Arbitration Practice After Epic Systems

By Russ Bleemer

Today’s U.S. Supreme Court decision backs the use of employer-imposed bars on class-action processes. See Epic Systems Corp. v. Lewis, No. 16-285 (opinion in the consolidated cases is available at https://bit.ly/2rWzAE8).  The case is summarized on this CPR Speaks blog here: https://bit.ly/2KEuXFN,   with Justice Clarence Thomas’s concurrence summarized the blog at https://bit.ly/2wYEKEB, and Justice Ruth Bader Ginsburg’s dissent examined on CPR Speaks here: https://bit.ly/2rXQFgT.

So what’s next?

Mandatory individual employment arbitration, with a waiver of class/collective processes, means simply that business can require employees to go it alone in addressing problems about the workplace.

A recent study found that mandatory arbitration use already had been soaring on its own over the long-term—see Alexander J.S. Colvin, “The growing use of mandatory arbitration,” Economic Policy Institute (April 6, 2018)(available at https://bit.ly/2HxgQUL–even as earlier studies found that employers prefer more conciliatory processes (see the Alternatives article cited below).

Employers surely will continue to restrict class processes.  For many, the ADR process was a sideshow to the ability to limit class actions. New employment arbitration programs will be faced with the same legitimacy questions that adopters over the past 20 years have had to address, and now, with the higher-profile, perhaps more worker skepticism.

Plaintiffs’ lawyers will be forced to assess new approaches for dealing with clients’ work problems without the prospects of bigger matters.

The bottom line, of course, is that leading lawyers on both sides have been ready for today’s decision in the consolidated cases. Both already have begun maneuvering while now facing the decision they are still analyzing.

* * *

The cases involve arbitration provisions that kick in due to class waivers which prohibit employees from joining class processes—litigation or arbitration—in favor of mandatory, predispute, individualized arbitration to resolve disputes with their employers.

The decision is actually on three cases—NLRB v. Murphy Oil (No. 16-307), from the Fifth U.S. Circuit Court of Appeals; Ernst & Young v. Morris (No. 16-300), from the Ninth Circuit, and the Seventh Circuit’s Epic Systems—that had been consolidated into the Court’s 2017-2018 term’s kickoff argument on Oct. 2, with four attorneys arguing the case on behalf of the parties in all three cases.

The long-contested issue began with the release in 2012 of an opinion by the National Labor Relations Board. The administrative decision, which found that class waivers illegally violated the National Labor Relations Act’s Sec. 7 allowing employees to take concerted action to confront their employer, was overturned repeatedly by the Fifth U.S. Circuit Court of Appeals in numerous cases.  See below.

The NLRB ruled that the class waivers eliminated by the FAA’s Sec. 2 savings clause, which enforces arbitration agreements “save upon such grounds as exist at law or in equity for the revocation of any contract.” The Fifth Circuit rejected that view on the ground it infringed on arbitration under the Federal Arbitration Act, a position strongly echoed today by the U.S. Supreme Court in the majority opinion written by Justice Neil Gorsuch.

The class waivers in question require workers, from collectively bargained rank-and file to executive suites, to address disputes with their employers in individual arbitration. While unions can agree to mandatory predispute arbitration on behalf of their members, the cases involved white-collar employees and nonunion workers with little bargaining power.

The Court had definitively permitted mandatory arbitration contract clauses accompanied by class waivers for products and services contracts where consumers have little or no bargaining power. See AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011)(available at https://bit.ly/2KJc8RE).

The Federal Arbitration Act-focused decision today now settles how arbitration is used in workplace matters.

Cases challenging the class waivers that provided for mandatory arbitration flooded the federal courts, starting in the Fifth Circuit, which reversed the NLRB’s 2012 decision, In re D.R. Horton, 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013)(Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

The Fifth Circuit became the venue of choice for employers seeking to reverse the NLRB’s finding that they had violated labor law by requiring class waivers and arbitration as a condition of employment. The New Orleans-based federal appeals court issued dozens of opinions countering in their reasoning, and then officially reversing in their holdings, the many NLRB decisions in which the board, an independent Washington agency, followed its D.R. Horton decision.  The reversal, however, only applied to law in the circuit in which the decision was made.

A circuit split emerged, from the Seventh and Ninth Circuits–first the Seventh Circuit’s Epic Systems Corp. v. Lewis (No. 16-285), which became today’s lead Supreme Court case won by the employer, then with the case of Ernst & Young v. Morris (No. 16-300), from the Ninth Circuit.

The Court accepted the cases, along with NLRB v. Murphy Oil (No. 16-307), one of those Fifth Circuit decisions reversing the NLRB–which itself is a party in the case–and then consolidated the three cases with Epic Systems as the lead more than a year ago.  The argument in the cases kicked off the Court’s current term on Oct. 2.

For details on the arguments, see the blog by Alternatives’ publisher, the CPR Institute, CPR Speaks, at Mark Kantor, “Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy,” CPR Speaks (Oct. 2)(available at http://bit.ly/2fLwU9C), and Russ Bleemer, “The Class Waiver-Arbitration Argument: The Supreme Court Transcript,” CPR Speaks (Oct. 3) (available at http://bit.ly/2yWjWuf).

Kantor noted that the NLRB’s ruling that mandatory arbitration teamed with class waivers were illegal might have disappeared on its own with Trump administration appointees now installed as commissioners ready to reverse the Obama-era D. R. Horton administrative decision.

Regardless, Kantor noted, “This dispute is a reminder that many aspects of arbitration in the U.S. are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.”

In his majority opinion, Gorsuch used almost the same language.  See the end of CPR Speaks post on the dissent and the majority reaction here: https://bit.ly/2rXQFgT

* * *

For now, today’s Supreme Court has cleared up history’s questions by resolving the overarching issue, with the details to be worked out in employment policies, ADR sessions and, eventually, courtrooms nationwide.

Still, how that plays out in practice is far more in question than it was even a few months ago.

Arbitration has been under attack recently for its frequent use of confidentiality provisions by the #MeToo movement.  The ADR process has been a target in high-profile matters such as Gretchen Carlson’s settlement with her former employer, Fox News.

Microsoft CEO Brad Smith announced that the company would stop using mandatory employment arbitration with respect to sexual harassment claims (which was shortly followed by Uber and Lyft) and legislation barring the process has been proposed. Elena Gurevich, “Predispute Arbitration Would be Barred for Sex Harassment Claims under Legislative Proposal,” CPR Speaks blog (Jan. 25)(available at http://bit.ly/2FUyv4V).

And yet, the license to use arbitration has produced unintended consequences for employers.  A class of employees decertified by a California federal court bombarded national health club 24-Hour Fitness with hundreds of individual arbitrations earlier in the decade, forcing the company to settle all at once.  The decertification–over the claims’ content and unrelated to the class waiver issue—pushed the company to be more aggressive about defending its arbitration clauses, though the Supreme Court didn’t accept its case as part of the consolidated cases decided today. Jessica Goodheart, “Why 24 Hour Fitness Is Going to the Mat against Its Own Employees,” Fast Company (March 13)(available at http://bit.ly/2pkDPIm)

That hardline stance may be an anachronism, despite apparent backing from the Supreme Court today. Employers five years ago were exhibiting a much stronger preference for “mediation and other interest-based processes over mandatory arbitration and other rights-based processes.” David B. Lipsky, J. Ryan Lamare and Michael D. Maffie, “Mandatory Employment Arbitration:  Dispelling the Myths,” 32 Alternatives 133 (October 2014)(available at https://bit.ly/2s11Aqd).

That article also questioned whether employees were increasingly being subject to mandatory arbitration.  And new data from the same source, the Cornell University ILR School—see Colvin article linked above–indicates that the number has soared, more than tripling since the 1990s.  According to Colvin, more than half of employers now have mandatory arbitration, both with and without class waivers, with more than half the nation’s nonunion workers covered by the agreements.  That’s up from only two percent in 1992. Alexander J.S. Colvin, “The growing use of mandatory arbitration,” Economic Policy Institute (April 6, 2018)(available at https://bit.ly/2HxgQUL).

Whether more workplace conflict is diverted to resolution methods via human-resource departments’ open-door policies or mediation remains to be seen.  But the growing presence of mandatory arbitration at least guarantees more court cases that will drill down into finer points involving arbitration use—the limits and parameters will be under scrutiny more than the extent of the practice.

Next up for the Supreme Court’s arbitration scrutiny is Oliveira v. New Prime Inc., No. 17-340, which will investigate whether courts or arbitrators decide the arbitrability of a case where Federal Arbitration Act Sec. 1 exemption removing a case from arbitration applies. The case, which will be heard in the fall, could authorize further expansion of the reach of class waivers and mandatory arbitration to independent contractors from today’s employees’ decision. Early speculation is that Epic Systems makes Oliveira an easy call for the employers.

And three weeks ago, the Court took a second arbitration case for next year, Lamps Plus Inc. v. Varela, No. 17-988, which will examine the issue of whether the Federal Arbitration Act “forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

Today’s Epic Systems decision will overshadow whatever happens in those cases for human resources executives and in employment lawyers’ offices for longer.  The battleground may move to legislatures.

* * *

Meantime, players on both sides have begun to assess it. They are elated—or searching for words, depending on their side of the employment fence.

Referring to the FAA, Cliff Palefsky, of San Francisco’s McGuinn Hillsman & Palefsky, who has represented employees in the 24- Hour Fitness litigation above, says that the Court “took a statute that Congress expressly said doesn’t apply to employment and used it to preempt the nation’s most significant labor and civil rights laws.”

Palefsky, who worked on an amicus brief filed in the consolidated cases on behalf of 10 labor unions and the National Employment Lawyers Association, and who is has been active on the employees’ side in the cases for years, says he’s still reviewing the decision, but adds, “It was an intellectually and legally indefensible political assault on worker’s rights.”

On the other side, Evan M. Tager, a Washington, D.C., Mayer Brown partner who has argued many arbitration cases on employers’ behalf, says, “The Court reaffirmed in the strongest possible terms that conditioning the enforcement of arbitration provisions on the availability of class-like procedures frustrates the purposes of arbitration and is not permissible absent a clear congressional command.”

Tager worked on Mayer Brown’s amicus brief on behalf of the U.S. Chamber of Commerce in the consolidated cases.  He also represented the petitioner in AT&T Mobility, and says he was glad that the Court decision today reasserted that case’s view that FAA Sec. 2 doesn’t save the NLRB’s view that class waivers violated public policy, which he notes was “indistinguishable” from the rule invalidated 2011 case.

Christopher Murray, an Indianapolis shareholder in Ogletree Deakins–the firm that brought D.R. Horton to the Fifth U.S. Circuit Court of Appeals where it was overturned, leading to today’s decision (the firm also submitted an amicus brief on behalf of trade associations in the consolidated cases)—says, “Today’s decision affirms what almost everyone already knew before the NLRB’s 2012 D.R  Horton decision: The NLRA has nothing to do with class-action procedures used by other decision makers to adjudicate claims under other statutes. Rather, the FAA gives parties the right to determine the procedures they’ll use in arbitration, including the right to arbitrate individually.”

Murray–who authored this month’s Alternatives cover story, “No Longer Silent: How Accurate Are Recent Criticisms of Employment Arbitration?” 38 Alternatives 65 (May 2018)(available at https://bit.ly/2rYmned), and who co-chairs his firm’s Arbitration and ADR Practice Group—adds, “This is a good decision for parties interested in any form of alternative dispute resolution because it confirms those parties are best situated to agree on the procedures to be used to resolve their disputes quickly, effectively, and fairly, and courts are generally not permitted under the FAA to second-guess those procedures.”

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Russ Bleemer is the editor of CPR’s award-winning publication, Alternatives.

3 thoughts on “Arbitration Practice After Epic Systems

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