Part III: Deference Change–Analysis of a Shift on a Labor Arbitration Review Standard

By Antranik Chekemian

CPR Spring Intern Antranik Chekemian has provided extensive highlights on CPR Speaks of a Feb. 24 CPR online panel discussion, hosted by CPR’s Employment Disputes Committee and its Government & ADR Task Force, covering the current state of employment conflict resolution in the executive and legislative branches.  In “Part I: How Workplace ADR Will Evolve Under the Biden Administration,” Antranik covered presentations by panelist Mark Kantor, a Washington, D.C., arbitrator, who focused on prospects for legislative changes for employment and labor ADR issues, and possible regulation, and panelist Mark Gaston Pearce, Visiting Professor and Executive Director of the Georgetown University Law Center Workers’ Rights Institute, who discussed developments in decisions of the National Labor Relations Board, where he served as chairman from 2011 to 2017. In “Part II: More on Workplace ADR Under the Biden Administration,” panel moderator Arthur Pearlstein, who is Director of Arbitration for the Federal Mediation & Conciliation Service, turned to panelist Kathryn Siegel, a shareholder in Littler Mendelsohn’s Chicago office, whose presentation was highlighted, and then led a general discussion.  Here, Antranik returns to the program to highlight a piece of the discussion on the recent evolution of a key NLRB arbitration standard as discussed by panelist Pearce.

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At CPR’s February webinar, “What Will Labor and Employment ADR Will Look Like Under a Biden Administration?” former NLRB board chair Mark Gaston Pearce discussed the effects of a 2019 United Parcel Service Inc. Board decision overruling its 2014 Babcock & Wilcox decision.

Babcock & Wilcox had changed the standard of post-arbitration deferral on resolution of a grievance concerning an employee’s discipline or discharge that has been alleged to violate the National Labor Relations Act.  

United Parcel Service reverted to the previous, long-running arbitration-deference standard.  NLRB Chairman John F. Ring (currently a board member), and members Marvin E. Kaplan and William J. Emanuel, all Trump appointees, unanimously decided the case.

Babcock & Wilcox Construction Co. Inc., Board Case No. 28-CA-022625 (reported at 362 NLRB No. 36) (Board summary here) (9th Cir. review Oct. 17, 2017, under the name Beneli v. NLRB), provided that the Board will “defer to an arbitral decision if the party urging deferral shows that: (1) the arbitrator was explicitly authorized to decide the unfair labor practice issue; (2) the arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral; and (3) Board law reasonably permits the award.”

The Babcock & Wilcox standard shifted the burden of proof to the party urging deferral. In addition, deferral was appropriate only when the party urging deferral was able to demonstrate that the specific statutory right at issue was incorporated in the collective-bargaining agreement.

In employers’ views, this made deferral to an arbitral decision less likely, with the need to prosecute cases at the grievance stage and the unfair labor practice stage. The NLRB decided to apply the standard prospectively.

During the webinar, Mark Gaston Pearce noted that it was still difficult to say whether Babcock & Wilcox had an impact on businesses, because any contract negotiated prior to the decision was not affected by the new change in standards. 

The Board in United Parcel Service Inc., 369 NLRB 1 (Dec. 23, 2019), reversed the Babcock & Wilcox decision, returning to the arbitral deferral standards established in Spielberg Mfg. Co., 112 NLRB 1080 (1955) and Olin Corp., 268 NLRB 573 (1984).

The United Parcel Service decision states that the Board will defer to an arbitration award in cases alleging discharge and discipline in violation of Section 8(a)(3) and (1), “if (1) the arbitration proceedings were fair and regular, (2) the parties agreed to be bound, (3) the contractual issue was factually parallel to the unfair labor practice issue, (4) the arbitrator was presented generally with the facts relevant to resolving the unfair labor practice, and (5) the decision was not clearly repugnant to the purposes and policies of the [NLRA].”

The NLRB stated in United Parcel Service that Babcock & Wilcox “disrupted the labor relations stability” and that the 2014 decision disfavored “the peaceful resolution of employment disputes about discharge and discipline issues through collectively bargained grievance arbitration proceedings.”

In a press release announcing the decision of United Parcel Service, the NLRB stated it “will continue to safeguard the exercise of Section 7 rights—particularly by ensuring that arbitral awards are not clearly repugnant to the Act—while better promoting the strong federal policy in favor of arbitration as the parties’ agreed-upon mechanism for resolving employment disputes.”

Mark Gaston Pearce told the CPR seminar attendees that the burden was once again placed on the party resisting deferral to the arbitration decision. He stated that the explicit authorization under the collective bargaining agreement sending the matter to the arbitrator to decide on a specific issue was not required anymore, and that there is no longer a requirement that the statutory issue be precisely articulated by the arbitrator.

Pearce concluded that it is still a “big question mark” whether a new Board under President Biden will reinstate the Babcock & Wilcox standard eliminated at the end of 2019, as it was to be effective prospectively. It was only recently that newly negotiated contracts would be subject to that standard.

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The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

#CPRAM21: Managing Workplace Conflicts, On-site and Remote

If you missed the 2021 CPR Annual Meeting in January—the first free public meeting held online in the organization’s 40-year history—the videos are being posted on CPR’s YouTube Channel. While additional videos will be posted for CPR members only, the first, linked here on CPR Speaks, is open access and features the keynoters, CNN Anchor and Chief Political Correspondent Dana Bash and General James Mattis, who is former U.S. Defense Secretary. Click the Subscribe button at YouTube for alerts and for more CPR content. For information on full access and joining CPR, please visit CPR’s Membership webpage here.

By Antranik Chekemian

Kimberley Lunetta, who represents management in employment matters as of counsel at Morgan Lewis & Bockius, moderated a third-day CPR Annual Meeting panel on state-of-the-art best practices for addressing and resolving workplace disputes. The panel mainly concentrated on managing employees and disputes in the current remote environment, and how to set up an ADR program in order to prevent and resolve conflicts.

The Jan. 29 session included four panelists:

  • Alfred G. Feliu, who heads his own New York firm, is a longtime panelist for CPR Dispute Resolution and the American Arbitration Association’s commercial and employment arbitration and mediation panels. He is past chair of the New York State Bar Association’s Labor and Employment Law Section and a fellow of the College of Commercial Arbitrators and the College of Labor and Employment Lawyers.
  • Wayne Outten is chair and founder of New York’s Outten & Golden LLP, which focuses on representing employees. He has represented employees for more than 40 years as a litigator. He has long advocated for using mediation in employment disputes. His practice focuses on problem solving, negotiating, and counseling on behalf of employees.
  • Cheryl M. Manley is a veteran labor employment attorney with more than 25 years of  experience, and since 2005 has been at Charter Communications, where she is senior vice president and associate general counsel of employment law, leading the broadband/cable operator’s Employment Law Group.
  • Andrew J. Weissler is a partner in the labor and employment group of Husch Blackwell. He is a member of the firm’s virtual office, the Link, based in Bloomington, Ill. Weissler advises and represents public and private clients on workplace issues involving difficult personnel decisions.

Feliu and Outten are on a subcommittee of CPR’s Employment Disputes Committee that is working on a model workplace disputes program, along with a new version of CPR’s Employment Dispute Arbitration Procedure to be issued soon.

A poll conducted at the beginning of the panel showed that remote working was new for most of the participants.

Lunetta launched the discussion by asking Feliu about the threshold questions employers should ask themselves when considering an ADR program.

If the principal goal is avoiding litigation, responded Feliu, then employers “are really focusing on processing existing or incipient claims.” As a result, he said, employers “are going to focus more on arbitration–on ending up with a process that brings an ultimate result.”

But if the employer’s goal is more on problem solving and identifying tensions before they become disputes and the employer views conflict resolution as a strategic imperative, then the alternative approach of problem-solving should be embraced, he said. Here, the focus is different than pure litigation avoidance. Said Feliu, “Litigation avoidance or reduction of legal costs will be part–will be an effect, hopefully–of the problem-solving process but wouldn’t necessarily be the goal.”

This approach would also help the organization become more competitive, he said–to work more constructively and efficiently while, as an after-effect, avoiding litigation.

Feliu explained, “How do you do this? You do this is by opening up lines of communication, by necessarily undercutting to a certain extent the chain of command. You’re empowering employees to come forward with their disputes at whatever level and whatever the nature. And by doing that, you are creating a different kind of an organization that is less hierarchical, less structured, and more fluid.”

Wayne Outten added that ADR is ideal for workplace disputes. Because there already is an important relationship between both sides and the relationship is typically continuing, said Outten, it “is a perfect place for identifying problems and solving them early on.” He then presented two approaches that companies can embrace for dispute resolution procedures, the legal mentality and the human resources mentality.

The legal mentality, said Outten, is, “Let’s find a way to avoid lawsuits and to maximize the chances that we will win them with the least possible costs.” He said the HR approach is better, with goals of making employees happy and providing an environment where workers can be productive and focus on their jobs in an effective and efficient manner.

With the HR approach, Outten said, a program should start identifying problems at the earliest possible stage. “If a problem ripens into a dispute,” he said, the goal is “resolving the dispute in the simplest, quickest way possible and escalating only as and when you need to.” The HR approach also serves the lawyers’ perspective as it “tends to avoid disputes ripening into the possibility of litigation.”

Lunetta then asked the panelists whether having employees working from home in a number of states, possibly new states to the company, would affect the design of an ADR program.

Al Feliu responded that working from home would not alter or change the program itself, but it increases and amplifies “the need for it to be enforceable across 50 states and 50 jurisdictions.”

Wayne Outten discussed some of the positive and negative changes regarding the nature of workplace disputes that come with remote working. On one hand, the kind of disputes that arise from being in the same place, and having interpersonal reactions, presumably will be reduced with the increase in virtual offices, such as sexual harassment claims and bullying.

“On the other hand,” he said, “the opportunities for disputes are exacerbated because you don’t have as much free-flowing communication, and the ability to address things face to face.” Outten added, “Disputes may fester.”

From the management-side perspective, Husch Blackwell’s A.J. Weissler noted that the HR model Outten mentioned “has changed quite a bit in this remote work environment.” If the employees are typically working remotely, then having difficult conversations over the Internet should be acceptable, he said.  

But if a human resources or corporate employee is working from home while the business has essential workers who have been going to the employer’s worksite, then, says Weissler, “there’s a real disconnect there” that can make the on-site workers feel and sense that the employer is not in touch with the employee.

Moderator Kimberley Lunetta then asked panelists whether CPR has resources that can help employers think through these issues if they are considering any of the dispute resolution options that were discussed.

Outten said that this was the reason for CPR to be founded decades ago, with the goal of helping companies figure out how to avoid and resolve disputes.

Outten announced that CPR and its Employment Disputes Committee will be publishing a new set of rules for administered employment dispute resolution.  Accompanying the rules will include “draft programs that companies can adopt and adapt for their own use, which have within them the various different stages that employers can consider […] including things . . . [like] informal dispute resolution and problem solving, . . . open-door policies that invite people to take their problems up the chain of command,” ombudspersons, peer review processes and “all the way up to mediation which . . . is perfectly suited for employment disputes of all kinds.”

The conversation then revolved around the pluses and minuses for an employer of establishing a mandatory arbitration program.

“In reaching the decision that our arbitration program was going to be mandatory,” responded Charter Communications’ Cheryl Manley, “one of the factors that went into play was either reducing the litigation costs, or perhaps not having to deal with court litigation.” She mentioned that her company’s program was built to resolve issues in a timely manner and on an individualized basis.

She further added that her organization has many steps before getting to the arbitration phase to resolve the employment issue. And “when it finally does get to arbitration, we believe that there’s some certainty,” said Manley, “We believe that both parties have some skin in the game, in terms of selecting the arbitrator and primarily, it’s cost effective and efficient.”

Outten then answered a question about CPR’s employment ADR program and how it can help employers not only set up, but also ensure long-term success.

Outten reiterated the program’s strength in early-stage problem solving and early dispute resolution, and added that the program offers room for flexibility and adaptability in different workplaces.

Mediation with a third-party facilitator, he said, “can be extremely valuable and beneficial. It gives the parties an opportunity to air their grievances.” When it comes to arbitration, he said, every successful workplace ADR program really needs to comply “at a minimum,” with due process protocols.”

He then presented several key features of the due process protections (which CPR has adopted here), which include:

  • “The employee isn’t required to pay more than they would pay if they were going to file in court.”
  • “The arbitrator has the authority and power to provide any remedy that a court can provide so that there’s no takeaway of remedies for the affected employee.”
  • “The employee has a fair opportunity to pick the decision maker–the arbitrator–especially given the binding power of the decision of this person to resolve the dispute.”
  • “The employee has to have a full and fair opportunity to gather information in order to present the case and . . . [any] defenses.”
  • “The employee needs to have an opportunity to have counsel of his or her choosing.”
  • “The hearing itself should be reasonably convenient . . .  so the employee doesn’t have to go a long distance to have his or her day in court.”
  • Finally, “the arbitration should end with a reasoned decision, so the parties know what the arbitrator took into account, what the findings were on the evidence, and what the legal conclusions were in determining” the decision.

A.J. Weissler added that “there are great legal reasons” not to “cram down” arbitration in a workplace disputes program, citing fairness. He said that arbitrator selection is an important factor in presenting a fair process, with a say for the employees.

Al Feliu noted that there is a dearth of diverse panelists, but major providers have made strides and continue to work on the problem to enhance and ensure fairness.

Cheryl Manley agreed with the comments, and emphasized that panelists need to reflect the workplace population.

Manley discussed Charter Communication’s Solution Channel, which she described as a 2017 program to compel arbitration use—a mandatory program for newly signed-on employees, with about 10% of the company’s 90,000 employees opting out when it was launched.  She reported that the complaints are restricted to legal claims—non-legal disputes are addressed in other ways–that are submitted through a third-party vendor which create a record over the claim. She said the American Arbitration Association is the provider.  The company absorbs the AAA filing fees and the arbitrator costs. If either side is unsatisfied with the panel, they return to the AAA for more choices.

Weissler says arbitration should be part of any dispute resolution system but if it’s made mandatory and employees are forced to use it, he said, it is counterproductive and it creates problems going forward due to the “asymmetrical” views.

Weissler said he encourages mediation as a best option. He said he is skeptical of programs that outline steps that do not allow a course of mediation to be developed.

Feliu says he has been mediating for 30 years and familiarity has grown during his period of practice after skepticism.  He agreed with Weissler’s points, but noted that mandatory mediation in New York federal court, where he said he would have expected resistance—mandatory is counterintuitive, said Feliu—it has been just as successful as voluntary mediation over about the past 10 years.

Feliu said sometimes there is grumbling but mostly, when parties get to the bargaining table, they try to settle. And he said that while joint sessions are fading, flexibility is needed.  “Every mediation is different,” he said.

Wayne Outten said that he shared Al Feliu’s experience.  In the mid-1980s, he said, the plaintiffs’ bar “viewed this newfangled process as a conspiracy to take away their rights, and I soon discovered that was not necessarily the case and became a big advocate.”

Over the past 35 years, said Outten, mediation “has become quite normal.” He echoed Feliu again,  noting that when parties attempt mediation in good faith, it is successful.

Even in situations with a lot of open issues, he said, mediation “has a very high success rate, . . .  and is always worth trying.”

Cheryl Manley said that pre-pandemic, her company didn’t want anything done virtually or remotely—all depositions, mediations and arbitration hearings were done in person, exclusively.  The change was swift, she said. “Fast forward seven, eight, nine months, . . . when we finally emerge from this pandemic, we aren’t going to go back to all depositions in person, all mediations in person or hearings,” said Manley, adding, “In fact, I think that there is no reason . . . to start putting people back on planes traveling all over the country.  It is expensive. It’s time consuming.  And it is not efficient. “ She said that the “only issues” are “the occasional technological” problems.

A.J. Weissler said he has participated in virtual matters frequently during the pandemic, and found “an incredible benefit.” Having the people resources ready on video, whether from home or for those back in their offices, has “been an incredible thing,” he said, adding that he strongly supports virtual mediations.

Wayne Outten said he always has had a concern whether real decision makers would be in the mediation room.  “Now with virtual mediations,” he said, “that problem can be more readily addressed.”

Al Feliu said he has only done virtual mediations since his first in March.  “All of the impediments, and all of the arguments against them, have been rebuffed, “ he said. For example, he explained, he can evaluate credibility better on close-up video than across a bargaining table.

Feliu conceded that there is a different feel in an in-person gathering where people have committed to the process.  That intensity, he said, isn’t present where people are sitting on their couches, are more relaxed, with their dogs nearby.  “It’s just a different process,” he said.  “I don’t have the shrieking episodes. I don’t have a lot of emotions.  Is it good or bad? It’s just different.”

The result, he said, has been that he isn’t settling cases on the first day as much as he did at in-person mediations.

Addressing audience questions, Al Feliu said he discusses confidentiality with the parties with heightened concerns, noting that a potentially serious issue could be where extra people are present, and not visible on screen, as well as individuals texting on the side. “These are all serious concerns we need to get equilibrium on” going into the mediation, he said.

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The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern. Alternatives editor Russ Bleemer contributed writing and research to this report.

[END]

Understanding the Landscape of Labor Dispute Resolution in Brazil

By Yixian Sun

The CPR Institute hosted a June 4 webinar, “Resolving Employment Disputes in Brazil: Myths, Facts, and Opportunities,” organized by CPR’s Brazil Advisory Board, CPR’s Employment Committee, and the São Paulo, Brazil-based international law firm, Mattos Filho.

It provided an overview of Brazil employment disputes and the current legal and ADR framework to resolve them. The panelists offered their views and practical insights on 2017 labor and employment reform in the country, as well as how companies could benefit from and add ADR as an alternative option to resolve employment disputes.

Daniel Vergna introduced that Brazil’s labor litigation is most well-known for the enormous amount of lawsuits filed in the court system. Three main factors, according to him, contribute to this phenomenon.

First, at least before the labor reform, plaintiffs were not worried about the potential fee-shifting risk even if they lost at the end. Second, courts in Latin America are generally friendly to the employees, and thus it is relatively easy for employees to get a favorable judgment. Third, from a cultural perspective, employees in Brazil are proactive in filing complaints in the court and tend not to see out-of-court settlement as an option.

The 2017 labor reformation was introduced against this background. As Fabio Chong de Lima noted, before this radical modification of the Brazilian Labor Code, arbitration clauses were generally banned from employment agreements.

Under the new law, parties can agree to incorporate an arbitration clause in the employment agreement, with one caveat–the employees’ remuneration must exceed around BRL 12,000, since these higher-ranking employees are seen as those with better resources to access ADR services.

Still, as de Lima commented, this marked the first time when alternative dispute resolution methods, especially arbitration, were accepted by the Brazilian authorities as a legitimate way to resolve labor disputes, thereby offering employers a tunnel to avoid litigation, especially in cases with higher stakes. Besides, as Vergna mentioned, the losing party now bears a certain portion of the defendant’s attorney’s fee, which disincentivizes at least those with a weaker case.

To some, the fact that this seemingly essential reform did not take place until 2017 shows the Brazilian court system’s mistrust of arbitration. Cleber Venditti offered his insights on why. To begin with, according to traditional wisdom, labor rights are not arbitrable by nature.

While the labor reform effectively refuted this idea, it may take a while for the court system to change its understanding.

Next, misuse of arbitration is a factor. Many employers tend to choose the “most unreliable chambers,” which only charge a minimum administration fee and makes the arbitration process look more like forced settlement than neutral dispute resolution.

Thus, Venditti said, it is important for businesses to use well-known and well-qualified chambers and arbitrators in order to obtain a trustworthy award.

Last but not least, the judiciary needs to change its mindset. Currently, many courts still see themselves as the only guardians as labor rights, and believe that delegating the dispute resolution power to private entities would threaten the traditional protection of labor rights.

The Brazilian story may sound shockingly different for those who are more familiar with United States ADR programs, which have grown prevalent since Congress’s enactment of the Federal Arbitration Act in the 1920s. As Western Digital’s Michelle Dangler noted, with arbitration’s privacy and uniquely personal approach, it is a standard practice to include an arbitration clause in employment agreements. In addition, mediation is a mandatory pre-trial proceeding for labor litigation, and the settlement agreement has binding force.

While there are criticisms–for instance, over “forced” arbitration clauses used by employers to silence sexual harassment victims–Dangler reported that ADR remains to be a primary tool for resolving U.S. labor and employment disputes.

Fortunately, despite all the difficulties, the panelists noted that ADR is growing more prominent in Brazil. In arbitration, as Venditti said, companies and higher-level employees are working together to promote the inclusion of arbitration clauses in the employment agreement, since the confidential and expeditious nature of the process is beneficial for both sides.

As for mediation, more Brazil mediation chambers have been created. For example, workers in the telecommunication industry can now submit mediation applications to the telecom unions under certain circumstances. Banco do Brasil also implemented a mediation program to resolve sexual and moral harassment complaints, and has achieved significant success, the panel reported.

The active participation of unions in mediation enhances the confidence of the court system, which proves to be essential for ADR success. In the United States, courts rarely invalidate a mediation settlement agreement. In Brazil, according to Vergna, those agreements are not shielded by the principle of finality unless they are approved by the courts.

That is why most effective mediation agreements are created in labor litigation proceedings where courts “push” the parties, usually with relatively small claims, to settle by themselves.

Moreover, the Covid-19 pandemic is bringing both opportunities and challenges to the Brazil ADR scene. De Lima reported that more than one million people have lost their jobs in Brazil in the past two months, and economists expect more jobs to disappear.

While the total number of cases filed in courts has declined due to the heightened difficulty of receiving assistance from lawyers, the number of cases involving Covid-19 has increased by 20%. De Lima provided an example on how Covid-19 could give rise to disputes in the labor context. For instance, there might be disagreement about whether the virus could be classified as an occupational disease, particularly for employees who have to work in places with a higher likelihood to get exposed to the virus, or for those who have to resume working with minimal protective measures.

Amidst the pandemic, said Fabio Chong de Lima, employers have two options. They can either react negatively, or act collectively and creatively with their employees to address disputes in an earlier stage. ADR can be a part of the toolkits for creative responses. De Lima said that they anticipated that with its flexibility and promptness, arbitration could respond better to the changing pandemic situation, and thus attract more support and use.

Pfizer Brazil, according to panelist Shirley Meschke, has explored the value of ADR service, and has promoted ADR culture in Brazil. After the labor reform, Pfizer incorporated an arbitral clause into the employment agreement for qualified employees. It has also been pursuing opportunities for settlement in court proceedings.

From the perspective of an in-house counsel, it is equally, if not more important, to prevent disputes from emerging and escalating in the first place–a philosophy that the CPR Institute has consistently endorsed. The key to this goal, according to Meschke, is to help employees build a healthy work-life balance and to maintain smooth communication between employers and employees.

For instance, the Healthy Pfizer program provides confidential support for employees to deal with their psychological health issues, and offers training on how to keep physical and mental well-being. Pfizer has also taken measures to meet with new challenges brought by the pandemic, such as helping employees resolve technical issues and resist the tendency to work beyond business hours as a result of working from home.

The panelists concluded by noting that arbitration and mediation have their own virtues when compared with litigation. Despite a presumption that arbitration is always more expensive than court proceedings, Cleber Venditti demonstrated that after adding the cost of time and fee adjustment, litigation could be much costlier than arbitration. Labor arbitration usually takes about six to eight months to complete, whereas court proceedings can take up to three to four years, and can incur costs that amount to half of the total amount in dispute.

Fabio Chong de Lima added that arbitration could offer parties a higher quality and better dispute resolution experience. He said arbitration chambers can review more types of evidence, are usually less clogged than labor courts, and thus invest more time and care to prepare for and examine the cases at hand.

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The author, a second-year Harvard Law School student, is a 2020 CPR Institute Summer Intern.

Update on CPR’s Employment-Related Mass Claims Protocol

Recently, there have been reports in the news relating to the International Institute for Conflict Prevention and Resolution’s (CPR) Employment-Related Mass Claims Protocol (Protocol).  We thought some background might be useful.

As more and more mass employment arbitration claims are filed around the United States, arbitral institutions have become increasingly aware of the tremendous challenges they face when trying to bring timely – and comprehensive – resolution to these claims.  CPR responded to these challenges by borrowing techniques that had proved successful in the resolution of other mass claims and applied them to the employment space with the goal of facilitating a comprehensive resolution of mass employment claims for all parties involved. The result was the Protocol.  In developing its Protocol, CPR was aware that, in order to be successful, it was imperative that the features of the Protocol be balanced and designed to facilitate global resolution.

As noted by former Southern District of New York district court judge, Shira Scheindlin, a veteran of mass claims matters, in connection with her appointment as the Administrative Arbitrator under the Protocol:

This protocol offers advantages, not only to claimants, whose cases will likely be resolved at the defendant’s cost and far more quickly than they would be in court, where mass claims often take years to resolve, but also to defendants, with the greater odds it offers of reaching a prompt global resolution in a more cost-effective manner than the courts would offer.  And, most unusually, the defendant-employer will release an individual from mandatory arbitration if no global resolution is reached and the individual employee prefers a court proceeding to arbitration.

The terms of the Protocol itself speak to its innovative approach to facilitating resolution in the most efficient way possible.  The initial phase of the Protocol provides for “test” arbitrations (10-20) to first proceed on an accelerated track followed by a mediation process that encourages resolution of all claims.  If that process is unsuccessful in identifying a mediated solution, the Protocol allows claimants to opt-out of the entire arbitration process.  Not only does this opt-out allow for employees to pursue their individual claims in court, but it also allows for the possibility that these claimants might, with court approval, be able to proceed collectively in a class action.

The objective of the initial phase of the Protocol is to resolve all the cases as a whole as quickly as possible.  During this initial phase, the non-test cases are paused with all rights preserved in order to give the parties a chance to explore a global resolution. CPR believes that this procedure will actually encourage faster overall resolution of mass claims – especially when compared to the substantial delay that employees inevitably face while waiting for appointment of an arbitrator for, and the proceedings on, their claim when their claim is one of hundreds or thousands of mass arbitrations filed at the same time. If a mediated solution is reached, employees have the option of accepting that resolution or proceeding with individual arbitrations.  In the case of individual arbitrations, each employee – and the employee alone – nominates the arbitrator from a Master List of arbitrators provided by CPR, and the employer pays all fees – including for the arbitrators, the mediator, and the administrator.

The Protocol gained attention in the press recently after DoorDash adopted the Protocol in agreements with its workers and a dispute arose as to where DoorDash should arbitrate its workers’ claims that had previously been filed before the AAA.  In the context of that dispute in the case of Abernathy v. DoorDash, No.19-CV-07545 (N.D. Cal.), it has been suggested that CPR’s work on the Protocol may have been guided unfairly by counsel for Respondent DoorDash.  CPR disagrees with this characterization.

As made plain by the discovery already undertaken of CPR in the Abernathy case, including a deposition of CPR’s President & CEO, it was CPR, not counsel for the employer, who conceived of, wrote and controlled the Protocol.  This is underscored by the inclusion in the Protocol of the provision allowing claimants to opt out of the arbitration process and proceed in court – a provision disfavored by counsel for DoorDash. An examination of the Protocol itself shows that its provisions favor neither side; rather, the Protocol was intended to – and does – provide for an innovative and balanced solution for resolving mass employment claims for all parties involved.

With respect to interactions between CPR and counsel for DoorDash, the deposition testimony also discusses, as CPR previously explained in a letter to the Court dated December 12, 2019 (publicly available at Docket Entry 137), that counsel for the employer reached out to CPR last year to express concern over options for administration of a mass of claims and the fee structures being imposed and asked whether CPR could offer an alternative fee schedule for administering future arbitrations.  Rather than just focusing on alternative fees, CPR took the opportunity to try and develop an innovative and fair process for resolving these claims for all parties involved.  As a result, CPR developed the Protocol based on its own experiences in other mass claims areas.  CPR then sought and considered input on the Protocol from a variety of sources, including counsel for DoorDash — who was contemplating applying the Protocol in future contracts with its workers. CPR sought input from labor and employment counsel with experience representing both management and employees on an individual and class basis, and attorneys with mass claims and complex commercial litigation and arbitration experience, some of whom are also prominent arbitrators and mediators, including one of the foremost experts in facilitating the resolution of mass claims. CPR also received input from particular members of its Board of Directors, who have served as advisors to ALI’s Restatement of Employment Law and who have chaired the New York Chief Judge’s Advisory Committee on Alternative Methods of Dispute Resolution.

CPR developed the Protocol for the broader marketplace, not for any particular matter or party, and did so in the hopes that it would facilitate resolution and help solve for many of the challenges facing employees and employers dealing with mass individual employment arbitrations. We invite you to review the features of the Protocol for yourself.  CPR believes its Protocol will allow for the efficient, fair and balanced administration of employment-related mass claims for both employees and employers.

About CPR

CPR is an independent nonprofit organization formed in 1977 to, among other things, identify alternatives to litigation and ways to prevent and resolve legal conflicts more effectively and efficiently.

The CPR Institute is a think tank that has long brought leadership to the improvement of conflict management, as exemplified by work such as:

  • The Model Rule for the Lawyer as a 3rd Party Neutral and the Provider Principles developed jointly with Georgetown University
  • The Model Procedures for Mediation and Arbitration of Employment Disputes developed by a Committee of lawyers representing employees and employers as well as academics and neutrals
  • CPR’s Master Guide to Mass Claims Facilities compiled by a Commission co-chaired by Kenneth Feinberg and Deborah Greenspan
  • CPR’s book Cutting Edge Advances in Resolving Workplace Disputes published together with Cornell’s Scheinman Institute

CPR Dispute Resolution is a provider of dispute resolution services and will be administering the Employment Related Mass Claims Protocol to applicable arbitrations, along with its Panel of Distinguished Neutrals, who will be relied upon to mediate and arbitrate these claims.

New California Law Prohibits Pre-Dispute Employment Arbitration Agreements

By Andrew Garcia

California last week enacted a new law that prohibits employers from requiring job applicants, or any existing employee, to enter into pre-dispute arbitration agreements as a condition of employment.

California Gov. Gavin Newsom signed the bill into law Oct. 10. It also criminalizes any retaliation against an employee who refuses to enter into a pre-dispute arbitration agreement.

Assembly Bill 5, introduced by Assemblywoman Lorena Gonzalez, D., San Diego, says that a violation of the amended California Labor Code is a misdemeanor. Despite the law’s harsh prescriptions for violators, the bill clarifies that it does not purport to invalidate any existing arbitration agreement that is consistent with the Federal Arbitration Act.

The California Chamber of Commerce identified AB 51 as a “job killer.” (See the chamber’s press release ahead of the first major hearing on the bill in March at http://bit.ly/2pmYYEu.)  The chamber said that the new law conflicts with the U.S. Supreme Court’s decision in Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017), among many cited cases that it notes are part of the Supreme Court’s jurisprudence favoring arbitration agreements. The chamber predicts that the law will be challenged and overturned, preempted by federal law. (You can read the chamber’s statement in opposition to the California Legislature, joined by 41 local chamber and specialized industry groups, at http://bit.ly/33zTLIz.)

As other jurisdictions wrestle with local restrictions, courts are beginning to see challenges.  A New York federal court last spring stuck down a New York state pre-dispute mandatory arbitration bar in a decision that was mirrored by the California Chamber’s view. See Latif v. Morgan Stanley & Co. LLC, No. 18-cv-11528, 2019 WL 2610985 (S.D.N.Y. June 26, 2019), where the U.S. District Court held that a newly enacted New York state law that invalidated pre-dispute employment arbitration agreements was preempted by the Federal Arbitration Act. See also, Andrew Garcia, “Update: Legislatures on Invalidating Pre-Dispute Arbitration Agreements,” CPR Speaks blog (Aug. 1) (available at http://bit.ly/2IPg6dd).

AB 51 is one of three bills signed by Gov. Newsom, a Democrat who took office in January, that expanded California’s workplace protection laws.  “Work is about more than earning an income,” he stated, adding, “For many, a job can provide a sense of purpose and belonging–the satisfaction of knowing your labor provides value to the world. Everyone should have the ability to feel that pride in what they do, but for too many workers, they aren’t provided the dignity, respect or safety they deserve. These laws will help change that.”

That move is a big change from Newsom’s predecessor. The new law is a reintroduction of an identical 2018 bill that was vetoed by then-Gov. Jerry Brown, also a Democrat–the second time Brown vetoed legislation restricting arbitration.  The California Chamber of Commerce opposition letter quotes Brown’s 2018 veto extensively, including the Kindred Nursing decision, which noted, “A rule selectively finding arbitration contracts invalid because improperly formed fares no better under the [Federal Arbitration Act] than a rule selectively refusing to enforce those agreements once properly made. Precedent confirms that point.”

An August California court decision, however, shares the new law’s skeptical arbitration view. In OTO LLC v. Kho, 447 P.3d 680 (Cal. 2019) (available at https://stanford.io/2ON8f3x), the California Supreme Court rejected the validity of an arbitration agreement because, among other reasons, the defendant required plaintiff Kho to sign the agreement as a condition of his employment.

The court found that the porter who delivered the agreement remained at Kho’s place of work until he signed the agreement, which created an impression that he had to sign it immediately. Therefore, the court ruled that since Kho had no choice but to sign the arbitration agreement or lose his job without an opportunity to review the agreement in his native language, it could not be enforced.

To view the bill in its entirety, click here.

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

 

 

Gov Cuomo Signs New Legislation Barring Use of Mandatory Arbitration to Resolve Workplace Discrimination and Harassment in New York State

By Anna Hershenberg

As expected, on Monday, August 12, 2019, Governor Cuomo signed new legislation that, among other things, purports to bar the use of mandatory arbitration to resolve discrimination and harassment cases in the workplace in New York state.

The prior version of this law, New York CPLR § 7515, which went into effect last year, aimed to prohibit mandatory arbitration of workplace sexual harassment claims only; this version expands the prohibition to claims of other types of discrimination.

In June, Judge Denise Cote (SDNY) found the prior version of  § 7515 to be preempted by the Federal Arbitration Act and therefore invalid. (Latif v. Morgan Stanley & Co. LLC et al. (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL)) Her ruling should apply with equal force to the amended version of § 7515, at least with respect to interstate matters.

CPR covered this issue earlier this month on CPRSpeaks:

https://blog.cpradr.org/2019/08/01/update-legislatures-on-invalidating-pre-dispute-arbitration-agreements/

The full text of the newly enacted § 7515 is pasted below (revisions in blue).

Section 7515: Mandatory arbitration clauses; prohibited

(a) Definitions. As used in this section:

1. The term “employer” shall have the same meaning as provided in subdivision five of section two hundred ninety-two of the executive law.

2. The term “prohibited clause” shall mean any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment. discrimination, in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law.

3. The term “mandatory arbitration clause” shall mean a term or provision contained in a written contract which requires the parties to such contract to submit any matter thereafter arising under such contract to arbitration prior to the commencement of any legal action to enforce the provisions of such contract and which also further provides language to the effect that the facts found or determination made by the arbitrator or panel of arbitrators in its application to a party alleging an unlawful discriminatory practice based on sexual harassment in violation of laws prohibiting discrimination, including but not limited to, article fifteen of the executive law shall be final and not subject to independent court review.

4. The term “arbitration” shall mean the use of a decision making forum conducted by an arbitrator or panel of arbitrators within the meaning and subject to the provisions of article seventy-five of the civil practice law and rules.

(b) (i) Prohibition. Except where inconsistent with federal law, no written contract, entered into on or after the effective date of this section shall contain a prohibited clause as defined in paragraph two of subdivision (a) of this section.

(ii) Exceptions. Nothing contained in this section shall be construed to impair or prohibit an employer from incorporating a non-prohibited clause or other mandatory arbitration provision within such contract, that the parties agree upon.

(iii) Mandatory arbitration clause null and void. Except where inconsistent with federal law, the provisions of such prohibited clause as defined in paragraph two of subdivision (a) of this section shall be null and void. The inclusion of such clause in a written contract shall not serve to impair the enforceability of any other provision of such contract.

(c) Where there is a conflict between any collective bargaining agreement and this section, such agreement shall be controlling.

Anna Hershenberg is CPR’s Vice President of Programs and Public Policy

Epic Systems vs. #MeToo: What Now?

By Anna M. Hershenberg & Sara Higgins

Panelists and audience members came together to discuss workplace dispute resolution in the wake of the U.S. Supreme Court’s Epic Systems v. Lewis decision, analyzing the impact of mandatory arbitration and class actions waivers in light of the #MeToo movement as it continues to raise awareness of the pervasive culture of sexual harassment in the workplace, and society generally.

More than 100 in-house employment counsel from Fortune 500 companies, corporate defense attorneys, counsel from the plaintiff’s bar, as well as noted academics and neutrals attended a CPR Institute mini-symposium last month on the intersection of the Supreme Court’s decision in Epic Systems v. Lewis, No. 16-285 (May 21)(available at https://bit.ly/2rWzAE8) and the #MeToo movement.

The two-panel program discussed anticipated responses from state and federal legislatures and the plaintiff’s bar, the pros and cons of mandatory arbitration for employment disputes and what makes an employment disputes program successful in light of new, competing priorities from the perspective of all stakeholders.

The event started with a CPR members-only meeting of CPR’s Employment Disputes Committee members.  The meeting featured an exclusive interview with Anil K. Chaddha, Lead Counsel of Labor, Employment and Benefits at General Motors, about his experience with employment ADR throughout his career.

The program was then opened up to the public where CPR Institute Chief Executive Officer and President Noah Hanft led off by noting that CPR is working to bridge the gap between the two sides of these types of contentious discussions, and provides an avenue for discourse and cooperation between plaintiff’s counsel and corporate defense to tackle common issues.  [Follow CPR Events at www.cpradr.org/events-classes/upcoming, on Facebook and on Twitter].

The first panel, titled “Was Epic Systems Really Epic: Responses to Epic and the Next Battlegrounds for Mandatory Arbitration,” was moderated by Washington, D.C. based neutral Mark Kantor, who is an adjunct professor at Georgetown University Law Center and a member of CPR’s Panel of Distinguished Neutrals.

Kantor broke down the Epic Systems case and discussed both its immediate impact and far-reaching implications with panelists Christopher C. Murray, a shareholder in the Indianapolis office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., who co-chairs the firm’s Arbitration and Alternative Dispute Resolution Practice Group, and Fran L. Rudich, a partner in Rye Brook, N.Y.’s Klafter Olsen & Lesser.

In Epic Systems, Kantor explained, the Supreme Court upheld the enforceability of class action waivers. He noted that, in writing for the majority, Justice Neil Gorsuch concluded:

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.

The panel largely agreed that, from the employer’s perspective, this holding decisively shifts the balance in favor of mandatory arbitration with class action waivers.

From the employees’ perspective, Rudich previewed the plaintiff’s bar’s anticipated response: plaintiffs’ attorneys will now make concerted efforts to bring multiple, individual cases against the same employer as a workaround to class action waivers.  Rudich warned, “be careful what you wish for,” because employers that seek to avoid class matters are going to get exactly that, numerous individual employment dispute arbitrations, potentially with repetitive evidentiary and discovery requests.

The panel also discussed the burgeoning federal and state laws taking aim at mandatory arbitration, including that more states are poised to adopt California-style private attorney general (“PAGA”) laws to supersede employment class actions.

After a brief intermission, a second panel, “Epic Systems v. #MeToo: What Now? Best Practices for Workplace Disputes Program Design,” which included Sarah E. Bouchard, a Philadelphia-based partner in Morgan, Lewis & Bockius LLP; Lisa J. Banks, a named partner in Washington, D.C.’s Katz, Marshall & Banks LLP; Peter J. Cahill, Executive Director and Associate General Counsel at Ernst & Young LLP in New York; Diane Dann, Senior Vice President of Employment Law at Mastercard Inc. in Purchase, N.Y., and Kathleen McKenna, a partner at event host Proskauer, took the stage to focus on practical guidance for designing workplace disputes programs in the midst of the #MeToo movement.

The panelists discussed the legal, business and public relations implications for implementing employment disputes programs with mandatory arbitration in today’s climate.  They debated whether carving sexual harassment claims out of mandatory arbitration – like Microsoft, Uber and Lyft have done — is workable solution.

The employer-side and employee-side counsel agreed that the Tax Cuts and Jobs Act of 2017’s conditioned use of nondisclosure agreements (NDAs) in sexual harassment suits may make it harder to settle these types of claims.  Because the law attempts to disincentive the use of NDAs without regard to the wishes of the victim, it forces the parties to find work-arounds to the law where (as often happens) victims do not wish to have these disputes resolved publicly.  The panelists explained that most victims don’t want to be Gretchen Carlson — the journalist and advocate who brought a 2016 sexual harassment complaint against the chairman of Fox News – but instead want to move on with their lives without calling attention to the situation.

Panelists seemed to agree generally that incorporating opt-in or opt-out clauses into workplace dispute resolution programs might be a useful tool for assault victims who aren’t interested in publicly calling out their attackers.

Some tips for preventing sexual harassment in the workplace that the panel discussed included thoroughly vetting new hires’ pasts; evaluating the corporate culture from the top down; training bystanders who witness harassment to report it, and serving less alcohol – and more water — at business functions.

The panelists concluded that the #MeToo movement is broader than just sexual harassment – it has challenged how women are treated in the workplace and how they are compensated.

The program was followed by a networking cocktail reception.

 

Hershenberg is Vice President of Programs and Public Policy at the CPR Institute. Higgins is a CPR Institute Summer 2018 intern.

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.”

.

 

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

Future Challenges Nixed? Thomas Writes That Public Policy is Not FAA Illegality

By Russ Bleemer

There were two opinions in addition to the five-justice majority opinion this morning in Epic Systems Corp. v. Lewis, No. 16-285, covering three consolidated cases that declared that employers may require their employees to use mandatory individual arbitration to resolve workplace disputes, and waive their rights to class processes in either traditional litigation class actions, or in class arbitration processes.

[Our first blog post on the majority opinion here: https://bit.ly/2KEuXFN  Opinion here: https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf.%5D

Justice Clarence Thomas, who joined the majority, wrote separately to explain why he believes that the Federal Arbitration Act Sec. 2 savings clause relied upon by the employees didn’t apply.

Thomas’s concurrence explains that the Sec. 2 ground for revocation of an arbitration agreement—“valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U. S. C. §2)—concern the contract’s formation.

But the employees, Thomas writes, said the National Labor Relations Act makes the class waivers illegal, which is a public policy defense.

Because “‘[r]efusal to enforce a contract for public-policy reasons does not concern whether the contract was properly made,’ the saving clause does not apply here,” according to Thomas, quoting his concurrence in AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 353, 357 (2011).

The position is a significant distinction and expands the majority opinion’s view that there was no Sec. 2 violation because the National Labor Relations Board interfered with a fundamental attribute of arbitration, also from AT&T Mobility.  Thomas’s position could be used by the Court to reject future challenges to arbitration contracts.

AT&T Mobility was the case in which the Court permitted mandatory individual arbitration with class waivers in consumer contracts.  Today’s Epic Systems decision mirrors AT&T Mobility in the workplace.

More on the Justice Ruth Bader Ginsburg-authored dissent soon.

 

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

U.S. Supreme Court Grants Cert to Decide “Who Decides” “Independent Contractor” Employment Arbitration Case

Kantor Photo (8-2012)By Mark Kantor

On February 26, the US Supreme Court granted certiorari to hear New Prime Inc. v. Oliveira, Case No. 17-340, a 1st US Circuit Court of Appeals decision in which the appeals court ruled on two questions: (1) Whether, under a contractual arrangement where the parties have delegated arbitrability questions to the arbitration, a court facing a motion to compel arbitration must first decide whether the US Federal Arbitration Act (FAA) covers or excludes the dispute or instead leave that question to be decided first by the arbitrators and (2) does the provision of Sec. 1 of the FAA excluding contracts of employment of transportation workers  from arbitration apply to an agreement that purports to establish an independent contractor relationship rather than an employer-employee relationship.

This case raises two questions of first impression in this circuit. First, when a federal district court is confronted with a motion to compel arbitration under the Federal Arbitration Act (FAA or Act), 9 U.S.C. §§ 1-16, in a case where the parties have delegated questions of arbitrability to the arbitrator, must the court first determine whether the FAA applies or must it grant the motion and let the arbitrator determine the applicability of the Act? We hold that the applicability of the FAA is a threshold question for the court to determine before compelling arbitration under the Act. Second, we must decide whether a provision of the FAA that exempts contracts of employment of transportation workers from the Act’s coverage, see id. § 1 (the § 1 exemption), applies to a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship. We answer this question in the affirmative.

Oral argument in the matter will occur during the Fall term of the Supreme Court.

The underlying contractual agreements are easily summarized (footnotes omitted):

Among the documents Oliveira signed was an Independent Contractor Operating Agreement (the contract) between Prime and Hallmark.3 The contract specified that the relationship between the parties was that “of carrier and independent contractor and not an employer/employee relationship” and that “[Oliveira is] and shall be deemed for all purposes to be an independent contractor, not an employee of Prime.”4 Additionally, under the contract, Oliveira retained the rights to provide transportation services to companies besides Prime,5 refuse to haul any load offered by Prime, and determine his own driving times and delivery routes. The contract also obligated Oliveira to pay all operating and maintenance expenses, including taxes, incurred in connection with his use of the truck leased from Success. Finally, the contract contained an arbitration clause under which the parties agreed to arbitrate “any disputes arising under, arising out of or relating to [the contract], . . . including the arbitrability of disputes between the parties.”6

Ultimately, Oliveira filed a class action in US District Court against Prime notwithstanding the arbitration clause.  Oliveira alleged that Prime violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, as well as the Missouri minimum-wage statute, by failing to pay its truck drivers minimum wage. Oliveira also asserted a class claim for breach of contract or unjust enrichment and an individual claim for violation of Maine labor statutes.  Prime moved to compel arbitration under the FAA.

The provision of the FAA at issue in this dispute is Section 1, which excludes from the coverage of the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Section 1 of the FAA provides that the Act shall not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. § 1. The Supreme Court has interpreted this section to “exempt[] from the FAA . . . contracts of employment of transportation workers.”

On the “who decides” issue, the Court of Appeals held in New Prime Inc. v. Oliveira that the courts, rather than the arbitrators, are the proper place to decide whether these disputes are covered by, or exempted from, the FAA.  Having decided the “who decides” question to place the resolution in the courts, the appellate judges then concluded that, on the particular facts of the case, “a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship is a contract of employment under § 1,” and thus excluded from the FAA.

Given the dramatic increase in “independent contractor” agreements in the workplace over the last decades, this case may determine whether a large variety of labor disputes are heard in court or may instead be subjected to mandatory arbitration agreements.  The Scotusblog.com case page with the appellate decision and cert filings is here – http://www.scotusblog.com/case-files/cases/new-prime-inc-v-oliveira/.

 

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.