Workplace Mandatory Arb Ban Reversed by Kentucky Lawmakers

By Vincent Sauvet

Kentucky has re-authorized the use of mandatory arbitration in employment contracts less than five months after the state’s top Court declared the agreements void.

For a short time, Kentucky was the only state prohibiting the mandatory arbitration of employment disputes. Its legislature has now brought the Commonwealth back into the flock with Senate Bill 7.

In a unanimous 2018 decision, the Kentucky Supreme Court held that the state’s Revised Statutes § 336.700(2) prohibited employers from conditioning employment on an existing employee’s or prospective employee’s agreement to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled.” N. Ky. Area Dev. Dist. v. Snyder, No. 2017-SC-000277-DG, 2018 Ky. LEXIS 363 (Sep. 27, 2018) (available at http://bit.ly/2HmZp8B) (quoting the statute, which is available in full in the opinion).

While the Snyder ruling made Kentucky the nation’s first state to prohibit mandatory employee arbitration agreements, it didn’t last long. With Senate Bill 7, sponsored by state Senate President Robert Stivers, Kentucky reinstated the use of mandatory arbitration in employment contracts,  rendering such agreements enforceable. The provisions of Senate Bill 7 are to be applied retroactively and prospectively.

The bill was signed by Kentucky Gov. Matt Belvin on March 25. The bill passed in the Senate the day before following a 25-11 vote, and a 51-45 vote in the House a day earlier. Save for a few Republicans voting against the bill–eight in the House and three in the Senate–both votes showed a partisan split, with majority Republicans voting for the measure and the Democratic minority voting against (one House Democrat joined 50 Republican colleagues in approving the measure). The bill also had strong support from the Kentucky Chamber of Commerce, the Kentucky League of Cities and numerous other employer and business groups.

This move happens in a context of long-running disagreement over the question of arbitration in nursing home care agreements between the Kentucky Supreme Court and the U.S. Supreme Court. In that dispute, the nation’s top Court set down the law, but the Kentucky Court managed to get in the last word and squash an arbitration agreement.

In Kindred, the Kentucky Supreme Court refused to enforce arbitration agreements signed on behalf of two nursing home residents on the ground that since the right to a trial by jury was “constitutionally sacred” and “inviolate,” the holder of a non-specific power of attorney was barred from entering any agreement on behalf of a principal that would forfeit that right to a jury trial, such as an arbitration agreement.

The U.S. Supreme Court held that the Federal Arbitration Act  “preempts any statute rule discriminating on its face against arbitration” and “displaces any rule that covertly accomplished the same objective by disfavoring contracts that have the defining features of arbitration agreements.” It reversed the Kentucky decision in Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017) (available at http://bit.ly/2JAWZ7Q).

But in the decision, the U.S. Supreme Court remanded one of the Kindred combined cases for further consideration to examine whether a power of attorney contract was broad enough to allow the attorney to enter into an arbitration agreement on behalf of a nursing home resident.

On remand, the Kentucky Supreme Court stuck to its view that the power of attorney didn’t allow the attorney to make the arbitration agreement, and it upheld its original determination striking arbitration. Kindred Nursing Ctrs. Ltd. P’ship v. Wellner, No. 2013-SC-000431-I (Ky. S.Ct. corrected Nov. 22, 2017) (available at http://bit.ly/2Q3k18A)).

In its first week of the current term last October, the U.S. Supreme Court denied the nursing home’s request to review the case, so it won’t be heard in Washington a second time. That leaves a narrow standard related to powers of attorney that could void an arbitration agreement in Kentucky.

But the broader Snyder decision went directly against the Kindred holding, as well as last year’s Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK), which permitted mandatory pre-dispute arbitration agreements as a condition of employment.  Snyder therefore was likely to constitute the start of another counterattack on the Kentucky Supreme Court’s arbitration agreement jurisprudence.

Instead, the Kentucky legislature decided to take the matter into its own hands.  The new law now ensures that Snyder is nothing more than a one-off.

* * *

The author was a CPR Institute Spring 2019 intern. 

 

“Arbitration in America” – A Summary of the Senate Judiciary Committee Meeting

By Echo K.X. Wang 

An April 2 Senate Judiciary Committee hearing, “Arbitration in America,” chaired by North Carolina Republican Lindsey Graham, examined the values of the practice, focusing on mandatory arbitration clauses in consumer contracts.

The Senate is closely divided on the subject. Democrats have pushed strongly against mandatory arbitration clauses in reaction to Supreme Court decisions. In the past two months, several bills limiting or eliminating mandatory arbitration clauses in consumer contracts have been introduced.

In February, Rep. Hank Johnson, D., Ga., joined Sen. Richard Blumenthal, D., Conn., to introduce the Forced Arbitration Injustice Repeal Act–the FAIR Act–in the House (H.R. 1423), which would “prohibit predispute arbitration agreements that force arbitration of future employment, consumer, antitrust, or civil rights dispute.” (Text and information can be found at https://bit.ly/2UTQoeO.)

More recently, on April 10, Sen. Sherrod Brown, D. Ohio, introduced another bill, Arbitration Fairness for Consumers Act (S. 630), which would restrict mandatory arbitration and class action waivers in contracts that relate to a “consumer financial product or service.” (S.630 can be found at https://bit.ly/2UvCuQs).

The bill would reverse last fall’s vote by the Senate to overturn Consumer Financial Protection Bureau rules that barred mandatory pre-dispute arbitration combined with class processes in litigation and arbitration in consumer financial services contracts. The CFPB rule, which had been in the works for more than four years, was rescinded by a 51-50 Senate vote, with Vice President Mike Pence casting the deciding vote.

For more details on these bills and more, see Vincent Sauvet, New Push Coming for Familiar Arbitration Bills? CPR Speaks blog (April 3) (available at https://bit.ly/2UynZeJ).

While the proposals are facing pushbacks from Republicans and business owners, the committee meeting provided a venue for the two sides to engage in discussions. Most important, the fact that Sen. Graham organized and led this meeting signals that there is a bipartisan opening for negotiation on arbitration reform.

In his initial statement, Graham noted that while arbitration has a place in society, everything good for business is not necessarily best for society. The hearing, he said, therefore sought to address the applicability of arbitration where it conflicts with social issues, in matters including sexual harassment and employment disputes.

Sen. Blumenthal followed, noting that “a right without remedy is [a] dead letter.” Throughout the meeting, Chairman Graham repeatedly stated he wanted to find a “middle-ground” solution to allow businesses to thrive while at the same time provide consumer protection.

But during the two-hour hearing, the divergent views clashed more than they found common ground. The Judiciary Committee listened to testimony from a small business owner, a Navy Reservist, practitioners on both sides, and business owners, all focusing on whether there should be a limit or bar to the use of “forced” arbitration agreements.

The hearing participants discussed the degree to which mandatory arbitration harms consumers, the effects of class-action waivers, and the way that businesses can be affected by mandatory arbitrations.

Sens. Graham and Blumenthal, as well as Sen. Dianne Feinstein, D., Calif., and Sheldon Whitehouse, D., R.I., spoke in favor of establishing limits to the arbitration use.

Kevin Ziober, a Newport Beach, Calif., Navy reservist and federal employee, spoke about his experience in which he was forced to arbitrate an employment dispute. Ziober worked as a federal employee for six months when he signed a mandatory arbitration agreement as a condition to keep his job.

When Ziober left his job to join the Navy Reserve, he was fired from his position on the last day of work. As a result, he was forced to arbitrate his rights under the Uniformed Services Employment & Reemployment Rights Act. Ziober argued that “no Americans should be denied the choice to enforce their rights.”

In response to a question from Sen. Joni Ernst, R. Iowa, on the impact of being forced into arbitration, Ziober described the anxiety and hardship he faced after being fired, knowing that he would not have a job after serving in the military. Ziober advocated that “an option to go to court should be something all servicemen be allowed.”

Prof. Myriam Gilles, a professor at New York’s Benjamin N. Cardozo School of Law, argued that when the Federal Arbitration Act was enacted in 1925, Congress intended to help ensure businesses so that their “agreements to arbitrate with each other can be enforced.” But, she said, the FAA was never meant to be applied to massive employment arbitrations that strip away individuals’ rights under state and federal law, providing a litigation shield for companies. Nor was it meant to be used in take-it-or-leave-it boilerplate agreements against individuals with no bargaining power, according to Gilles.

In response to a question from Sen. Graham, Gilles clarified that she does not wish to “do away” with arbitration. “We only want to get rid of arbitration clauses that are forced upon consumers and employees who have no choice,” she said.

Prof. Gilles also spoke extensively against class action bans, noting that it is often too expensive and time intensive for each individual to arbitrate their cases alone. As a result, forced arbitration provisions are shielding companies from liability, she said.

Alan Carlson, an owner and chef of Italian Colors Restaurant in Oakland, Calif., described his experiences with arbitration clauses as a small business owner. Carlson said he was forced to arbitrate a claim with the credit card company American Express, which took more than 10 years to conclude, and included a trip to the U.S. Supreme Court that sent him to arbitration. (See American Express Co. v. Italian Colors Restaurant, 559 U.S. 1103 (2010) (available at http://bit.ly/2Zb41FD).)

He said he was “shocked” when he learned that the documents he signed included a mandatory arbitration clause. He noted that small businesses like his have no bargaining power to negotiate contracts with credit card companies, while big companies like Walgreens and Safeway have the power to negotiate and remove mandatory arbitration clauses in their contracts with those same companies.

Carlson stated that “small businesses do not get their day in court because they have no power,” and that it is impossible for small businesses to hold large corporations accountable for their actions.

Carlson’s statement evoked strong empathy in Sen. Blumenthal, who echoed the unfairness that the big companies had their day in court, but Carlson was denied his. In response to questions from Blumenthal and Sen. Amy Klobuchar, D., Minn., Carlson stated that mandatory arbitration handcuffs and prevents small businesses from “getting a fair shot of leveling the playing field.” In addition, Carlson stated that the companies often don’t give contracting parties enough time to get through all the fine print “unless you have an attorney on hand.”

  1. Paul Bland, Jr., executive director of Washington,, D.C., public interest law firm Public Justice, argued that forced arbitration clauses are “rigged and unfair.” He notes that it is getting harder to challenge arbitration clauses, and the clauses are often written to the disadvantage of consumers.

As examples, Bland cited to a Consumer Financial Protection Bureau report that suggests even when a person is directed to read an arbitration provision, only 9% of the people knew it means they cannot go to court.

Furthermore, Bland cited an instance where a rape victim was forced to arbitrate, and was given a choice to select from a list of arbitrators. But, explained Bland, all of the arbitrators were defense attorneys that he said presumptively are pro-corporations.

Previous witnesses Kevin Ziober and Alan Carlson affirmed this point, stating that neither of them had a choice in selecting their arbitrators. Chairman Lindsey Graham expressed concern about this practice, and stated that he will look into the issue.

New Jersey Democratic Sen. Cory Booker spoke passionately against arbitration provisions, arguing that it unfairly stacks the deck against consumers and impedes individuals’ ability to seek redress. Citing a study suggesting that big corporations win 98% of arbitrations, Booker exclaimed, “This is not justice. This is not equal justice. This is corporate favoritism.”

Finally, Sen. Dick Durbin, D. Ill., suggested that mandatory arbitration clauses should be barred from student agreements to attend for-profit college, especially those that guarantee job placement. He said that in these situations, the arbitration clauses especially harm middle-income people.

Durbin noted that that if a student starts with a busboy job, goes to a for-profit school paying tens of thousands of dollars yet still comes out a bus boy, the school considers that a “placement” and can’t be sued for misrepresentation.

Arbitration proponents then had a chance to fire back, demanding that consumer arbitrations be allowed to continue.

Sen. Chuck Grassley, R., Iowa, advocated to have more transparency in arbitration clauses to help bring accountability. He said that “consumers should know what they are agreeing to.” He raised the concern that banning mandatory pre-dispute arbitration clauses may impose extraordinary costs to corporations, which may in turn result in the costs being passed down to consumers.

Alan Kaplinsky, a partner at Ballard Spahr in Philadelphia and longtime business arbitration advocate, argued that arbitration under the FAA is important for companies. He said that the arbitration system is dynamic, and most of the times it works for both companies and individual consumers. He also rejected the argument that arbitration provisions offer no choices for consumers.

When questioned by Sen. Grassley about best practices to enforce transparency in arbitration clauses, Kaplinsky noted that it is important to draft arbitration agreements to “create fundamental fairness, give the consumer or employee the right to reject or opt out of the arbitration within some reasonable period of time.” He notes that these are not practices “required” under existing arbitration rules such as those issued by providers like the American Arbitration Association and JAMs.

Kaplinsky agreed with Sen. Grassley’s point that banning arbitration would create billions of dollars in costs for corporations, in addition to costs in defending against potential influxes of class action suits.

Victor E. Schwartz, a co-chair at the Public Policy Practice Group of Shook, Hardy, & Bacon, and a well-known as a Washington tort reform advocate and a supporter of class-action restrictions, also argued for consumer arbitration. He said that arbitration is generally a cheaper and faster alternative to litigation.

Schwartz also argued that consumers have the duty to read contracts and agreements, even if the clause is buried within the agreement. He rejected the view that consumers lack choice, noting that consumers enter binding arbitrations willingly. “You can choose to go to an employment office that does not require you to sign binding arbitration,” he said.

In addressing the argument that mandatory class action waivers harm the ability to address smaller claims, Schwartz countered that most employees are not eligible for class action anyway, given that the cases are usually factually different, and therefore class action is not a viable alternative.

Finally, Schwartz criticized plaintiffs’ attorneys, noting that since they usually are not paid by the hour, they are unlikely to accept litigation cases to represent employees in small claims cases. Thus, he said, in cases involving claims of $20,000-$30,000, arbitration is likely the only way for employees to get their claims addressed.

* * *

To read further about this committee meeting from a different perspective, see Ellis Kim, “Arbitration Gets the Spotlight at Senate Judiciary Hearing,” Law.com (April 2) (available at https://bit.ly/2Ug7KxU).

A video of the hearing, as well as transcripts of the individuals’ remarks, is available from the Senate Judiciary Committee here: http://bit.ly/2KBiB6c.

* * *

The author is a Spring 2019 CPR Institute intern, and a student at Brooklyn Law School.

 

Prospective Higher Education Reform to Ban Arbitration of Student Claims

By Vincent Sauvet

Another legislative proposal that would curtail arbitration was introduced in Congress on March 26.

The PROTECT Students Act of 2019 (S.867) was introduced on the Senate floor by New Hampshire Democrat Maggie Hassan. The bill, a general higher education reform which includes provisions related to institutions oversight and accountability, student loans and healthcare, would ban arbitration of claims brought by students against their institutions.

This follows up on CPR Speaks’ recent post on recent legislative efforts by congressional Democrats to limit the use of arbitration in various kind of disputes. See “New Push Coming for Familiar Arbitration Bills?” (April 3).

The text of Hassan’s bill would create add an exception to the enforcement of Chapter 1 of U.S. Code Title 9—the Federal Arbitration Act. It would bar enforcement of arbitration agreements in an enrollment agreement made between a student and an institution of higher education.

Combined with a prohibition for the institution to require a student to agree to, and enforce “any limitation or restriction on the ability of a student to pursue a claim, individually or with others, against an institution in court,” the provision would effectively ban even the possibility of arbitration of a claim a student may have against their institution.

Although the PROTECT Act is not really focused on arbitration—the name is an acronym for “Preventing Risky Operations from Threatening the Education and Career Trajectories of Students Act of 2019–it nevertheless includes provisions that can be found in other bills specifically targeting arbitration.

In fact, similar provisions are the entire point of the closely related Court Legal Access and Student Support (CLASS) Act of 2019.  The bill, introduced on Feb. 28 as S.608 by Sen. Richard Durbin, D., Ill., and as H.R. 1430 in the House by Rep. Maxine Waters, D., Cal., was part of a flurry of arbitration bills spearheaded by the FAIR Act of 2019, discussed in the previous CPR Speaks post.

Both the PROTECT and CLASS acts have been referred to committees and await further action.

While all of these bills face a tough climb to passage, the inclusion of such provisions in sector- specific reform bills could contribute to a “normalization” of criticism of arbitration.

* * *

The author, an international LLM student at the Benjamin N. Cardozo School of Law in New York, is a 2019 CPR Institute spring intern.

New Push Coming for Familiar Arbitration Bills?

By Vincent Sauvet

Democrats in Congress late last month announced their intention to focus their efforts on passing new legislation to ban mandatory arbitration in several types of disputes. A package of bills, some still awaiting introduction, would target the arbitration of employment, consumer, antitrust and civil rights disputes.

The bills are mostly updates of long-running efforts, some dating back to the 1990s, that seek to limit processes that interfere with consumers’ and workers’ abilities to file suits against product and service providers, and employers—especially those that targeted class actions.

Now, at least some of the bills appear to be gaining more publicity and increasing support in the wake of controversy over mandatory processes.

This legislative effort will be spearheaded by the Forced Arbitration Injustice Repeal, which its sponsors are referring to as the FAIR Act of 2019. It was announced by Sen. Richard Blumenthal, D., Conn., and Rep. Hank Johnson, D., Ga., both longtime opponents of mandatory arbitration, with the bill’s introduction on Feb. 28.

H.R.1423 and S.610 would “amend title 9 of the United States Code with respect to arbitration.” The flagship of the current crop of proposals targeting arbitration, the bill is co-sponsored by 32 Senate Democrats along with independent Vermont Sen. Bernie Sanders.  The number of House Democrats co-sponsoring the legislation has risen to 171 in the month since it was introduced, from 147.

The FAIR Act would ban arbitration in employment, consumer and antitrust disputes, as well as in civil rights disputes. The bill is a rebranding of the previous Congress’s Arbitration Fairness Act of 2018, also by Blumenthal and Johnson, covering the same issues.

In conjunction with the broad FAIR Act, several bills tackling more specific issues have also been announced.

The first is the Ending Forced Arbitration of Sexual Harassment Act of 2019, sponsored by Rep. Cheri Bustos, D., Ill., a reintroduction of her bill from the previous session, which had been co-sponsored by Pramila Jayapal, D., Wash., and, on the Senate side, New York Democrat and presidential candidate Kirsten Gillibrand.  Jayapal is co-sponsoring the new bill, along with—significantly–a New York Republican, Elise Stefanik.

The bill would ban mandatory arbitration of sex discrimination disputes by banning any predispute arbitration agreement between an employer and employee arising out of conduct that would form the basis of a claim based on sex under Title VII of the Civil Rights Act of 1964. Although this would be subject to some limitations, the prohibition would not apply to arbitration provisions contained in a contract between an employer and a labor organization, or between labor organizations.

Another bill, the Restoring Justice for Workers Act, would go even further than ending the arbitration of sexual harassment claims. It would establish an outright ban of mandatory arbitration clauses in employment contracts.

The bill was introduced in the previous 115th Congress, last October, by Rep. Jerrold Nadler, D. N.Y., and Sen. Patty Murray, D., Wash., seeking to make illegal any predispute arbitration agreement when related to an employment dispute, which would include sexual harassment. It also would pose further restrictions on post-dispute arbitration agreements.

The proposal was an immediate Congressional reaction to the U.S. Supreme Court’s Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (May 21, 2018), which it would have overturned. But the bill had trouble getting bipartisan support, and likely will suffer the same issues in the current Congress, where it has not yet been introduced.

A bill announced and introduced with the FAIR Act included the Arbitration Fairness for Consumers Act, S.630, sponsored by Ohio Democratic Sen. Sherrod Brown, which would tackle the specific issue of mandatory arbitration in financial adviser and broker contracts.

While Brown has focused primarily on student loans and credit card agreements, the bill is in fact broader in scope.  It would prohibit any predispute arbitration agreement and joint-action waivers related to any consumer financial product or service dispute.

Another bill introduced with the FAIR Act, the Safety Over Arbitration Act would render void any predispute agreement compelling the arbitration of claims alleging facts relevant to a public health or safety hazard. The bill, S.620, was introduced by Rhode Island Democratic Sen. Sheldon Whitehouse.

As an interesting side note, the bill would also compel the arbitrator of such a claim to provide to the parties a written explanation of the factual and legal basis for his decision. While most arbitrators provide such explanation already, there is no legal requirement to do so.

Under the sponsorship of Sen. Patrick Leahy, D., Vt., the Restoring Statutory Rights and Interests of the State Act, S.635, was also reintroduced. The bill would prohibit any predispute arbitration agreement providing for the arbitration of claims brought by an individual or small business concern and arising from the alleged violation of a state or federal statutory or constitutional provision. The bill is nearly identical to its previous iterations, which were introduced but ultimately died in the 114th and 115th Congresses, and is most likely to suffer the same fate.

The Justice for Servicemembers Act also should be reintroduced soon by Reps. David Cicilline, D., R.I., and Connecticut’s Sen. Blumenthal. Like the versions in the previous three Congressional sessions, the bill aims to end the use of arbitration in cases under the Uniform Services Employment Rights Act.

Finally, the Fairness in Long-Term Care Arbitration Act was also announced by Rep. Linda Sanchez, D., Calif. While there is no text available yet, the bill would end the use of arbitration clauses in nursing home agreements.

These announced attempts at legislative change regarding arbitration use come up at a time when arbitration has suffered from bad press. The #MeToo movement made arbitration, which usually is conducted out of the public’s view, appear as a tool to silence victims. Although the broader controversy over mandatory arbitration in employment and labor disputes traditionally has been the legislative target of Democrats, the specific issue of sexual harassment moved the subject into broader view, drawing attention from a larger section of the political spectrum.

Still, the broader bills, such as the FAIR Act, the Restoring Justice for Workers Act and the Arbitration Fairness for Consumers Act are unlikely to gather enough support in order to pass in the current Congress. They will, for the most part, face the same Republican opposition that have defeated similar proposals.

But new, more-specific bills–those providing small incremental changes that exhibit more potential for bipartisan support–are more likely to succeed. Given the current political climate, the Ending Forced Arbitration of Sexual Harassment stands a good chance of advancing. Several businesses such as Google, Microsoft, Uber and Lyft have effectively banned the arbitration of sexual harassment claims and sometimes other employment matters.

Though there are only three co-sponsors, the early appearance of a House Republican could indicate the bill’s broader appeal.

These moves, collectively, provide at least some momentum. “I’m encouraged that some of the leading companies are voluntarily changing their practices… but we can’t rely on everyone to do the right thing voluntarily” Sen. Blumenthal said.

* * *

The author, an international LLM student at the Benjamin N. Cardozo School of Law in New York, is a 2019 CPR Institute spring intern.

International Commercial Mediation Update: UNCITRAL Finalizes Convention and Model Law Drafts on International Settlement Agreements Resulting from Mediation

By Erin Gleason Alvarez

erinEarlier this year, we reported on the United Nations Commission on International Trade Law (UNCITRAL) Working Group II’s progress towards finalizing a convention on the enforcement of international commercial settlement agreements resulting from mediation. On June 25, 2018, UNCITRAL finalized the draft Convention on International Settlement Agreements Resulting from Mediation, to be known as the Singapore Convention, as well as finalizing the draft Model Law.

By way of background, Working Group II was initiated by UNCITRAL in 2014 in order to explore whether it might be feasible to develop mechanisms for the enforcement of mediated agreements in international commercial disputes. The need for this Working Group grew out of concern that parties to mediated agreements may not be afforded the same protections as those available in international commercial arbitration.

The achievements of Working Group II were extolled at an UNCITRAL conference at the United Nations on June 27, held in celebration of the 60th anniversary of the New York Convention. Representatives from Israel and Australia, who participated in the Working Group, led a discussion on the drafting process. Consideration over an international mediation convention lasted nearly four years, and it seems that a few mediations took place in finalizing the documents.

The Convention and Model Law drafts outline the requirements for a settlement agreement, process for enforcing an agreement and grounds for refusing to grant relief.  The documents are seen as completing the ADR framework for international disputes.

States that have participated in this process include Argentina, Australia, Austria, Bulgaria, Cameroon, Canada, Chile, China, Colombia, Czechia, Denmark, Ecuador, El Salvador, France, Germany, Greece, Hungary, India, Indonesia, Israel, Italy, Japan, Kuwait, Lebanon, Libya, Malaysia, Mexico, Namibia, Nigeria, Philippines, Republic of Korea, Romania, Russian Federation, Sierra Leone, Singapore, Spain, Switzerland, Thailand, Turkey, United Kingdom of Great Britain and Northern Ireland, United States of America and Venezuela (Bolivarian Republic of). The session was also attended by observers from Algeria, Belgium, Benin, Cyprus, Democratic Republic of the Congo, Dominican Republic, Finland, Iraq, Morocco, Nepal, Netherlands, Norway, Saudi Arabia, Syrian Arab Republic and Viet Nam, in addition to observers from the European Union and the Holy See.

From here the Convention and Model Law must be approved by the General Assembly, which will likely happen later this year. In August 2019, a signing ceremony will be held for the Convention in Singapore and thus the Convention will be known as the “Singapore Convention.”

At the June 27 United Nations event, hope was expressed that the Singapore Convention would do for mediation what the New York Convention has done for arbitration.

 

Erin Gleason Alvarez serves as mediator and arbitrator in commercial and insurance disputes.  She is a member of the CPR Institute Panel of Distinguished Neutrals and co-chairs the CPR Institute Mediation Committee.  Erin may be reached at erin@gleasonadr.com

Success: Many Controversial Amendments to CPLR’s Article 75 on Arbitration Via NY State 2018 Budget Bill Removed

By Ginsey Varghese

Via budget bill AB 9505 for fiscal year 2018-2019, the New York State (NYS) Assembly proposed several amendments to Article 75 of the NY Civil Practice Law & Rules (CPLR), rules governing arbitrations. AB 9505, print 9505c §§ 6-10, p.189-192 (Jan. 18, 2018).

In responses in late March, arbitral institutions, including CPR and AAA, as well as the New York State Bar Association’s Dispute Resolution Section and the New York City Bar Association’s Arbitration Committee and International Commercial Disputes Committee, issued comments about the proposed amendments to Article 75 of the CPLR, raising concerns and highlighting the expected negative impact on New York’s pro-arbitration reputation.

Some of the key concerns on the earlier draft of the bill (AB9505c) were as follows:

  • NY CPLR § 7507, as currently written, requires that an arbitration award must be in writing. The proposed amendments would have required that all arbitral awards “state the issues in dispute and contain the arbitrator’s findings of fact and conclusions of law.” at §8, p.191 lines 31-34.  This proposal was criticized for importing litigation concepts – “findings of fact and conclusions of law” –  incongruent with arbitration, creating additional cost and confusion.  Moreover, parties in an arbitration, especially sophisticated ones, often do not seek formal court-like decisions, rather, “reasoned” awards and the freedom to design a process for the parties involved.  The proposed amendment would have essentially rendered impossible creative and collaborative approaches to dispute resolution.
  • In proposed amendments to NY CPLR § 7511, the bill would have codified “manifest disregard of the law” of an arbitrator as additional grounds to vacate an award. Id at 9, p. 191 lines 51-52. Manifest disregard of the law is a highly controversial doctrine, and courts across the country have not considered it uniformly because it is often criticized as diminishing the finality of arbitration awards. Claudia Salomon, New York Vacates Arbitral Award with Manifest Disregard Doctrine, 258(25) N.Y. L.J. (Aug. 7, 2017) (available at http://bit.ly/2DL3vCq).  New York courts have rarely used the “manifest disregard” standard, reflecting respect for the arbitral process and thereby maintaining New York State’s pro-arbitration reputation.  Id.
  • Under the proposed amendments to NY CPLR § 7504, concerning the “appointment of an arbitrator,” the bill requires all arbitrators to be “non-neutral third-party arbitrator[s],” adding also that it was a non-waivable requirement. AB 9505 §6, p.190 lines 1-9. Would the common practice of party-selected arbitrators on a panel render the arbitrator “non-neutral”?  What about choice for sophisticated parties desiring an expert to adjudicate? The core concerns were the lack of clarity concerning the definition of “neutrality” and the failure to respect the principle of party autonomy, a fundamental benefit of arbitration.
  • Proposed amendments to NY CPLR § 7504 would also have allowed the parties to wait until the eve of the arbitration hearing to raise objections to the arbitrator(s), even if the party knew of grounds earlier, setting the stage for disruption and delay tactics in the arbitration. (AB 9505 § 6, p. 190 lines 45-48.)

The Ways and Means Committee omitted the proposed amendments to Article 75 of the CPLR in its latest draft (9505d) on March 28, 2018 – a major victory for the New York arbitral community, which had cautioned that “considering amendments of this magnitude in the context of a budget bill does not provide the level of due process and scrutiny decades of New York arbitration practice deserves” and had urged the legislature to “allow a thorough review, hearings and an opportunity for public comment.” CPR, Comments on Sections 6-11 of New York Assembly Bill 9505 (Mar. 23, 2018)(available at https://bit.ly/2ElR9Rp); 2017 Bill Tracking NY A.B. 9505.

On March 29, 2018, the bill (without the above-referenced amendments) passed both floor votes in the NY State Senate and the NY State Assembly and is awaiting Governor Andrew Cuomo’s approval. AB 9505, §§ 6-10, p.189-192 (Jan. 18, 2018).

The entire bill – AB 9505 – in its latest form is available at: http://bit.ly/2pvMTcv.

Another piece of budget legislation to monitor is S7507-C/AB9507-C, which will impact the arbitration of sexual harassment claims. AB 9507, Part KK, Subpart B, §1, p.80-81, lines 22-54 (available at https://bit.ly/2uMRmxu).

The bill renders mandatory arbitration clauses in sexual harassment claims “null and void.” Id. at p. 80, line 52.

On March 30, 2018, S7507-C/AB9507-C also passed floor votes in the NY State Senate and the NY State Assembly and is currently before the Governor Cuomo. Id.

Governor Cuomo is expected to sign the bill into law. Vivian Wang, New York Rewrites Harassment Laws, but Some Say the Changes Fall Short, N.Y. Times (Mar. 30, 2018) (available at https://nyti.ms/2HfX11O).

The bill is a part of broader state proposal to address sexual harassment in the workplace. See Summary of the Assembly Recommended Changes to the Executive Budget, Legislative Reports, at 76 (Mar. 13, 2018) (available at https://bit.ly/2Hwt64p).

According to the National Conference of State Legislatures, NY’s move to address sexual harassment mirrors a larger effort nationally as “29 states have introduced [similar] sexual harassment bills in 2018.” Wang, supra.


The author is a CPR Institute 2018 intern. She is a law student at Pepperdine University’s School of Law in Malibu, Calif.  

Appropriations Bill to Prohibit Fed Contractors from Mandatory Arbitration of Employee or Independent Contractor Claims under Title VII or Torts Related to or Arising Out of Sexual Assault or Harassment

By Mark Kantor

Kantor Photo (8-2012)On March 21, Congressional negotiators reached last-minute agreement on a 2232-page “Consolidated Appropriations Act, 2018” to implement the bipartisan budget agreement from earlier this year (available at http://docs.house.gov/billsthisweek/20180319/BILLS-115SAHR1625-RCP115-66.pdf). Such “must pass” legislation is always a popular vehicle for “policy riders.” This year, one such rider that appears to have successfully made its way into the final legislation prohibits Federal contractors or subcontractors, under Federal contracts exceeding $1 million, from entering into or enforcing pre-dispute arbitration provisions under which an employee or independent contractor agrees in advance to resolve through arbitration “any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.” Title VII, of course, covers all employment discrimination, not just sexual assault or harassment (https://www.eeoc.gov/laws/statutes/titlevii.cfm). There is an exclusion in the provision for agreements that may not be enforced in US courts. In addition, the Secretary of Defense can waive the prohibition if “the Secretary or the Deputy Secretary personally determines that the waiver is necessary to avoid harm to national security interests of the United States, and that the term of the contract or subcontract is not longer than necessary to avoid such harm.”

The agreed text reads as follows:

24 SEC. 8095. (a) None of the funds appropriated or
25 otherwise made available by this Act may be expended for
1 any Federal contract for an amount in excess of
2 $1,000,000, unless the contractor agrees not to—
3 (1) enter into any agreement with any of its
4 employees or independent contractors that requires,
5 as a condition of employment, that the employee or
6 independent contractor agree to resolve through ar-
7 bitration any claim under title VII of the Civil
8 Rights Act of 1964 or any tort related to or arising
9 out of sexual assault or harassment, including as-
10 sault and battery, intentional infliction of emotional
11 distress, false imprisonment, or negligent hiring, su-
12 pervision, or retention; or
13 (2) take any action to enforce any provision of
14 an existing agreement with an employee or inde-
15 pendent contractor that mandates that the employee
16 or independent contractor resolve through arbitra-
17 tion any claim under title VII of the Civil Rights Act
18 of 1964 or any tort related to or arising out of sex-
19 ual assault or harassment, including assault and
20 battery, intentional infliction of emotional distress,
21 false imprisonment, or negligent hiring, supervision,
22 or retention.
23 (b) None of the funds appropriated or otherwise
24 made available by this Act may be expended for any Fed-
25 eral contract unless the contractor certifies that it requires
1 each covered subcontractor to agree not to enter into, and
2 not to take any action to enforce any provision of, any
3 agreement as described in paragraphs (1) and (2) of sub-
4 section (a), with respect to any employee or independent
5 contractor performing work related to such subcontract.
6 For purposes of this subsection, a ‘‘covered subcon-
7 tractor’’ is an entity that has a subcontract in excess of
8 $1,000,000 on a contract subject to subsection (a).
9 (c) The prohibitions in this section do not apply with
10 respect to a contractor’s or subcontractor’s agreements
11 with employees or independent contractors that may not
12 be enforced in a court of the United States.
13 (d) The Secretary of Defense may waive the applica-
14 tion of subsection (a) or (b) to a particular contractor or
15 subcontractor for the purposes of a particular contract or
16 subcontract if the Secretary or the Deputy Secretary per-
17 sonally determines that the waiver is necessary to avoid
18 harm to national security interests of the United States,
19 and that the term of the contract or subcontract is not
20 longer than necessary to avoid such harm. The determina-
21 tion shall set forth with specificity the grounds for the
22 waiver and for the contract or subcontract term selected,
23 and shall state any alternatives considered in lieu of a
24 waiver and the reasons each such alternative would not
25 avoid harm to national security interests of the United
1 States. The Secretary of Defense shall transmit to Con-
2 gress, and simultaneously make public, any determination
3 under this subsection not less than 15 business days be-
4 fore the contract or subcontract addressed in the deter-
5 mination may be awarded.

The agreed legislation is now expected to pass Congress very promptly. But, if the appropriations bill is not signed by the President before midnight Friday, then the US Government will once again shut down for lack of funds (https://www.cnn.com/2018/03/21/politics/congress-unveils-spending-package-fix-nics/index.html). Observers expect the bill to pass Congress on a bipartisan vote, just as the original agreement did earlier this year. But the timing of passage, and thus the possibility of another very short Government shutdown, may be affected by opponents’ parliamentary maneuvers.

 

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

No Notice: NJ Federal Court Declines to Compel Arbitration

By Elena Gurevich

Morgan Stanley has lost a bid to compel arbitration against a former employee.

A New Jersey federal district court ruled that the arbitration agreement circulated by the company via email could not be constituted as adequate notice, and therefore was not binding on the plaintiff.

This is not the first time a New Jersey court has struck down a motion to compel arbitration. There seems to be a trend in the approach that New Jersey state and federal courts take in examining the ADR process. The courts are looking closely at arbitration clauses in light of the state’s consumer protection and employment discrimination laws. See “Examining New Jersey’s Arbitration Scrutiny,” CPR Speaks blog  (July 12, 2016)(available at http://bit.ly/2GMH0A5).

In Schmell v. Morgan Stanley & Co., Civ. No. 17-13080 (D.C. N.J. March 1)(available at http://bit.ly/2FZnmiY), the court did not even look at the cases Morgan Stanley relied on, saying that the fact the plaintiff—a senior vice president in the financial services company’s Red Bank, N.J., office—had notice of the agreement was in dispute.

The court found that the defendant company’s evidence that the plaintiff was working and accessing emails on the day the email in question was sent could not be considered as proof of adequate notice.

U.S. District Court Judge Anne E. Thompson also found that the plaintiff’s certified statements that he had no recollection of receiving and viewing the email were indicative of the fact that there had been no meeting of the minds, and therefore no mutual assent to the agreement.

Noting the plaintiff’s certification, the opinion also stated that the email notification and the plaintiff’s continued employment did not constitute notice, despite contrary case law. Therefore, Thompson reasoned, the court did not have to “consider whether this dispute falls within the scope of the Arbitration Agreement.”

She declined to compel arbitration, rejecting Morgan Stanley’s motion. The firm had fired the plaintiff last October, alleging discrimination for past conduct involving drug and alcohol abuse that the plaintiff detailed in a book about his life. The Thompson opinion states that the plaintiff was terminated even though he had made the changes to the book that Morgan Stanley had demanded he make, in order to continue working at the company.

According to the plaintiff’s attorney, Joshua Bauchner, a partner in the Woodland Park, N.J., office of Ansell Grimm & Aaron, no notice of appeal has been filed in the case. Attorney for Morgan Stanley, Kerrie Heslin, a partner in Chatham, N.J.’s Nukk-Freeman & Cerra, has not responded to an email request for comment.

The New Jersey treatment of arbitration agreements continues to evolve. A December attempt to make legislative changes died in committee, but it is likely that similar initiatives will emerge.

A Senate bill attempted to bar provisions in employment contracts that waive rights or remedies as well as agreements that conceal details relating to discrimination claims. Though the bill didn’t mention arbitration, the accompanying statement makes its intention clear, noting that “provision in any employment contract or agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment, including claims that are submitted to arbitration, would be deemed against public policy and unenforceable.”

The proposal can be found here: http://bit.ly/2IEKtBl.

* * *

The author is a CPR intern.

 

 

International Commercial Mediation Update: UNCITRAL Working Group II Moves Forward on Convention and Model Law

erinBy Erin Gleason Alvarez

The United Nations Commission on International Trade Law (UNCITRAL) Working Group II met at its 68th session in New York from February 5 through 9 to finalize draft convention and model law documents. The focus of these instruments is on the enforcement of international commercial settlement agreements resulting from mediation.

Working Group II was initiated by UNCITRAL in 2014 in order to explore whether it is feasible to develop mechanisms for the enforcement of mediated agreements in international commercial disputes.  Since then, there have been several sessions to explore the most appropriate path forward.

The need for this Working Group grew out of concern that parties to mediated agreements may not be afforded the same protections as those available in international commercial arbitration. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), entered into force in 1959, obligates States to recognize and enforce arbitral awards made in other contracting States.

To accommodate parties’ desire to mediate international commercial disputes, practices have emerged to try to transform a mediated settlement agreement into an arbitral award. In addition to practical concerns over enforceability, these steps add significant process to mediation, which parties tend to like because it is simpler than arbitration (among other reasons). Other recourse for enforcement of mediated settlements in international commercial disputes can include pursuing claims for enforcement of the agreement under contract law. But this may also be difficult in the international context, depending upon the jurisdiction where enforcement is sought. Protracted cross-border litigation to enforce a mediated settlement is counterintuitive at best.

Thus the proposed model law and convention seek to alleviate these concerns, recognizing the increased use of mediation in the international commercial context and the benefits that the mediation process affords parties. The instruments, as they are currently drafted, address both enforcement concerns and the possibility for a party to invoke a settlement agreement as a defense. To date, changes have not yet been uploaded to the UNCITRAL website that would show the most recent revisions to the draft model law and convention. The most recent drafts are available here.

By way of background, a “model law” is a template of sorts, for States to consider adopting locally. A “convention” on the other hand is an instrument that is binding on States and other entities (so long as they are signatory to the document).

What does all of this mean for parties to mediation? For now, it means waiting for further developments. UNCITRAL must ultimately approve the instruments before any adoption or ratification processes may commence. The Commission will commence review this summer.


Erin Gleason Alvarez is Principal at Gleason Alvarez ADR, LLC.  She serves on the CPR Institute Panel of Distinguished Neutrals and co-chairs the CPR Institute Mediation Committee.  Erin previously acted as the former Global Head of ADR Programs for AIG. 

Erin now serves as mediator and arbitrator in commercial and insurance disputes and may be reached at erin@gleasonadr.com

Predispute Arbitration Would be Barred for Sex Harassment Claims Under Legislative Proposal

By Elena Gurevich

The Federal Arbitration Act is being targeted in Congress in a bill that seeks to ban predispute arbitration in matters involving sexual harassment.

Last month, Sen. Kirsten E. Gillibrand, D., N.Y., along with 13 co-sponsors., introduced U.S. Senate bill S-2203, titled “Ending Forced Arbitration of Sexual Harassment Act of 2017.”

The act makes predispute arbitration agreements unenforceable for sex discrimination disputes.  It would put the responsibility for determining arbitrability on courts, not arbitrators.

The Dec. 6 proposal was immediately referred to the Committee on Health, Education, Labor, and Pensions.  It was introduced in the House by Rep. Cheri Bustos, D. Ill., on Dec. 26, with seven co-sponsors, and sent to the Judiciary Committee.

The act would amend United States Code Title 9—the FAA—by adding a new Chapter 4 “Arbitration of Sex Discrimination Disputes” at the end.

In a proposed Section 401, the legislation would define “predispute arbitration agreement” as “any agreement to arbitrate a dispute that had not yet arisen at the time of the making of the agreement,” and “sex discrimination dispute” as “a dispute between an employer and employee arising out of conduct that would form the basis of a claim based on sex under title VII of the Civil Rights Act of 1964 [citation omitted] if the employment were employment by an employer [as defined in the act], regardless of whether a violation of such title VII is alleged.”

Proposed Section 402, on validity and enforceability, states that “no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of a sex discrimination dispute.”

According to a blog by employment attorneys at the law firm of Orrick, Herrington & Sutcliffe, if the act is passed into law, it “would not make employment arbitration agreements altogether unenforceable.” Joe Liburt, Allison Riechert Giese and Akasha Perez, “The Ending Forced Arbitration of Sexual Harassment Act: A Legislative Response to #MeToo,” Orrick Employment Law and Litigation blog (Dec. 14) (available at http://bit.ly/2rmpHSx).

The blog post notes that the proposal “would require employers and employees to litigate sexual harassment claims, while leaving unaffected all other arbitration-eligible claims.  This could potentially require employees who bring both harassment and non-harassment legal claims to litigate some claims in court while simultaneously submitting other claims to arbitrators.”

The proposed law, however, does not prohibit workers and employers from agreeing to arbitration after a dispute arises.

The Orrick blog notes that the legislative proposal “has a long journey” before it is signed into law, explaining that “the bill must be assigned to a committee for consideration, withstand debate” and “pass a vote.” The blog post predicts that it “could take months or even years to complete, if ever.”

A USA Today article notes that Congress also “is wrestling with incidents of sexual harassment,” referring to a resolution passed by the Senate that requires sexual harassment training for senators and staff.

The article discusses a bipartisan bill that was introduced in November that would “overhaul the congressional complaint process and provide better protections for accusers.” The article also notes that “other lawmakers are looking to reform the secret process lawmakers have used to settle numerous workplace harassment and discrimination claims.” See Jessica Guynn, “‘Enough is enough’: Gretchen Carlson says bill ending arbitration would break silence in sexual harassment cases,” USA Today (Dec. 6)(available at https://usat.ly/2ynUM6y).

Some companies already have taken action in the light of the proposed legislation. Last month, Microsoft became the first Fortune 100 company to support the bill. Microsoft President and Chief Legal Officer, Brad Smith, stated that the company should “act immediately and not wait for a new law to be passed.” Brad Smith, “Microsoft endorses Senate bill to address sexual harassment,” Microsoft blog (Dec. 19)(available at http://bit.ly/2mR65jR).

The author is a CPR intern.