at all other intersections of oppression.

Women today face a terrifying legal landscape, one in which women sometimes feel they take a step backward nearly every time they take a step forward. Emboldened by a conservative Supreme Court, more and more states are working to gut Roe v. Wade and return to a time where only women wealthy enough to take time off work and travel out of state are able to get safe, legal abortions. Young queer women across the South face new legislation that aims to literally silence the queer experience and queer history, while at the same time Texas has begun to criminalize parents who support their child’s gender, regardless of what their birth certificate says. Breonna Taylor’s killer has been acquitted, and Black women continue to live with an unacceptable threat of police violence. Women in Ukraine face unspeakable violence and displacement that grows every day.

And yet, amidst all of this, there are silver linings. Ketanji Brown Jackson is poised to become the first Black woman to serve on the Supreme Court, an accomplishment that is both momentous and 233 years too late. The U.S. women’s soccer team just won a six-year fight to be paid the same as the men’s national soccer team, remedying a pay inequity that persisted despite the women’s team routinely outperforming the men’s team in the world’s biggest tournaments. Globally, eight countries swore in their first female head of state in 2021. And, President Biden just signed into law a bill prohibiting forced arbitration in sex harassment and assault cases.

Bryan Schwartz Law is committed to partnering with and advocating for women, whether they have been paid less than their male counterparts, denied disability accommodations that would allow them to thrive, or terminated because they spoke out against inequities they see in their own workspace. If you are a woman who has been treated unfairly in the workplace, please contact Bryan Schwartz Law.

CoreLogic Sanctioned Over $86,000 For Violating Court Orders Compelling Arbitration

This week, a federal court in Orange County issued an order requiring CoreLogic, a real estate appraisal company, to pay over $86,000 in sanctions for “willfully and unreasonably disobey[ing]” court orders regarding arbitration.

Bryan Schwartz Law, along with co-counsel Nichols Kaster, LLP, filed a class and collective action case against CoreLogic at the end of 2017. The plaintiffs in Mitchell v. CoreLogic, Inc. et al., Case No. 8:17-cv-02274-DOC-DFM (C.D.Cal.) – real estate appraisers for defendant CoreLogic – alleged a variety of violations of state and federal wage and hours laws, including failure to pay overtime, failure to provide adequate meal and rest breaks, and failure to pay premiums for missed breaks.

In February 2019, CoreLogic successfully moved to compel many of the plaintiffs to arbitration, but then balked when approximately 160 of the plaintiffs filed arbitrations and CoreLogic was suddenly faced with the accompanying bills. CoreLogic twice sought relief from U.S. District Court Judge David O. Carter, and twice the judge denied its request.

In its first effort to avoid the very arbitration it moved to compel, CoreLogic raised a variety of administrative issues, which the court rejected. In his order on May 28, 2019, Judge Carter stated:

 “CoreLogic moved this Court to order Plaintiffs to arbitrate their claims. As CoreLogic previously argued, issues of arbitrability or the implication of statutes of limitation must be resolved by the arbitrator . . . CoreLogic asked for resolution of any and all disputes by the arbitrator. Having compelled arbitration, the Court will not now stay those proceedings due to associated costs.”

Undeterred, CoreLogic tried again to get out of the arbitrations by arguing that certain “threshold issues” had to be resolved before it proceeded with certain arbitrations. In a December 17, 2019 order, Judge Carter stated:

“The Court is very concerned about (and will no longer tolerate) more foot dragging on this issue. The Court ORDERS the parties to refile these cases with the [American Arbitration Association] and participate in the arbitration proceedings.”

In a follow up order on January 9, 2020, Judge Carter ordered CoreLogic to pay $18,482.49 in sanctions to Bryan Schwartz Law and $67,482.49 to Nichols Kaster for the attorneys’ fees and costs incurred in complying with the court’s prior orders to arbitrate.

CoreLogic’s tactics are part of a growing trend of companies that, upon forcing arbitration, balk when they have to pay up. Thankfully, the court’s sanctions order here is also part of a growing trend of courts calling companies’ bluff.

The issue of arbitration is an evolving one in CA. Bryan Schwartz Law is committed to holding companies accountable when they force their employees to arbitrate rather than allow their employees to have their day in court. The sanctions order is yet another victory in holding corporate America accountable.

If you have been forced to arbitrate your claims but your employer is not cooperating, contact Bryan Schwartz Law today.

Giving Thanks for Worker Protections—California Supreme Court and California Legislature Limit Arbitration Agreements in Employment

The California Supreme Court handed down a decision earlier this year that adds to the growing body of law surrounding mandatory arbitration agreements and delivering a victory for employees. The case is Oto, L.L.C. v. Kho (2019) 8 Cal.5th 111. This decision, plus the California Legislature’s recent legislation in AB-51, limit the extent to which employers can attempt to force their employees into binding arbitration.

Employers increasingly require their employees to sign mandatory arbitration agreements. By these agreements, employees waive their right to pursue employment actions against their employers by any means besides binding arbitration. The arbitration process often favors employers and effectively stymies employees’ efforts to vindicate their rights, protecting employers that wish to skirt the law. Employers’ reliance on mandatory arbitration has ballooned following the past decade of U.S. Supreme Court cases whittling away at employees’ right to vindicate their employment grievances in court or through an administrative proceeding. Given that mandatory arbitration agreements are so widespread, Bryan Schwartz Law has blogged about them many times, including here, here, here, here, and here.

One of the ways in which an employee may be able to escape from the requirements of a mandatory arbitration agreement is by arguing that the agreement itself is invalid, using the same legal arguments that could be made as to any contract. Oto v. Kho addressed one of these contract defenses in particular: the doctrine of unconscionability.

A contract might be unconscionable in one of two ways. First, the contract could be procedurally unconscionable. This means that the circumstances in which the contract was formed were so unfair that one of the parties could not have agreed to it based on their own free will.

Second, the contract could be substantively unconscionable. This means that the terms of the contract themselves are so unfair against one party that a court will refuse to enforce the contract.

Both were present in Oto v. Kho, the California Supreme Court ruled. The plaintiff in the case, Ken Kho, worked for One Toyota in Oakland, California, for three years before he was presented with several documents, including a mandatory arbitration agreement, by a low-level employee. Kho, whose first language is Chinese, was forced to sign the agreement immediately without a chance to review the agreement first. Later, Kho filed a complaint with the California Labor Commissioner against One Toyota for unpaid wages. One Toyota moved to compel arbitration on the eve of a hearing before the Labor Commissioner and refused to participate in the proceedings before the Labor Commissioner any further. The proceedings took place without One Toyota, and the Labor Commissioner entered an award for Kho.

The trial court vacated the award but did not compel arbitration. The court of appeal reversed, holding that, despite the apparent procedural unconscionability, the agreement was not substantively unconscionable.

The California Supreme Court disagreed. First, several aspects of the formation of the agreement smacked of procedural unconscionability. The agreement was presented to Kho at his workplace, along with other employment-related documents. No one explained the document or provided a copy in Kho’s native language, but he was required to sign it in order to keep his job. If Kho had insisted on taking the time to review the documents, his pay would have been reduced because he was paid on a piece-rate basis. The agreement was communicated to Kho by a low-level employee, indicating that One Toyota would not entertain any request for explanation. Furthermore, the low-level employee waited for Kho to review and execute the agreement, which created the impression that Kho was expected to do so immediately. One Toyota did not give Kho a copy of the executed agreement.

Moreover, the language of the agreement was rife with complex legalese and convoluted sentences. This dense paragraph was printed on tiny font; the court of appeal characterized it as “visually impenetrable.” The agreement’s deceptive nature was also apparent in how it characterized the responsibility for the costs of arbitration. The agreement set forth that the costs of arbitration would be split between the parties unless controlling case law provided otherwise, without noting that the controlling decision in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, created an exception to this default rule in employment cases. Taken together, these aspects of the agreement demonstrated that it “did not promote voluntary or informed agreement.”

Second, the agreement was substantively unconscionable. It provided no indication as to how one could bring an action in arbitration, as the agreement required. The process set forth in the mandatory arbitration agreement was as complex and intricate as the process for civil litigation, requiring arbitration to be initiated through the filing of a complaint and setting forth specific motions and discovery procedures. These procedures ran counter to the supposed benefits of arbitration—its purported speed and efficiency. The Court was also concerned that the arbitration agreement all but required claimants to hire legal counsel due to the complexity of its procedures, forcing employees to incur attorneys’ fees, whereas employees bringing wage claims have access to free legal assistance from the Labor Commissioner. Given that Kho’s mandatory arbitration agreement was both procedurally and substantively unconscionable, it was unenforceable.

The California Legislature also made a foray into mandatory arbitration provisions, amending the Fair Employment and Housing Act (“FEHA”) to protect employees against forced arbitration. The amendment, AB-51, makes it an unlawful employment action to require any current or prospective employee to waive the right to pursue their FEHA claims in court or any other forum—in other words, employers cannot require employees to sign mandatory arbitration provisions as a condition of employment. The new legislation, set to take effect on January 1, 2020, also includes a provision prohibiting employers from retaliating against any employee because of their refusal to agree to mandatory arbitration.

If you have an employment dispute against your current or former employer, contact Bryan Schwartz Law.

Lamps Plus Dims the Future of Class Arbitration.

The Supreme Court dealt another blow to employees seeking to assert their workplace rights with its decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), all but killing the possibility of concerted arbitration in most cases. Lamps Plus is centered around mandatory, pre-dispute arbitration agreements. Employees often sign mandatory arbitration agreements as a condition of their employment. When faced with unlawful conduct in the workplace, these agreements prevent employees from suing their employers in court. Instead, employees must adjudicate disputes in arbitration, which is often a process skewed toward employers. Bryan Schwartz Law has blogged about problems with arbitration several times, including here, here and here. Though the Supreme Court pretends that arbitration is a more efficient and cost-effective means of resolving a conflict, arbitration is really only more efficient and cost-effective to the extent that it kills statutorily-protected claims all together – nothing more than a windfall for law-breakers, harming workers and consumers and preventing law-abiding businesses from competing on a level playing field.

In Lamps Plus, the Court examined when arbitration claims could be brought on behalf of multiple employees in a single action. Often, employees with valid grievances cannot and would not sue their employers individually because the cost of hiring an attorney outweighs the value of their claims and litigation and arbitration are time-consuming, draining, and always raise fears of retaliation. Fortunately, employees can band together against an employer as a class or collective, allowing them to bring claims together that would be too costly and difficult to pursue as individuals.

Over the past decade, the Supreme Court has chipped away at the availability of both class actions in court and class arbitration through its interpretation of the Federal Arbitration Act (“FAA”). In 2010, the Court held that individuals cannot pursue class arbitration if it is not permitted by their arbitration agreement. Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). In April of this year, the Supreme Court extended Stolt-Nielsen’s holding to include contracts that are ambiguous on the issue of class arbitration in its Lamps Plus decision. Like silent arbitration agreements, the Court held, ambiguous arbitration agreements do not provide employees the option of pursuing class arbitration.

In Lamps Plus, the company was alleged to have disclosed sensitive personal information belonging to 1,300 employees, including that of the plaintiff, Frank Varela.  As a result, Mr. Varela was the victim of identity theft. Mr. Varela sued Lamps Plus on behalf of himself and the other employees affected by the security breach.

Lamps Plus moved to kick the case out of court and into arbitration based on Mr. Varela’s arbitration agreement. The District Court granted Lamps Plus’s motion. However, it rejected Lamp Plus’s request for individual arbitration and instead authorized Mr. Varela to proceed with class arbitration.

The Ninth Circuit affirmed. The court determined that the language in Mr. Varela’s arbitration agreement was ambiguous on the issue of class arbitration. In resolving the ambiguity, the court applied the California legal principle requiring ambiguous contract terms be construed against the drafter, a doctrine known as contra proferentem. All fifty states apply contra proferentem because it encourages clear contract drafting. Lamps Plus 139 S. Ct. 1407 (Kagan, J., dissenting). Here, Lamps Plus submitted that the contract only conveyed consent to individual arbitration, while Mr. Varela argued that the contract implied consent to class arbitration. The court construed the meaning of the contract against the drafter, Lamps Plus. Thus, the court disagreed with Lamps Plus’s interpretation and ruled Mr. Varela could bring a class arbitration claim.

The Supreme Court rejected the Ninth Circuit’s application of contra proferentem and held that contracts ambiguous on the issue of class arbitration do not authorize class arbitration. In its reasoning, the Court relied heavily on a false distinction between individual and class arbitration. The majority opined that class arbitration does not achieve the FAA’s goals of making litigation faster, simpler and less expensive. Lamps Plus, 139 S. Ct. at 1416. According to the current Supreme Court majority, class arbitration “makes the process slower, more costly, and more likely to generate procedural morass than final judgement.” Id. (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011)).  Therefore, the Court concluded that the term “arbitration” does not intrinsically include class arbitration. The Court’s reasoning is based on the mistaken belief that individual arbitrations are indeed faster, simpler, and less expensive. Id. This leap of reasoning is unsupported, in fact, and contrary to the experience of this firm. Hundreds of individual arbitrations are not actually faster, simpler, or less expensive than a single class case.

The Court then decided how to interpret the ambiguity in Mr. Varela’s contract. The Court conceded that, normally, courts apply state law when interpreting contracts. Id. at 1415. Here, however, the Court held that the federal FAA conflicts with the state doctrine of contra proferentem, thereby displacing it. Id. at 1417-18.

According to the Court, the two laws conflict because, under the FAA, “[a]rbitration is strictly a matter of consent.” Id. at 1415 (quoting Granite Rock Co. v. Teamsters, 561 U.S. 287, 299 (2010)).  Contra proferentem, on the other hand, provides a method of contract interpretation that disregards consent between the parties in favor of a practical solution. Id. at 1418. Considering this manufactured conflict between supposed “consent” between parties under the FAA (which, as Justice Ginsburg explained in her dissent, is a fallacy) and standard principles of contract law, the Court decided that the FAA applies instead of contra proferentem. Id. Thus, the Court held employees cannot pursue class arbitration if their contracts are ambiguous on the issue. Id. Rather, arbitration agreements only authorize class arbitration when there is clear language that shows both parties intended to provide for class arbitration. Id.

This opinion inspired a flurry of dissents. In the main dissent, Justice Kagan argued that Mr. Varela’s contract was not ambiguous in the first place – it clearly allowed for class arbitration. Id. at 1428-29. Even if the contract were ambiguous, she argued, contra proferentem should apply because it does not conflict with the FAA. Id. at 1430-35. Justice Sotomayor’s dissent rejected the notion that class arbitration is fundamentally different from individual arbitration. Id. at 1427. She argued that consent to arbitration necessarily includes the ability for complainants to proceed as a class. Id. Justice Breyer argued that the Court of Appeals lacked jurisdiction altogether. Id. at 1422-23.

Justice Ginsberg crafted the most scathing dissent. She called out the disingenuity of the majority’s central premise that arbitration “is strictly a matter of consent.” Id. at 1421. In reality, people rarely have genuine choice when signing arbitration agreements. Rather, they are often a condition of employment. Id. When Congress passed the FAA in 1925, Ginsberg noted, Congress intended arbitration to simplify dispute resolution between businesses with equal bargaining power. Id. at 1420. This is a far cry from the role of arbitration today. Now, employers can force arbitration agreements on employees to insulate themselves from the consequences of unlawful employment practices. As Ginsberg argued in her dissent, mandatory individual arbitration thwarts “effective access to justice.” Id. at 1422.  

It is the unfortunate reality that a growing number of employees must agree to mandatory, pre-dispute, individual arbitration as a condition of employment. Nevertheless, employees may overcome arbitration agreements, or make employer’s pay in arbitration – employers sometimes fail to obtain arbitration consent from all employees, or waive a right to compel arbitration by proceeding in court extensively before moving to compel arbitration. Employers do not expect massive numbers of employees to file in arbitration – they hope employees will simply abandon their claims. However, mass filing of arbitrations by aggrieved employees sends a strong message: arbitration is not meant to be a get-out-of-jail free card. In California, employees have the option of bringing a representative action under the Private Attorneys General Act of 2004 (“PAGA”), standing in the shoes of the state, which cannot be compelled involuntarily to arbitration. With our vigilance, and notwithstanding the best efforts of the present U.S. Supreme Court to abandon workers’ rights to the whims of big business, workers’ claims may yet be vindicated. If you are an employee and have questions about a supposed arbitration agreement between you and your employer, contact Bryan Schwartz Law 

You Can’t Split This Baby—Employees Cannot be Forced to Arbitrate Parts of PAGA Claims, Appeals Court Rules

Arbitration agreements are more and more popular among employers (and the United States Supreme Court) as a way to get out of concerted actions brought by wronged employees. In California, they cannot be enforced to stop state prosecution of wage claims through qui tam representative plaintiffs under the Private Attorney General Act (“PAGA”), Cal. Lab. Code § 2698 et seq. See Iskanian v. CLS Trans. Los Angeles, LLC (2004) 59 Cal.4th 348, 382-92.

Nevertheless, employers have sought ways to force PAGA actions out of court and into arbitration, arguing that PAGA claims for wages should go to arbitration, while only the statutory PAGA penalties could remain before a court. A handful of cases in the Courts of Appeal have dealt with this issue, one of which, Lawson v. ZB, N.A., (2017) 18 Cal.App.5th 705, is pending before the California Supreme Court. Bryan Schwartz Law has submitted an amicus brief to the California Supreme Court in this case.

On March 28, 2019, a California appellate court issued another decision rejecting this argument, adding to the list of decisions protecting PAGA enforcement in this rapidly developing area of the law.  See Zakaryan v. The Men’s Wearhouse, Inc. (Mar. 28, 2019) __Cal.App.5th__. To understand why Zakaryan is noteworthy, we must understand the legislative intent behind PAGA. Before PAGA was enacted in 2003, California struggled to enforce the worker protections in the Labor Code. The financial crisis was in full effect, and the state government could not afford to oversee California’s massive workforce. So it decided to let employees enforce the Labor Code themselves, on behalf of the state, provided that first they comply with some straightforward procedures and the state decides not to take the case itself. Cal. Lab. Code § 2699.3. A PAGA action is “brought by an aggrieved employee on behalf of himself or herself and other current or former employees.” Cal. Lab. Code § 2699. PAGA also provides for penalties to be assessed against liable employers. Cal. Lab. Code § 2699(f). The state gets 75% of any PAGA award, while the employee gets 25% plus reasonable attorney fees and costs. Cal. Lab. Code §§ 2699(g)(1), (i).

Employers have tried to contract around PAGA using arbitration agreements. It hasn’t worked. Although arbitration agreements can waive employees’ class action rights (Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018)), employers cannot force the state to arbitrate its claims, which are vindicated through PAGA. Iskanian, 59 Cal.4th at 378-92. The suing representative plaintiff just stands in the state’s shoes. Id at 386-87. Because an employee cannot contractually waive a right belonging to the state, an arbitration agreement cannot waive an employee’s right to proceed under PAGA.

Despite this, The Men’s Wearhouse tried to argue that a PAGA claim for wages should go to arbitration. The California Court of Appeals didn’t buy it in Zakaryan (Mar. 28, 2019) __Cal.App.5th__.

Plaintiff Zakaryan worked for The Men’s Wearhouse as a store manager from 2002 until 2016, before suing under PAGA, alleging that the company wrongfully misclassified its store managers as exempt from California’s overtime and meal and rest break laws. The Men’s Wearhouse moved to send the portion of Mr. Zakaryan’s claims involving underpaid wages to arbitration. It lost, and appealed.

After a careful analysis of PAGA and arbitration law, the appellate court rejected The Men’s Wearhouse’s argument for two reasons. First, splitting the PAGA claim would violate California’s “primary rights theory,” under which “one injury gives rise to only one claim for relief.” A PAGA claim, the court ruled, involves “one and only one ‘particular injury’—namely the injury to the public that the ‘state labor law enforcement agencies’ were created to safeguard.” Therefore, a PAGA claim cannot be split between a court and arbitration.

Second, sending part of the case to arbitration would run contrary to labor and arbitration law. PAGA awards the state 75% and the aggrieved employee the remainder of “a single civil penalty,” the court observed, which could not be properly heeded if portions of the civil penalties were syphoned off to arbitration. Moreover, “a PAGA claim is, fundamentally, a representative claim,” in which the suing employee represents other aggrieved employees in a suit brought on behalf of the state. As such, there was no individual portion of the claim to break off in an arbitration proceeding. In addition, Mr. Zakaryan had elected to pursue claims under PAGA’s representative action mechanism rather than his individual claims. Forcing him to arbitrate as if he had brought individual claims would effectively hijack his case. Finally, splitting the PAGA action would send the most important aspect of the claim to be determined—the employer’s liability—to the arbitrator, thereby circumventing the state’s right to have its enforcement action heard in court.

The California Supreme Court will soon decide this issue in Lawson.

If you have California wage claims and your employer is trying to force you into arbitration, contact Bryan Schwartz Law.

SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

In recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

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[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.

Supreme Court Favors Delegation Clauses, But Courts Retain Jurisdiction Over Formation Disputes

On January 8, 2019, the Supreme Court reversed the Fifth Circuit decision in Henry Schein, Inc. v. Archer and White Sales, Inc., Case No. 17-1272. 

The case is a business dispute in which plaintiff Archer and White seeks both money damages and injunctive relief. Defendant Schein moved to compel arbitration and Archer and White opposed, arguing that the dispute was not subject to arbitration because the complaint seeks injunctive relief, at least in part. The relevant contract provision states:

Disputes. This agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

Schein argued that because of the contract's express incorporation of the American Arbitration Association's rules, the parties agreed that questions of arbitrability, including the arbitrability issue raised by Archer and White, would be decided by an arbitrator. Archer and White responded that because they seek injunctive relief, which is excluded in the above provision, the court may resolve a threshold question of arbitrability if the argument for arbitration is "wholly groundless." The district court agreed and Schein's motion to compel was denied. The Fifth Circuit affirmed, citing its own precedent for a "wholly groundless" exception to enforcing a delegation clause. 

In his first Opinion, Justice Kavanaugh writes for a unanimous Supreme Court that when parties contract to delegate arbitrability questions to an arbitrator, a court may not override this agreement even if the court believes that arbitrability of the particular dispute is "wholly groundless." He explains that "[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator."

However, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), and Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the Opinion clearly states that courts retain the power to decide whether there is "clear and unmistakable evidence" of a meeting of the minds to delegate arbitrability questions to an arbitrator. Rather than ordering the lower courts to grant Schein's motion to compel, the Court remanded to the Fifth Circuit to consider, in the first instance, the issue of whether the contract in fact delegated the arbitrability question to the arbitrator.

In employment law, workers' rights attorneys generally seek to avoid arbitration because of the ways in which arbitration agreements are being used not only to stop workers and consumers from vindicating their rights in a concerted manner, but also to exert control over the dispute resolution process, primarily by companies building repeat-customer relationships with certain preferred arbitrators.    

The Supreme Court's decision in Schein is prompting defense attorneys to advise their employer clients to review their arbitration agreements and include a clearly worded delegation clause. However, employers cannot circumnavigate the courts merely through the presence of a provision attempting to delegate questions of arbitrability to an arbitrator. Workers remain able to argue defenses to formation of such an agreement, and courts must hear these arguments. Workers, if you can argue that the defendant lacks "clear and unmistakable evidence" that the parties agreed to arbitrate, or that the parties agreed to delegate issues of arbitrability to an arbitrator, the Supreme Court has made clear, unanimously, that this argument must be heard by the court before compelling arbitration.

Epic Fail: U.S. Supreme Court Rules that Employers May Require Employees to Waive Right to Bring a Class Action as a Condition of Employment

On Monday, the Roberts Court took another significant step in its ongoing project to hobble class actions and impose barriers to employees seeking redress against their employers by holding that class action waivers within arbitration agreements do not violate the National Labor Relations Act (“NLRA”). The employees, seeking to recover unpaid wages on behalf of themselves and other employees under the Fair Labor Standards Act (“FLSA”), had argued that the NLRA’s Section 7, which guarantees employees’ “right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” prohibits employers from requiring that employees agree to individual, binding arbitration as a condition of continued employment.

The case, Epic Systems Corp. v. Lewis, comes on the heels of series of Roberts Court cases expanding the ability of companies to impose individual arbitration on their employees and customers, thus preventing employees and consumers from filing lawsuits in open court or filing class actions anywhere. Bryan Schwartz Law has written extensively about the Court’s decisions expanding the Federal Arbitration Act (“FAA”) at the expense of the rights of employees and consumers: here, here, here, here, here, and here. In 2001, the Rehnquist Court ruled in Circuit City Stores, Inc. v. Adams that the FAA’s express exclusion of “the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” meant to remove only the employment disputes of transportation workers from binding arbitration, notwithstanding the broad “any other class of workers” language in the Act. Then, in 2011, the Roberts Court approved of class action waivers in consumer arbitration contracts in AT&T Mobility v. Concepcion.

The Court’s opinion in Epic Systems, while hardly a surprise given this Court’s expressed disregard for the rights of workers and consumers in its recent arbitration jurisprudence, is notable for the sheer level of its intellectual dishonesty. Justice Gorsuch, writing for the five-Justice majority, feigns confusion as to why the National Labor Relations Board did not address the apparent conflict between the NLRA (enacted 1935) and the FAA (enacted 1925) until 2012, when the obvious answer is that no one thought that the FAA had anything to do with employment disputes in the late 1930s when Congress passed both the NLRA and the FLSA, which permits employees to bring “collective actions” to recover unpaid wages.

Gorsuch counsels judicial restraint in admonishing the employees for asserting a conflict between the FAA and NLRA – “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives” – but fails to mention that the current regime making compulsory, pre-dispute arbitration a ubiquitous requirement for employees and consumers is a recent, judicial invention. Given the low value of most individual employment and consumer claims, the right-wing innovation is tantamount to a get-out-of-jail-free card (or out-of-liability-free card, at least) for companies engaging in wage theft and other insidious business practices, undermining fair competition with companies that play by the rules.

Completely absent from Court’s opinion is any discussion or concern as to how forced individual arbitration undermines the substantive rights enshrined in laws like the FLSA and Title VII of the Civil Rights Act of 1964 (prohibiting employment discrimination). The success of these Acts has depended greatly on the ability to bring group actions challenging policies and practices that injure large numbers of workers. For instance, the landmark 1971 discrimination case Griggs v. Duke Power Co. involved a class of African-American employees who successfully challenged high school diploma and IQ-testing requirements that were unrelated to their jobs, but had the effect of keeping African-Americans out of the most desirable positions. In Gorsuch’s world, these sorts of fundamental statutory protections must give way to the Roberts Court’s arbitration regime, under which its expansive reading of the FAA trumps all.

Justice Ginsburg penned a fiery and forceful dissent, joined by Justices Breyer, Sotomayor, and Kagan, in which she blasts the majority opinion for trampling on the ability of employees to exercise their statutory rights. Ginsburg traces the history of the Court’s labor jurisprudence, noting that New Deal legislation like the NLRA and the FLSA arose from an understanding that individual employees lacked the bargaining power to demand fair working conditions, and that only through acting collectively could employees “match their employers’ clout in setting the terms and conditions of employment.” In that sense, the majority’s opinion, premised on the fanciful notion that most employees have any ability to negotiate when their employers demand they sign an arbitration agreement, reflects a return to the pre-New Deal Lochner era, when the Court routinely struck down worker protections as violating the supposed freedom to contract.

Ginsburg further notes that the result of Epic Systems “will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Low-wage employees, especially, may be reluctant to take on their employers alone for fear of retaliation, since the costs and risks of proceeding individually often dwarf the potential recoveries. Of course, this is not an accidental outgrowth of the Roberts Court’s arbitration jurisprudence, but its central design: to insulate companies from liability for harm to their employees and customers.

After Epic Systems, employees, consumers, and those who advocate on their behalf have an increasingly limited toolbox to confront corporate abuse on a class-wide basis, so long as employers can demand individual arbitration. At this point, the only comprehensive solution is likely a legislative one, highlighting the importance of who Americans elect to the next Congress. When most Americans know victims of corporate overreaching – a day we fear is coming soon – the tide will turn, and the Roberts Court will be seen in its true light, on the wrong side of history.

The United States Supreme Court Hears Oral Argument on Individual Arbitration Agreements in Employment Contracts in Epic Systems Corp. v. Lewis and Consolidated Cases

On Monday, the Supreme Court of the United States heard oral argument in one of the most important employment cases in recent history. In Epic Systems Corp. v. Lewis, and consolidated cases, Ernst & Young LLP v. Morris, and N.L.R.B. v. Murphy Oil, Inc., petitioners asked the Court to address whether employees can join together to sue their employer for labor violations, or whether employers may enforce individual arbitration agreements. Transcript available here. Bryan Schwartz Law has previously blogged about the Morris, Lewis, and Murphy Oil cases here, here, and here. Based on the questioning at oral argument, the conservative justices of the Roberts Court appear poised to deliver a victory to big business at the expense of employees.

Background

Whether individual arbitration clauses in employment agreements are enforceable will depend on the Court’s interpretation of two federal laws, the Federal Arbitration Act of 1925 (FAA) and the National Labor Relations Act of 1935 (NLRA).

The FAA provides that arbitration agreements “shall be valid,” except, according to a savings clause, “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Arbitration agreements require parties to resolve legal disputes in front of a private arbitrator rather than in a court of law. Employers frequently seek to condition employment on a worker’s agreement to forego class-wide relief if a dispute arises, and instead pursue their claims in individual arbitrations.

Section 7 of the NLRA prohibits employers from interfering with employees’ right to engage in “concerted activities” for their “mutual aid or protection.” 29 U.S.C. § 157. Class actions have long been considered a concerted activity, which permit large numbers of employees who share common disputes with large employers to band together to pursue relief they would otherwise have foregone due to fear of being singled out for retaliation, or because the cost of hiring an attorney for their individual case would dwarf the amount of their individual wage claims. Agreements to arbitrate individually are in tension with the NLRA’s right to “concerted” activity.

During the years John Roberts has served as Chief Justice, the Supreme Court has consistently stretched the FAA to favor big business, and disfavor class actions.[1] In 2011 and 2013, the Supreme Court held that the FAA allows companies to use fine-print arbitration clauses to force consumer and merchant disputes to be arbitrated on an individual basis. See AT&T v. Concepcion, 563 U.S. 333 (2011) (Scalia, J.); American Express v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) (Scalia, J.). Bryan Schwartz Law previously blogged about Concepcion and Italian Colors here and here. These rulings effectively bar claims by millions of individuals who have each suffered a relatively small injury by a corporation, by baring them from using the class action mechanism.

Unlike consumers or merchants, federal law specifically recognizes a worker’s right under the NLRA to engage in “concerted activity” against employers. In Lewis v. Epic Systems Corp., and Morris v. Ernst & Young LLP, the Seventh and Ninth Circuit Courts of Appeal recognized “concerted activity” as a substantive federal right which would render individual arbitration clauses unenforceable against employees under the FAA’s savings clause. The employers appealed.

In Epic Systems Corp. v. Lewis, and the consolidated cases, petitioners asked the Court to determine whether the FAA gives an employer the freedom to condition employment on an employee’s agreement to proceed individually in arbitration. Put another way, the issue was whether the NLRA gives workers a chance at a more level playing field, by protecting  employees from their employer’s attempts to restrain their ability to act jointly to vindicate rights in an arbitral or other forum.

Oral Argument

Questioning from conservative Justices Roberts and Alito suggests they will back the employers’ arguments that the right to “concerted activity” ends at the courthouse or arbitral forum’s doors. These justices seem satisfied to interpret the FAA to permit companies to use forced individual arbitration to bar workers from coming together in a concerted or joint legal action against their employer. (See Transcript, pp. 5, 34-36, 41-44). They appear inclined to subordinate the purpose of the NLRA to the FAA’s mandate to honor arbitration agreements absent some very specific Congressional command. (See Transcript p. 4). Justice Thomas and the Supreme Court’s newest addition, Justice Gorsuch, were silent throughout the argument, but can be expected to vote with the vocal conservative Justices.

Justice Kennedy seems poised to contort the language of the NLRA to the benefit of employers, too. In the first question of the day, Justice Kennedy suggested the meaning of “concerted action” under the NLRA may somehow exclude class actions. (Transcript p. 5. Justice Kennedy raised a hypothetical of two employees seeking to arbitrate their wage claims. (Transcript pp. 15-16). He implied that employees’ concerted activity rights could be satisfied if each employee hired the same attorney for individual representation – though the whole point of class action is the efficiency of not having countless individual actions seeking the same relief. Justice Kennedy showed no apparent concern for workers’ potential confidentiality concerns, or conflicts of interest that can arise in separate individual representation of numerous employees against a single employer. (Transcript pp. 37). Justice Kennedy suggested, that “many of the advantages of concerted action can be obtained by going to the same attorney” (Transcript p. 39), but this is absurd: corporations and everyone else know that most workers will never step forward individually to prosecute their claims. Companies don’t want to arbitrate at all – they want to eliminate legal challenges by workers, and know the Supreme Court has gifted them a sledgehammer for doing so, with the creative distortion of the FAA to ban group litigation.

Even before Concepcion, Justice Kennedy has been willing to twist the plain language of the FAA to the benefit of employers. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105, he interpreted the FAA to apply to all employment contracts, except for interstate transportation workers, despite the fact that the plain language of the FAA suggests the Act excludes all employees working in interstate commerce. 9 U.S.C. § 1 (“nothing herein contained shall apply to contracts of employment of seamen, or railroad employees, or any other class of workers engaged in foreign or interstate commerce.”) (emph. added).

To the Court’s progressive wing, the resolution of these issues could not be clearer – the NLRA is a Congressional command that falls within the FAA’s express savings clause, and the NLRA prevents employer restraints on employees’ concerted action, including joint efforts to seek labor law remedies.  

Justice Breyer made his view clear that the NLRA requires invalidation of forced individual arbitration agreements in employment contracts, because, under the NLRA, “what the employer cannot stop is joint effort” including bringing legal claims in a class or collective action. (Transcript, pp. 56-57). Enforcing individual arbitration agreements would gut a foundation of labor law that represents “the entire heart of the New Deal.” (Transcript, pp. 7-8).

Justice Ginsberg described as the “driving force” of the NLRA the recognition of an “imbalance” in bargaining power between employers and employees, and explained that the protection of employees’ “concerted activity” was meant to correct that imbalance. (Transcript, pp. 5-6). A worker with small monetary damages can thereby join with other workers sharing similar claims in order to bring a larger claim to recover their damages jointly. (Transcript, pp. 21).

Justice Kagan pointed to the Supreme Court’s prior precedent, federal statutes, and the Constitution in support of the progressive wing’s straightforward position. The Supreme Court in Eastex v. N.L.R.B., 437 U.S. 556, 565-566, 566 n. 15 (1978) recognized that the NLRA protects employees from retaliation by their employers when they resort to “administrative and judicial forums” for their mutual aid and protection. (Transcript, pp. 6-7). Sections 102 and 103 of the Norris-LaGuardia Act of 1932, upon which the NLRA was modeled, state that any contract that prevents concerted activities of workers for their mutual aid and protection “shall not be enforceable in any court.” (Transcript, pp. 18). Once such a basic right has been articulated, as in, e.g., the First Amendment right to free speech, its broad protection may not be easily narrowed in its exercise. (Transcript, pp. 66).  

To Justice Sotomayor, the NLRA is a federal law that invalidates contracts that constrain concerted activity, making forced individual arbitration clauses illegal and unenforceable, in much the same way that “state law concepts like fraud[ and] duress,” invalidate contracts. (Transcript pp. 13-14).

No Proportional Check on Corporate Wrongdoing

The conservative justices of the Roberts Court appear determined to interpret the FAA based on its text, or as Congress intended, but rather by any means available to protect large corporations against consumers, small businesses, and now employees. Berkeley Law’s Dean, and the famed constitutional law scholar Erwin Chemerinsky, has observed that to effectively protect their rights employees need a proportional response to violations by large corporations:

With the rise of the large corporation in the early twentieth century, courts and legislatures developed class actions as a procedural device to protect individuals from the harms of exploitation by large entities. Courts and legislatures realized that large entities have incentives to engage in widespread but small violations of the law, because corporations know that people cannot afford to sue over a small violation of the law. When individual litigation is not economically rational, the threat of litigation is not an effective deterrent to illegal behavior. Absent a robust government bureaucracy dedicated to enforcing consumer- or employee- protection laws, class actions are an essential aspect of law enforcement. And even the most aggressive enforcement agency cannot deal with even a significant fraction of law violations. Litigation is essential for deterring wrongdoing and class actions suits are necessary when a large number of people suffer a relatively small injury.[2]

If the Supreme Court proceeds as expected, based on Monday’s oral argument, millions of workers will lose an effective means to remedy many violations of their rights. More and more employees will be forced to enter into individual arbitration agreements and face their employers alone.

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[1] Jessica Silver-Greenberg & Robert Gebeloff, “Arbitration Everywhere, Stacking the Deck of Justice,” N.Y. Times, Oct. 31, 2015.

[2] Erwin Chemerinsky, The Case Against the Supreme Court, § II.5 (2014).