Class & Collective Action

Part 2 of a 3-Part Series

When considering the potential bill of sale on arbitration, employers that once considered arbitration may sing a different tune. In Part 1 of our 3-part series on mandatory arbitration, we pointed out that, contrary to legal lore, arbitration often proves just as inefficient as litigation against a principle-driven plaintiff in court without the promised cost and time savings. In addition, the defense bar did not anticipate the cost of defending a class action waiver (seen as a key benefit to mandatory arbitration) before the NLRB.
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In a significant reversal of prior precedent, the California Supreme Court ruled on June 23, 2014, in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, that employment arbitration agreements with mandatory class action waivers are generally enforceable in light of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Prior to the Iskanian decision, class waivers in employment arbitration agreements were regularly invalidated under prior California Supreme Court precedent as set forth in Gentry v. Superior Court, 42 Cal. 4th 443 (2007). (In Gentry, the court held that class waivers in employment arbitration agreements may be unenforceable where a trial court concluded that class arbitration would be a more effective means of vindicating the employees’ rights than individual litigation and arbitration.) In last week’s Iskanian decision, the court concluded that, in light of Concepcion, its ruling in Gentry was abrogated by the Federal Arbitration Act (“FAA”), and accordingly, class waivers in employment arbitration agreements are generally enforceable.
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On December 3, 2013, the Fifth Circuit U.S. Court of Appeals rejected the National Labor Relations Board’s decision that a mandatory arbitration agreement that waived an employee’s right to bring a class or collective action in any forum was a violation of the National Labor Relations Act. D.R. Horton, Inc. v. National Labor Relations Board, No. 12-60031 (Dec. 3, 2013).
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Less than two weeks after the Second Circuit approved a class action waiver in Sutherland v. Ernst & Young LLP (Aug. 9, 2013), the Ninth Circuit too has ruled that an employer’s arbitration agreement with a class action waiver will be enforced. Richards v. Ernst & Young LLP, No. 11-17530 (9th Cir. Aug. 21, 2013). In doing so, the Ninth Circuit, as did the Second Circuit, applied the U.S. Supreme Court’s decision in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and rejected the argument that the NLRB’s decision in D.R. Horton invalidates class action waivers. Employers thus can be increasingly confident that they may be able to minimize their risk of class action employment litigation if they adopt a properly constructed arbitration program.
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The Second Circuit U.S. Court of Appeals has become the first federal Court of Appeals to apply the Supreme Court’s recent pro-arbitration decision in an antitrust case, American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), to the employment setting. Specifically, in an important pro-employer decision, the Second Circuit has ruled that an arbitration agreement can require employees to waive their rights to bring, or to participate in, class action litigation. Sutherland v. Ernst & Young LLP, 2013 U.S. App. LEXIS 16513 (Aug. 9, 2013). This decision confirms that employers may be able to eliminate their risk of class action employment litigation if they adopt a properly-constructed arbitration program.
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As the Supreme Court winds down its current term with the usual flurry of decisions, employers should make sure not to ignore two decisions on arbitration: American Express Co. v. Italian Colors Restaurant, issued June 20, and Oxford Health Plans LLC v. Sutter, issued June 10. Neither is an employment case, but particularly taken together, they have critical importance for employers, strongly suggesting that properly crafted and updated arbitration clauses can be a powerful tool for employers looking to insulate themselves from employment class actions.
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Last week, a New York federal district court ruled that unpaid interns working for a film production company were employees under the Fair Labor Standards Act (FLSA) and New York wage and hour law. Glatt v. Fox Searchlight Pictures, Inc., No. 11-cv-6784 (S.D.N.Y. June 11, 2013). The court also conditionally certified a related FLSA class action and certified a related class claim under New York law.
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