Yesterday, in a 5-4 decision written by Chief Justice John Roberts, the United States Supreme Court held that ambiguous arbitration agreements do not provide the affirmative contractual basis required to send a dispute to classwide arbitration. In so ruling, the Court extended previous pro-business decisions holding that consent to classwide arbitration cannot be inferred from a contract that is “silent” on the issue. This decision is a business- and employer-friendly outcome that affirms the use of efficient and cost-effective individual arbitrations.
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Another federal court of appeals has weighed in on the question of whether requiring employees to waive the right to bring a class action against their employer in arbitration or court as a condition of employment violates employees’ rights under Section 7 of the National Labor Relations Act (NLRA).
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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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Part 1 of a 3-Part Series

Many years ago, employers and management counsel across the country cheered the birth of mandatory arbitration provisions in employment agreements. For instance, when the U.S. Supreme Court decided Perry v. Thomas, it determined that because there is a clear federal policy favoring arbitration, an arbitration clause would be upheld despite a state law requiring a judicial forum for the employment claims at issue in the dispute. 482 U.S. 483, 491 (1987). And when the same Court decided Gilmer v. Interstate/Johnson Lane Corp. a few years later, it held that an inequality in bargaining power is not a sufficient reason to hold arbitration clauses in employment agreements unenforceable. 500 U.S. 20, 33 (1991). Arbitration was supposed to be the magic bean that would grow into a fortress of beanstalks protecting America’s corporations from time-consuming, energy-sucking litigation. And even better, it was supposed to be inexpensive and generally designed to give employers the upper hand. After all, an arbitrator would never give a plaintiff as much as a jury of his (not ‘our’) peers, right?

Well, it was a good thought – and it was fun while it lasted.
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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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