UPDATED/No Class: Supreme Court Reverses Ninth Circuit On State Law Over FAA

By Echo K.X. Wang and Russ Bleemer

The U.S. Supreme Court this morning re-affirmed that if parties want class arbitration, they need to contract for it.  Specifically.

The Court today issued a long-anticipated opinion for Lamp Plus Inc. v. Varela, No. 17-988 (April 24) (available on the Court’s website at The decision is available on the Supreme Court website at http://bit.ly/2GxwFbC), holding that as a “fundamental arbitration” question, ambiguity in a contract “cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.”

The 5-4 decision by Chief Justice John G. Roberts Jr. reverses a Ninth U.S. Circuit Court of Appeals decision that used a California state law interpretation to allow a class arbitration.  The divided appellate panel opinion inferred mutual assent to class arbitration from language in the parties’ agreement.

But the statutory interpretation principle deployed by the appeals court, relying on public policy, was rejected. “[C]lass arbitration, to the extent it is manufactured by [state law] rather than consen[t], is inconsistent with the FAA,” wrote Roberts, adding,

We recently reiterated that courts may not rely on state contract principles to ‘reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.’ . . . . But that is precisely what the court below did, requiring class arbitration on the basis of a doctrine that ‘does not help to determine the meaning that the two parties gave to the words, or even the meaning that a reasonable person would have given to the language used.’ 3 Corbin, Contracts §559, at 269–270. Such an approach is flatly inconsistent with “the foundational FAA principle that arbitration is a matter of consent.  . . .

In that key passage, Roberts cited three seminal class arbitration cases to back up his point: AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011) (available at https://bit.ly/2KJc8RE), Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (available at https://bit.ly/2rWzAE8), and on the last point, the key Court case rejecting class arbitration unless it was permitted in the parties’ contract, Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010) (available at http://bit.ly/2Pp3Jq4).

The chief justice began and ended the opinion emphasizing Stolt-Nielsen.

Today’s Lamps Plus decision demonstrates the court’s profound conservative-liberal split. There are four dissents—the first by Justice Ruth Bader Ginsburg, joined by Justices Stephen G. Breyer and Sonia Sotomayor; two solo dissents by Breyer and Sotomayor, and the last by Justice Elena Kagan, joined by Breyer and Ginsburg, and, for one part of the opinion, Sotomayor.

Kagan’s 14-page opinion, the longest of the dissents, rejects the Court’s Stolt-Nielsen backing and suggests it’s a screen for the majority’s own preferences. She writes that the Lamps Plus holding “is rooted instead in the majority’s belief that class arbitration ‘undermine[s] the central benefits of arbitration itself.’ But that policy view—of a piece with the majority’s ideas about class litigation—cannot justify displacing generally applicable state law about how to interpret ambiguous contracts.” [Citations omitted.]

Kagan writes that the Ninth Circuit applied a neutral interpretation rule in dealing with an ambiguity.

But Roberts rejected her reasoning in the majority opinion, the only dissent discussed beyond the footnotes in his majority opinion.  He cites AT&T Mobility for the principle that the interpretation “interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”  He states that the same rule applies in Lamps Plus: “[The] rule cannot be applied to impose class arbitration in the absence of the parties’ consent.”

Roberts continues:

Our opinion today is far from the watershed Justice Kagan claims it to be. Rather, it is consistent with a long line of cases holding that the FAA provides the default rule for resolving certain ambiguities in arbitration agreements. For example, we have repeatedly held that ambiguities about the scope of an arbitration agreement must be resolved in favor of arbitration. See, e.g., [Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614 (1985 (available at http://bit.ly/2VmubpU); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 24–25 (1983) (available at http://bit.ly/2VhK0OE)%5D. In those cases, we did not seek to resolve the ambiguity by asking who drafted the agreement. Instead, we held that the FAA itself provided the rule. As in those cases, the FAA provides the default rule for resolving ambiguity here.

Justice Clarence Thomas wrote a separate concurrence noting that he remains skeptical of the Court’s use of the Federal Arbitration Act to preempt state law, but concurs in the majority opinion because of its backing of the Epic Systems and AT&T Mobility precedents.

* * *

 

Lamps Plus, the last of three arbitration cases to be decided in the Court’s current term, resolves a circuit splits between the Ninth and the Sixth, Third and Fifth Circuits on whether an arbitration agreement can be read to permit class wide arbitration where the agreement is silent on the matter. Compare, e.g., AlixPartne LLP v. Brewington, 836 F.3d 543, 547 (6th Cir. 2016), with Varela v. Lamps Plus Inc., No. 16-56085, 701 F. App’x 670, 673 (9th Cir. 2017)(unpublished)(available at http://bit.ly/2W66tv1), cert. granted, 138 S. Ct. 1697 (2018).

The case marks a return to a class arbitration issue after the Court’s first two 2018-2019 cases were mostly focused on other Federal Arbitration Act areas.  Both were decided in January:

  • Henry Schein v. Archer & White Sales, 139 S.Ct. 524 (Jan, 8, 2019) (available at https://bit.ly/2CXAgPw), mandating that arbitrators, rather than the courts, decide whether a case should be arbitrated in the face of an allegation that an argument for arbitration is “wholly groundless,” and
  • New Prime v. Oliveira, No. 17–340 (Jan. 15) (available at https://bit.ly/2JnrFWf), which enforced an FAA exclusion from arbitration a pre-dispute agreement with independent contractors who work in interstate transportation.

The Lamps Plus issue was “[w]hether 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.”

In its statement on the question presented, the Court invoked its best-known class arbitration case, Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., which it noted held that a court could not order arbitration to proceed using class procedures unless there was a “contractual basis” for concluding that the parties have “agreed to” class arbitration. 559 U.S. at 684. The Court’s introduction to the Lamps Plus issue explained that courts may not “presume” such consent from “mere silence on the issue of class arbitration” or “from the fact of the parties’ agreement to arbitrate.” Id. at 685, 687.

That presumption carried today’s opinion, which focused on arbitration agreement ambiguity, rather than silence. The Ninth Circuit majority had inferred mutual assent to class arbitration, according to Lamps Plus’s court papers, from language stating that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings” and a description of the substantive claims subject to arbitration.

Plaintiff Frank Varela, filed suit in 2016 against his employer, Lamp Plus Inc., a Chatsworth, Calif., home lighting retailer. Varela, who had worked at the company for nine years, has signed documents as a condition of his employment, including an arbitration agreement.  He also provided personal information to Lamp Plus prior to starting his job.

In March 2016, Lamp Plus was subject to a phish scam attack, resulting in sensitive personal information, such as employee tax forms for 1,300 Lamp Plus current and former employees, to be sent to a third party. As a result of the breach, Varela’s 2015 income tax was fraudulently filed with the stolen information.

Varela initiated a class action suit in California’s Central District state court on behalf of current and former employees affected by the breach, asserting both statutory and common law claims for the data breach, negligence, contract breach, and invasion of privacy. Lamp Plus moved to compel individual arbitration.

The court interpreted the contract under California state law and granted Lamp Plus’s motion compel to arbitration. The court, however, found ambiguities about whether class arbitration is permissible under the employer-drafted agreement. Varela v. Lamp Plus Inc., 2016 WL 9110161, at *7 (C.D. Cal. July 7, 2016), aff’d, No. 16-56085, 701 F. App’x 670, 673 (9th Cir. 2017)(unpublished)(available at http://bit.ly/2W66tv1).

Lamp Plus argued that the arbitration should be compelled on an individual basis, because since the agreement does not mention class arbitration, there was “no contractual basis for finding that the parties intended to arbitrate on a class-wide basis.” Id. at *6. Relying on Stolt-Nielsen, Lamp Plus contended that if an arbitration clause is “silent” as to class arbitration, that parties cannot be compelled to submit their disputes to class arbitration. Id.

The district court rejected this argument. The district court distinguished the case from Stolt-Nielsen by interpreting the “silence” in Stolt-Nielsen to mean an “absence of agreement” rather than the absence of language within an agreement that explicitly refers to class arbitration (“The lack of an explicit mention of class arbitration does not constitute the ‘silence’ contemplated in Stolt-Nielsen, as the parties did not affirmatively agree to a waiver of class claims in arbitration.”) Lamp Plus, 2016 WL 9110161, at *7.

The court then found that the arbitration agreement was ambiguous as to the class claim, and interpreted the ambiguity against the contract drafter, noting that “the drafter of an adhesion contract must be held responsible for any ambiguity in the agreement”. Lamp Plus, 2016 WL 9110161, at *7 (citing Jacobs v. Fire Ins. Exch., 36 Cali. App. 4th 1258, 1281 (1995)).  Accordingly, the district court granted Lamp Post’s motion to compel arbitration, but compelled arbitration on a class-wide basis rather than an individual basis.

Lamp Plus appealed to the Ninth U.S. Circuit Court of Appeals. Before a panel of Senior Circuit Judge Ferdinand F. Fernandez, Circuit Judge Kim M. Wardlaw, and the late Circuit Judge Stephen Reinhardt, Lamps Plus argued that the parties did not intend to permit class arbitration.

In an unpublished opinion, the Circuit court affirmed the district court decision authorizing class proceedings. Varela v. Lamps Plus Inc., No. 16-56085, 701 F. App’x 670, 673 (9th Cir. 2017)(unpublished)(available at http://bit.ly/2W66tv1). Judge Fernandez authored a short dissenting opinion, in which he opined that the majority opinion as a “palpable evasion of Stolt-Nielsen.”  Id.

Lamp Plus then petitioned and was granted certiorari at the Supreme Court. Oral argument was heard on Oct. 29, 2018 (a transcript of the oral argument is available at https://bit.ly/2FukX2d).

Between the grant of certiorari and the oral argument, several organizations filed amicus curiae briefs to the Supreme Court in favor of reversing the Ninth Circuit decision, including the U.S. Chamber of Commerce, the New England Legal Foundation, the Retail Litigation Center, Inc., the Voice of the Defense Bar, and the Center for Workplace Compliance. Friend-of-the-court briefs in favor of Respondent Varela were filed by a group of contract law scholars, and the American Association for Justice. The amicus curiae briefs can be accessed from https://bit.ly/2Ojt44n.

* * *

In his brief 13-page majority opinion, Chief Justice Roberts first disposes of a late-in-the-litigation motion Varela challenging both the Ninth Circuit’s and the Supreme Court’s jurisdiction over the case. The opinion states that the determination of class over individual arbitration affects a fundamental characteristic of arbitration, and the result did not provide the defense what it sought—therefore, a final and appealable decision.

The meat of the majority opinion was reserved for the Ninth Circuit’s examination of California state law, which allowed for the class arbitration determination. It accepted the lower court’s state law “interpretation and application” that the agreement “should be regarded as ambiguous.”

But ambiguity from the state law statute wasn’t enough—“a conclusion,” Roberts writes, “that follows directly from our decision in Stolt-Nielsen.” He continues:

Class arbitration is not only markedly different from the “traditional individualized arbitration” contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration. [Citing Epic Systems and Stolt-Nielsen.] The statute therefore requires more than ambiguity to ensure that the parties actually agreed to arbitrate on a classwide basis.

Roberts notes that in carrying out the parties’ arbitration contracting wishes and intent, courts must “recognize the ‘fundamental’ difference between class arbitration and the individualized form of arbitration envisioned by the FAA,” again citing Epic Systems, AT&T Mobility and Stolt-Nielsen.  Noting that class arbitration lacks the benefits of lower costs, greater efficiency and speed—“‘crucial differences’ between individual and class arbitration”—mutual consent is needed.

The opinion states that Stolt-Nielsen’s reasoning on silence being insufficient to infer class arbitration applies to ambiguity, too. “This conclusion aligns with our refusal to infer consent when it comes to other fundamental arbitration questions,” Roberts writes.

The chief justice explains that the Ninth’s Circuit’s use of the contra proferentem doctrine—construe the ambiguous document against the drafter—produced the result in favor of class arbitration. But the doctrine should only be invoked where “a court determines that it cannot discern the intent of the parties.” (The emphasis is Roberts’.)

Class arbitration provided by state law, explains Roberts, is inconsistent with the Federal Arbitration Act. “The general contra proferentem rule cannot be applied to impose class arbitration in the absence of the parties’ consent,” the chief justice concludes.

* * *

In addition to Justice Thomas’s concurrence, and Justice Kagan’s dissent, Justice Ruth Bader Ginsburg joined Kagan’s opinion but writes separately “to emphasize once again how treacherously the Court has strayed from the principle that ‘arbitration is a matter of consent, not coercion,’” also citing to Stolt-Nielsen at 681.

Decrying the Court’s use of mandatory arbitration in consumer disputes, Ginsburg says that the majority’s Lamps Plus decision “underscores the irony of invoking ‘the first principle’ that “arbitration is strictly a matter of consent,” citing to the majority opinion.

Invoking her own dissents in three cases, among others, Ginsburg concludes that “mandatory individual arbitration continues to thwart ‘effective access to justice’ for those encountering diverse violations of their legal rights,” and repeats her Epic Systems dissent calling on Congress to intervene.

* * *

Justice Stephen G. Breyer joined in the Kagan and Ginsburg dissents, but also provides a nine-page analysis disputing the Court’s quick work on the jurisdiction question.

Breyer writes that the case should be arbitrated as determined by the California courts. “[T]he appellate scheme of the FAA reflects Congress’ policy decision that, if a district court determines that arbitration of a claim is called for, there should be no appellate interference with the arbitral process unless and until that process has run its course,” he writes.

Breyer notes later that Lamps Plus successfully obtained appellate review by “transform[ing]” an interlocutory order in a final decision.

* * *

Justice Sonia Sotomayor also joined Justices Ginsburg’s and Kagan’s separate dissents, but added her view that the Court’s class arbitration view is, at best, highly confused.  She began:

This Court went wrong years ago in concluding that a “shift from bilateral arbitration to class-action arbitration” imposes such “fundamental changes,” Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662, 686 (2010), that class-action arbitration “is not arbitration as envisioned by the” Federal Arbitration Act (FAA), AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 351 (2011). See, e.g., id., at 362–365 (Breyer, J., dissenting). A class action is simply “a procedural device” that allows multiple plaintiffs to aggregate their claims, 1 W. Rubenstein, Newberg on Class Actions § 1:1 (5th ed. 2011), “[f]or convenience . . . and to prevent a failure of justice,” Supreme Tribe of Ben-Hur v. Cauble, 255 U. S. 356, 363 (1921).

Sotomayor says that the FAA should not preempt a “neutral principle of state contract law,” at least not in this instance. She concludes, “[T]he majority today invades California contract law without pausing to address whether its incursion is necessary. Such haste is as ill-advised as the new federal common law of arbitration contracts it has begotten.”

 

* * *

Wang was a Spring 2019 CPR Institute intern, and a student at Brooklyn Law School. Bleemer edits Alternatives, which the CPR Institute publishes. See altnewsletter.com.

 

US District Court Grants Appellate Arbitration Panel Award the Same Deference under FAA Jurisprudence

By Mark Kantor

Kantor Photo (8-2012)

There are very few court decisions addressing the impact of an appellate review process administered by the arbitral institution that administered the underlying arbitration.  On February 14, Judge Paul Crotty of the U.S. District Court for the Southern District of New York issued an opinion in a case in which an American Arbitration Association (AAA) appellate arbitration panel had reversed the decision of the AAA original arbitrator, Hamilton v. Navient Solutions, LLC., No. 18 Civ. 5432 (PAC) (S.D.N.Y. February 14, 2019), available on TDM at https://www.transnational-dispute-management.com/legal-and-regulatory-detail.asp?key=21638 (subscription required).  Judge Crotty upheld the decision of the appellate arbitral panel, giving it the same deference as is customary for arbitration awards generally under the Federal Arbitration Act.

The underlying dispute involved a situation in which Ms. Hamilton, a student loan borrower, claimed that Navient, a collection company, had breached a U.S. Federal statute limiting collection calls relating to unpaid loans (the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227).  After Ms. Hamilton had expressly sought to revoke her consent to such calls, Navient nevertheless made an additional 237 calls to her (yikes!) using autodialer technology.

Ms. Hamilton brought an arbitration claim against Navient for harassment under the AAA arbitration agreement in her student loan documents.  That arbitration agreement included a reference to the AAA’s Optional Appellate Arbitration Rules (available at https://www.adr.org/sites/default/files/AAA%20ICDR%20Optional%20Appellate%20Arbitration%20Rules.pdf).

Ms. Hamilton had apparently consented in her student loan documents to being called by a collection company.  After she defaulted on her loan payments, Navient then began using an autodialer to call her repeatedly as part of its collection efforts.  However, after being called a number of times, Ms. Hamilton contacted Navient and sought to revoke her consent to be called.  Navient [here, NSL] and Ms. Hamilton stipulated as follows.

  1. On April 21, 2016, Ms. Hamilton instructed one of NSL’s call-center agents to stop calling her on her cellular telephone.  She was advised that she would be “taken off the autodialer.”
  2. On April 21, 2016, NSL’s call-center agent updated NSL’s system of record to update Ms. Hamilton’s autodial consent permission from “Y” to “N.”
  3. After the conversation on April 21, 2016 NSL no longer possessed Ms. Hamilton’s consent to place calls to her cellular telephone using an automatic telephone dialing system.
  4. NSL called Ms. Hamilton’s cellular telephone number two hundred thirty-seven (237) times after April 21, 2016.

In reliance on that stipulation, the sole arbitrator in the arbitration decided that Ms. Hamilton had properly revoked her consent for Navient to call, consistent with the TCPA.  The arbitrator therefore held Navient liable for damages on that basis.  However, after the hearing in the arbitration but before the arbitrator had issued the award, the U.S. Court of Appeals for the Second Circuit issued an opinion concluding that the TCPA did not permit unilateral revocation of a prior consent to be called.

On June 22, 2017, the U.S. Court of Appeals for the Second Circuit held in Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017), that the TCPA does not permit a party to unilaterally revoke consent that was made as part of a bargained-for exchange, rather than gratuitously.

Promptly after the Reyes decision was released, Navient emailed the arbitrator, asking that the record in the arbitration be reopened to consider the potentially dispositive effect of Reyes on Ms. Hamilton’s claim.  The arbitrator, though, denied Navient’s request and, the next day, issued the award in favor of Ms. Hamilton.

On June 27, 2017, the arbitrator denied Navient’s request to reopen the record because Navient had stipulated that it “no longer possessed Ms. Hamilton’s consent to place calls to her cellular telephone using an automatic telephone dialing system” and “[r]evocation of consent by [Hamilton] [wa]s . . . not an issue presented for decision in this arbitration.”

Navient appealed under the AAA Optional Appellate Procedure.  Considering the impact of Reyes on the stipulation, the 3-person appellate arbitration panel held that Ms. Hamilton’s consent was, by operation of the Reyes decision, not unilaterally revocable.  The appellate panel therefore overturned the part of the initial arbitrator’s award giving effect to that revocation of consent, and awarded in favor of Navient.

On July 5, 2017, Navient filed a Notice of Appeal of the award to a three-judge arbitration panel, and on November 17, 2017, the arbitration panel denied Hamilton’s motion to dismiss the appeal. …  The arbitration panel issued a final award on March 19, 2018, finding that under Reyes, Hamilton’s “consent was not revocable, and her withdrawal of consent was null and void,” reversing and vacating the portion of the initial award ruling in Hamilton’s favor, and affirming the initial award ruling in favor of Navient the outstanding balance of the Loan — $12,512.72.

Ms. Hamilton then turned to the District Court seeking to vacate the appellate award, arguing that the appellate arbitration panel had exceeded its powers and manifestly disregarded the law by vacating the initial award in her favor and awarding instead in Navient’s favor.  Judge Crotty, however, applied the traditional test under Federal Arbitration jurisprudence, that “a district court’s role in reviewing an arbitral award is “narrowly limited,” and requires “great deference” to arbitrators’ determinations.”  He declined to vacate the appellate arbitration award.

Navient did not believe or agree that Hamilton was permitted to unilaterally revoke the consent she gave in her student loan agreement.  The arbitration panel did not exceed its powers or act improperly in applying Reyes.

The arbitration panel also did not manifestly disregard the law in this case.  To the contrary, rather than “willfully flout[ing] the governing law by refusing to apply it,” …, the arbitration panel applied a Second Circuit holding to conclude that the factual stipulation regarding withdrawal of consent had no legal impact.   The arbitration panel did not ignore a clear law, but rather obeyed one. ….   Moreover, even if the Court believed that Reyes was ambiguous (it does not), application of an ambiguous legal standard would still not constitute manifest disregard.

(Citations and footnotes omitted.)

The District Court therefore confirmed the award as modified by the appellate arbitration panel.

The noteworthy aspect of Hamilton v. Navient for us is that the District Court made no distinction for purposes of judicial review between an initial arbitration award and an award as modified by an appellate arbitration panel.  The appellate panel had the last word under the AAA’s Optional Appellate Arbitration Rules, and the Court gave effect to that structure without a second thought.

_______________________________________________

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.

Implications of Henry Schein and New Prime US Supreme Court Decisions

By Mark Kantor

Kantor Photo (8-2012)

As you know, the US Supreme Court has now issued its opinions in two of the three arbitration-related cases it heard this Term, the 8-0 (with an additional short concurrence by Justice Ginsburg) unanimous decision authored by Justice Gorsuch in New Prime Inc. v. Oliveira and the 9-0 unanimous decision authored by Justice Kavanaugh in Henry Schein v. Archer & White Sales.  Only Lamps Plus Inc. v. Varela remains to be decided this Term (Question Presented: whether the Federal Arbitration Act (FAA) overrides a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements).

The headlines in those decisions relate to excluding from the FAA obligation to enforce arbitration any pre-dispute agreements with independent contractor transportation workers (New Prime v. Oliveira) and the rejection of a “wholly groundless” exception to a court’s obligation to allow the arbitral tribunal to decide jurisdictional disputes where the parties have “clearly and unmistakably” allocated that authority to the arbitrators (Henry Schein v. Archer & White Sales).  But there are other implications of those decisions to which we should pay attention.

First, with respect to the decision in Henry Schein and as discussed on the listserv, the lower courts had relied on the competence-competence Rule 7(a) in the AAA Commercial Arbitration Rules to conclude that the parties had “clearly and unmistakably” allocated that decision-making power to the arbitrators, as required by First Options of Chicago, Inc. v. Kaplan.  However, the Henry Schein Court stated:

We express no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator.  The Court of Appeals did not decide that issue.  Under our cases, courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options, 514 U. S., at 944 (alterations omitted).  On remand, the Court of Appeals may address that issue in the first instance, as well as other arguments that Archer and White has properly preserved.

As has been explained by others, there is an existing Circuit split as to whether a competence-competence provision in arbitration rules is sufficient to satisfy the First Options standard.  Moreover, Prof. George Bermann’s amicus brief on that issue, reflecting the view of the draft Restatement that a provision within the arbitration rules should not by itself be sufficient, triggered critical questioning by the Justices (particularly Justice Ginsburg) at the case’s oral argument.  That issue was not, however, part of the Question Presented on which the Supreme Court had granted certiorari for review.  It thus appears the Justices are preparing themselves to resolve that Circuit split in a future case.  In that regard, you may recall my October 31 post (see below, triggered by Prof. Bermann’s amicus brief) asking whether that question will be “the Next Big Arbitration Issue”.

Second, the New Prime decision makes clear that independent contractors may nevertheless be transportation “workers” with “employment agreements” who cannot be bound by a pre-dispute arbitration agreement enforceable under the FAA.  Mr. Oliveira himself is an independent trucker.  But I suggest to you the bigger practical impact will be to reinvigorate class actions in US courts brought by Uber and Lyft drivers against their respective ride-sharing employers.  Many of those judicial class actions had been dismissed in favor of arbitration due to mandatory arbitration clauses in the drivers’ independent contracts with the ride-sharing companies.

Similarly, seamen on shipping and fishing vessels and working personnel on cruise ships are not often employees of their shipping companies, fishing vessels or cruise lines etc.  Instead, they are regularly engaged under independent contractor agreements containing arbitration clauses.  There too, we can anticipate a resurgence of claims in US courts, rather than in arbitration, including possible class actions against shipping companies and cruise lines on various compensation, hiring and firing, and working conditions issues.  Unlike ride-sharing companies, though, those maritime companies generally operate internationally.  Consequently, we may anticipate as well that even more of those maritime companies will specify in their employment/independent contractor agreements an arbitration situs outside FAA jurisdiction, such as the many maritime employment arbitrations now being conducted in Caribbean seats.

Rail workers may also employ New Prime to move some disputes from arbitration to courts, although much of that field in the US is unionized under collective bargaining agreements for which arbitration is statutorily authorized outside the FAA.  Independent contractor relationships are less common.

But Justice Gorsuch may have gone further in his opinion.  He wrote:

Given the statute’s terms and sequencing, we agree with the First Circuit that a court should decide for itself whether §1’s “contracts of employment” exclusion applies before ordering arbitration. After all, to invoke its statutory powers under §§3 and 4 to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§1 and 2. The parties’ private agreement may be crystal clear and require arbitration ofevery question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

(Emphasis added)

It is certainly possible to interpret that statement to mean that a court must itself determine whether the arbitration agreement falls within or outside §2 of the FAA, not just FAA §1.  FAA Section 1 excludes, according to long-standing precedent, maritime transportation workers from the obligations of the court to stay litigation and compel arbitration.  But FAA §2, the basic provision of the FAA enforcing covered arbitration agreements, contains the well-known savings clause for “such grounds as exist at law or in equity for the revocation of any contract”:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

(Emphasis added)

The quoted language authored by Justice Gorsuch (and endorsed by seven other Justices) can be read to suggest that, regardless of any “clear and unmistakable” delegation of jurisdictional decisions to arbitrators by the contracting parties, a supervising court must itself determine whether a challenge to an arbitration agreement on grounds such as unconscionability, duress or mistake is successful before the dispute proceeds to arbitration; i.e., a challenge under FAA §2 on grounds that exist in law or equity for revocation of any contract.  Certainly, counsel for parties seeking to avoid an arbitral forum in favor of a judicial forum will seize upon that language in New Prime to try to place the dispute in the courts.  We do not know if that was what Justice Gorsuch intended, but we can therefore anticipate a string of US court cases addressing the “who decides” issue again from that perspective, ultimately returning to the US Supreme Court for further clarification.

There is also another important conceptual issue embedded in Justice Gorsuch’s New Prime opinion that may affect many other issues relating to the FAA.  Justice Gorsuch spent considerable effort in his opinion focusing on the original legislative intent in 1925 for the FAA.  For example, these selections from the opinion.

Why this very particular qualification?  By the time it adopted the Arbitration Act in 1925, Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

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In taking up this question, we bear an important caution in mind. “[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” Wisconsin Central Ltd. v. United States, 585 U. S. ___, ___ (2018) (slip op., at 9) (quoting Perrin v. United States, 444 U. S. 37, 42 (1979)). See also Sandifer v. United States Steel Corp., 571 U. S. 220, 227 (2014).  After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. Cf. 2B N. Singer & J. Singer, Sutherland on Statutes and Statutory Construction §56A:3 (rev. 7th ed. 2012).  Of course, statutes may sometimes refer to an external source of law and fairly warn readers that they must abide that external source of law, later amendments and modifications included. Id., §51:8 (discussing the reference canon).  But nothing like that exists here.  Nor has anyone suggested any other appropriate reason that might allow us to depart from the original meaning of the statute at hand.

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To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.

****

What’s the evidence to support this conclusion?  It turns out that in 1925 the term “contract of employment” wasn’t defined in any of the (many) popular or legal dictionaries the parties cite to us.  And surely that’s a first hint the phrase wasn’t then a term of art bearing some specialized meaning.  It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

What the dictionaries suggest, legal authorities confirm.  This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes.  And state statutes too.  We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

****

If courts felt free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to “tak[e] . . . account of ” legislative compromises essential to a law’s passage and, in that way, thwart rather than honor “the effectuation of congressional intent.” Ibid.  By respecting the qualifications of §1 today, we “respect the limits up to which Congress was prepared” to go when adopting the Arbitration Act. United States v. Sisson, 399 U. S. 267, 298 (1970).

****

When Congress enacted the Arbitration Act in 1925, the term “contracts of employment” referred to agreements to perform work.  No less than those who came before him, Mr. Oliveira is entitled to the benefit of that same understanding today.

****

(footnotes omitted)

As US arbitration practitioners are aware, the US Federal courts have for many decades strayed from the exact text of the FAA in the course of developing US federal arbitration law.  Instead, the Federal courts have developed a sort of “common law” of arbitration, building on their notions of how to fill legislative gaps or to find modern interpretations to effectuate the FAA’s purposes.  The most obvious example lies in the continuing Circuit split over the meaning of arbitrator “evident partiality” as a ground for vacatur of arbitration awards by arbitrators alleged to have conflicts of interest.  So too, the judicial presumption in favor of arbitration itself.  If Justice Gorsuch’s “1925 legislative intent” approach is applied to such issues, US arbitration jurisprudence on arbitrator conflicts, presumptions of arbitration and many other issues may be in for a vigorous shaking up.

Justice Ginsburg was attentive to the implications of this interpretive approach, although I rather doubt her primary focus was on FAA jurisprudence.  In her short concurrence to the unanimous opinion (in which she also joined), Justice Ginsburg pointed out a more flexible view for interpreting legislative meaning.

Congress, however, may design legislation to govern changing times and circumstances. See, e.g., Kimble v. Marvel Entertainment, LLC, 576 U. S. ___, ___ (2015) (slip op., at 14) (“Congress . . . intended [the Sherman Antitrust Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” (quoting Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 731‒732 (1988))); SEC v. Zandford, 535 U. S. 813, 819 (2002) (In enacting the Securities Exchange Act, “Congress sought to substitute a philosophy of full disclosure for the philosophy of caveat emptor . . . . Consequently, . . . the statute should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes.” (internal quotation marks and paragraph break omitted)); H. J. Inc. v. Northwestern Bell Telephone Co., 492 U. S. 229, 243 (1989) (“The limits of the relationship and continuity concepts that combine to define a [Racketeer Influenced and Corrupt Organizations] pattern . . . cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a ‘pattern of racketeering activity’ exists. The development of these concepts must await future cases . . . .”). As these illustrations suggest, sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.” West v. Gibson, 527 U. S. 212, 218 (1999).

These different approaches toward divining legislative meaning are part of the basic legal philosophy differences between the conservative and liberal wings of the Supreme Court.  Those differences will play out in many areas of US law but, in light of New Prime, one of them now may be the interpretation of the FAA.

_______________________________________________

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.

US Sup Ct: Will the “Next Big Arbitration Issue” Be Whether Provisions of Arbitration Rules Constitute Clear and Unmistakable Evidence That the Disputing Parties Allocated “Who Decides” Authority to the Arbitrators?

By Mark Kantor

Kantor Photo (8-2012)

The U.S. Supreme Court heard oral argument in two arbitration-related cases on Monday, Henry Schein Inc. v. Archer & White Sales Inc. and Lamps Plus Inc. v. Varela.  The issue before the Court in Henry Schein was whether or not there is a “wholly groundless” exception to the general Federal Arbitration Act caselaw rule that, if the parties have “clearly and unmistakably” allocated the “who decides” question to the arbitrators, then issues of jurisdiction/arbitrability are for the arbitrator to decide in the first instance, not the courts.

The facts of the Henry Schein case involved the relatively commonplace occurrence of a commercial arbitration agreement referencing arbitration rules (here, AAA Commercial Arbitration Rule 7(a)) that grant the arbitrators the power to decide their own jurisdiction.  The lower courts in Henry Schein, like many other Federal courts before them, concluded that provision of the Rules constituted “clear and unmistakable evidence” (as called for by the Supreme Court in First Options of Chicago, Inc. v. Kaplan) allocating the “who decides” authority to the arbitrators, and then proceeded to consider whether or not an exception to that allocation exists if the claim of arbitrability is “wholly groundless”.

The 5th Circuit Court of Appeals ruled below in Henry Schein that such a “wholly groundless” exception does exist.  Further, said the Court of Appeals, that “wholly groundless” exception applied in the dispute such that the Federal courts could refuse to compel arbitration in the circumstances.  The disappointed claimant then sought, and obtained, U.S. Supreme Court review on the question of whether such a “wholly groundless” exception to the “clear and unmistakable evidence” allocation rule exists under Federal arbitration law.

However, Prof. George Bermann of Columbia Law School, known to many of us as inter alia the chief reporter of the ALI’s Restatement of the U.S. Law of International Commercial and Investor-State Arbitration, felt moved to submit an amicus brief in Henry Schein questioning, not the issue expressly before the Court, but instead the underlying principle that incorporation of arbitration rules granting jurisdiction/arbitrability power to the arbitrators satisfies the “clear and unmistakable evidence” test for allocating “who decides” authority to the arbitrators .

Although a majority of courts have found the incorporation of rules containing such a provision to satisfy First Options’ “clear and unmistakable” evidence test, the ALI’s Restatement of the U.S. Law of International Commercial and Investor-State Arbitration has concluded, after extended debate, that these cases were incorrectly decided because incorporation of such rules cannot be regarded as manifesting the “clear and unmistakable” intention that First Options requires.

https://www.supremecourt.gov/DocketPDF/17/17-1272/65270/20181001112810079_REPRINT%20Amicus-GAB.pdf .

Many of the Supreme Court Justices commented that this issue of “clear and unmistakable evidence … due to incorporation by reference” was not part of the Question Presented on which the Supreme Court granted certiorari in Henry Schein.  Based on those comments, it seems unlikely that the eventual decision of the Court in Henry Schein will resolve the issue posed by Prof. Bermann.  Nevertheless, Justices from across the judicial spectrum commented respectfully regarding Prof. Bermann’s amicus argument.  See comments and questions of Justice Ginsburg, Tr. 7:16-23; Justice Breyer, Tr. 49:15-23; Justice Gorsuch, Tr. 42:13-20; Justice Sotomayor, Tr. 38:4-7; Justice Alito, Tr. 35:7-36:4.

Counsel for the Petitioner did take substantive issue with Prof. Bermann’s argument, in addition to arguing that the issue was not within the Question Presented and thus in any event not before the Court.

What is going on in this case, if you look at the four corners of the delegation -of the arbitration agreement **** is that the arbitration agreement by its terms incorporates the rules of the American Arbitration Association and it does so very clearly. That is a quite common arrangement, particularly in commercial arbitrations like the one at issue here.

Then, if you take a look at the rules of the American Arbitration Association, those rules, and, in particular, Rule 7(a), clearly give the arbitrator the authority to decide arbitrability.  And under this Court’s decision in First Options, the relevant inquiry is whether or not the parties were willing to be bound by the arbitrator’s determination on the issue in question.

And so, with all due respect to Professor Bermann and his amicus brief, the position that he propounds has been rejected by every court of appeals to have considered this issue.  And if the Court has any interest in this issue, I would refer the Court to the very thoughtful opinion of the Tenth Circuit in the Belnap case, which discusses this issue in some detail.

Tr. 8:9-9:13.

The transcript of the oral argument in Henry Schein, available at https://www.supremecourt.gov/oral_arguments/argument_transcripts/2018/17-1272_bqmc.pdf, is very much worth reading in this regard.

The arguably positive comments by some Justices in reaction to Prof. Bermann’s amicus argument create the possibility that opportunistic counsel in other cases will see a signal that raising the principle to the Supreme Court in a future case might be worth the effort.  Consequently, I suggest that the “Next Big Arbitration Issue” to come to the U.S. Supreme Court may be whether or not an arbitration agreement incorporating arbitration rules that include within themselves a provision authorizing the arbitrators to rule on their own competence satisfies the “clear and unmistakable evidence” test in First Options for allocating “who decides” authority to the arbitrators in the first instance.

By the way, reading the tea leaves in the Henry Schein oral argument, at least some observers believe the comments/questions of the Supreme Court Justices indicate that the Court is not inclined to validate a “wholly groundless” exception to the allocation of “who decides” authority to the arbitrators.  See, e.g., http://www.scotusblog.com/2018/10/argument-analysis-justices-signal-opposition-to-vague-exceptions-that-would-limit-enforceability-of-arbitration-agreements/#more-276785.

_______________________________________________

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.

Amicus Preview, Part 2: The Independent Contractors Want Their FAA Sec. 1 Exemption

By Sara Higgins and Russ Bleemer

The respondents’ amicus briefs urging the U.S. Supreme Court to affirm the First U.S. Circuit Court decision in New Prime Inc. v. Oliveira, No. 17-340, which was argued earlier this month, focus on statutory history and the plain meaning of the Federal Arbitration Act.

They argue that independent contractors are exempt from FAA application like other transportation workers under a “contract of employment.” That exemption is in the act itself, in Sec. 1, which states, “. . . nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In other words, the unions, scholars and think tanks excerpted below say the protections the 1925 FAA drafters provided to transportation employees also goes to independent contractors.  Some amicus argue that the term “employees” meant something different then than it means now.

One brief tackles the arbitrability issue that is before the Court, too. Though most amicus filers on both sides focused on the merits of whether the FAA applies to independent contractors, the source of the arbitrability decision–on whether the matter will be heard in arbitration to be made by either a court or an arbitrator–also is expected to be a part of the Supreme Court’s opinion.

The material below covers the respondents’ friend-of-the-court briefs backing independent truck driver Dominic Oliveira. For the petitioner’s briefs, which were filed first, as well as for background on the case and links to deeper dives into the facts and the issues, see the immediately previous CPR Speaks feature, Sara Higgins, “Amicus Preview: New Prime’s New Look at Mandatory Arbitration,” CPR Speaks (Oct. 2)(available at https://bit.ly/2zNqYUF).

In support of Respondent Oliveira:

  1. American Association for Justice
  • AAJ, which represents trial lawyers, offers a broad historical argument that says that the FAA Sec. 1 exemption from the law’s application includes all transportation workers, not just seamen and railway workers.
  • The Washington, D.C.-based association is concerned that the Federal Arbitration Act constructions by petitioner New Prime undermine the right of U.S. workers to pursue their statutory and common-law rights in a judicial forum.
  • AAJ believes it is clear that all workers in the transportation sector, whether “employees” or “independent contractors,” were meant to be exempted from the FAA.
  • New Prime’s narrow construction belies the FAA enactment history, Congressional intent, and basic principles of contract construction as applied by the Court and elsewhere. Independent vehicle owner-operators and others contracting to perform work themselves certainly existed at the time the FAA was passed, and had Congress not wished the exemption to apply to all who actually worked in the transportation sector, it would have said so.
  • That Congress meant to exempt all workers in the transportation section from the FAA– not limited or reliant upon how that worker happened to be paid—is consistent with the Court’s decisions and other Congressional action.
  • In historical context, the use of the term “contracts of employment” routinely included the “employment” of “independent contractor” drivers and, hence, is not meant to exclude any drivers from the benefit of the exception. The Sec. 1 exemption, which was urged by American Federation of Labor lobbyists at the 1925 FAA enactment, the brief notes, “would surely have included all members of one of its most important affiliates, the Teamsters.”
  1. Public Citizen, Inc.
  • The Washington consumer advocacy group, a frequent participant in federal arbitration litigation on behalf of consumers and employees, submits its amicus brief to address one of the two issues raised by petitioner New Prime: whether, when a contract contains an arbitration provision including a clause delegating questions of the arbitrability of a matter to an arbitrator, the FAA requires a court to compel arbitration of the issue whether the FAA even applies to the contract.
  • The brief notes that both the amicus and the parties focus more on the merits issue—that is, whether the FAA exemption applies to all transportation workers—and pay insufficient attention to the arbitrability issue before the Court.
  • Although New Prime’s argument—that the FAA requires a court to refer the issue of its own applicability to an arbitrator without first addressing a substantial argument that the FAA doesn’t not apply to the contract containing the delegation clause the court is being asked to enforce—seems counterintuitive, Public Citizen says its amicus brief addressing the issue may assist the Court in reaching a decision that adds clarity to arbitration law and helps define the limits of the Court’s rulings on the subject.
  • The FAA cannot, and does not, require a court to enforce any arbitration agreement unless the court determines that the FAA applies to that agreement.
  • “The requirement that a court decide whether the contract at issue is excluded from the FAA’s coverage by section 1 before ordering arbitration of any issue (including the section 1 issue itself) is critical, because any order compelling arbitration under the FAA is necessarily applying the FAA to give effect to a purported agreement to arbitrate. A court may not apply the FAA where the FAA itself provides that it is inapplicable.”
  • New Prime’s invocation of its delegation clause and the principle of “severability” cannot justify application of the FAA to a contract to which the FAA does not apply.
  1. Sheldon Whitehouse, D., R.I.
  • Whitehouse, a former state attorney general and U.S. Attorney, invokes Alexis de Tocqueville, Blackstone, and Machiavelli at the outset of his brief, which launches a broadside at the Court’s arbitration jurisprudence. He writes that he files the brief “to draw attention to the Court’s steady march of decisions eroding the Constitution’s Seventh Amendment protections and to warn of the Court’s perilous destabilization of its own institutional reputation.”
  • “Over the past decade,” states Whitehouse, “a predictable conservative majority of the Supreme Court has handed down an accommodating string of 5-4 decisions closing off ordinary citizens’ pathways to the courtroom. Corporate victories at the Supreme Court have undermined civil litigants’ constitutional right to have their claims heard before a jury of their peers, and have whittled to a nub the protective role courts and the jury system were designed to play in our society. Such victories have allowed corporations to steer plaintiffs out of courtrooms and into arbitration, where the odds can be stacked in favor of big business. The Court’s recent arbitration decisions regarding the [FAA], aggrandizing its reach and undermining the original purpose of the Seventh Amendment, are an example.”
  • “[T]his grant of certiorari has the same seeming inevitability as those 5-4 decisions in cases preceding it. Accordingly, amicus fears that the outcome of this case may be preordained—not by the FAA’s plain language, but instead by the trajectory of the recent pattern of 5-4 partisan decisions (decisions in which the Court divides 5-4 with the Republican-appointed majority voting as a bloc). With numbingly predictable inevitability, these cases seem to be won by the ‘more powerful and wealthy’ corporate citizens.”
  • Whitehouse’s legal arguments surrounded two key points in urging the Court to back the First Circuit: “A clear policy preference has emerged for denying citizens their day in court,” and the Court “compromises its legitimacy when it jettisons neutral principles to reach a desired outcome.”
  1. Historians
  • The amicus brief was prepared on behalf “scholars of American labor and legal history [who] have a professional interest in accurate and valid inferences from the historical record”: Shane Hamilton, University of York; Jon Huibregtse, Framingham State University; James Gray Pope, Rutgers Law School; Imre Szalai, Loyola University New Orleans College of Law; Paul Taillon, University of Auckland; and Ahmed White, University of Colorado School of Law.
  • By operation of the ejusdem generis canon, which indicates that a statutory provision should be interpreted in accordance with the words nearby—“of the same kind”–the FAA exemption’s residual clause (“any other class of workers”) does not cover only common law employees in the wake of the statute’s enumeration of railroad workers and seamen. If Congress had intended the FAA exemption to cover only common-law employees, as New Prime now reads it, Congress would have disrupted the statutory dispute resolution schemes for “seamen” and “railroad employees” that it had wanted to avoid unsettling.
  • Relying on more than three dozen agency determinations, the brief notes that the Transportation Act covered railroad workers who would not have counted as employees under the common law of agency. Similarly, shipping arbitration “covered ‘any question whatsoever’ in a seaman’s dispute, including those that did not turn on whether the seaman was anyone’s ‘employee’ under the common law of agency.”
  • The FAA would have disrupted the Transportation Act had it only exempted common-law employees. The theory appears to be that the FAA Sec. 1 exemption applies to independent contractors, which the brief barely mentions, though it notes that independent contractors were covered for railway workers disputes under the Transportation Act of 1920 and seamen disputes under the Shipping Commissioners Act of 1872.
  1. Constitutional Accountability Center
  • The Washington, D.C., think tank and public interest law firm, devoted to a progressive interpretation of the Constitution’s text and history, is concerned with “ensuring meaningful access to the courts, in accordance with constitutional text, history, and values.” Heavily citing numerous dictionary definitions, the Center argues that New Prime’s argument badly misinterprets the view of the definition of employees when the FAA was passed. The Center backs affirming the First Circuit interpretation.
  • When Congress enacted the FAA, “employment” was a broad and general term that did not connote a master-servant relationship. Dictionaries of the era, however, defined the word “employment” by consistently giving it a broad meaning—one that encompassed paying another person for his or her work, whether or not the common-law criteria for a master-servant relationship were satisfied. The word “employee” gradually influenced, and limited, the meaning of the term employment, but only well after the FAA was enacted.
  1. Massachusetts, et al.
  • Fourteen states and the District of Columbia filed an amicus brief because they state that they enforce laws that protect the public interest, including those that set fair labor standards and promote the health and safety of all working people. Employees who are misclassified as independent contractors are often denied many basic workplace protections and benefits that they are entitled to receive—and employers who fail to properly classify and pay their workers gain an unfair competitive advantage. The states and the District of Columbia “have an interest in seeing that transportation sector workers such as Respondent Dominic Oliveira get their day in court, as Congress intended.”
  • Because states have limited resources, they rely on individual employees to supplement the efforts of attorneys general through private enforcement actions. “And many transportation companies engage in exploitative labor practices while at the same time using mandatory arbitration agreements with unreasonable forum selection clauses to attempt to prevent their misclassified drivers from pursuing otherwise available legal remedies.”
  • The FAA Sec. 1 language of the transportation workers’ exemption excludes interstate truck drivers from the FAA’s scope, regardless of whether they are employees or independent owner-operators. This conclusion becomes especially clear in light of the history surrounding Congress’s regulation of leases between independent truck drivers and authorized motor carriers.
  • Both of New Prime’s arguments are foreclosed by the FAA’s plain language, read in its proper historical context.
  1. Employment Law Scholars
  • The amicus brief signers are 35 law professors who have taught and written about employment law. They submit this brief because they believe that the FAA should be construed consistent with how all other statutes and related case law treat issues of worker status.
  • Petitioner New Prime and its amicus supporters ask the Court to interpret contracts of employment as used in the FAA based solely on the labels used in particular contracts, drawing distinctions between independent contractors and employees where there is no sound basis to do so.
  • “Allowing worker status to be decided by contract would set the FAA apart from every other federal statute governing workers. It would lead to inconsistency and uncertainty in the workplace because worker status would vary based on contract or the label chosen for each worker.” In New Prime, it could jeopardize the Fair Labor Standards Act’s mission that “prevent[s] parties from contracting away employees’ rights to minimum wages and overtime compensation,” the brief notes, adding that the Court “must not, through the FAA, endorse this type of race to the bottom.”
  • Many federal and state statutory schemes do not distinguish between common law employees and independent contractors.
  • The reality of the working relationship, not the face of the contract, determines workers status under federal employment statutes.
  1. Owner-Operator Independent Drivers Association Inc.
  • The 45-year-old Grain Valley, Mo.-based association submitted its amicus brief to inform the court that owner-operator truck drivers are a class of workers engaged in interstate commerce, and how their lease agreements with motor carriers, such as petitioner New Prime, are contracts of employment as set out in the FAA Sec. 1 exemption.
  • The amicus brief is filed by the largest international trade association representing the interests of independent owner-operators, small-business motor carriers, and professional drivers. The association notes that the question of whether the contracts of owner-operators are subject to the FAA will determine whether owner-operators will continue to have any meaningful opportunity to protect their small businesses from the type of predatory behavior described in defendant Oliveira’s brief. “Especially important,” the association notes, “is the right to bring an action in federal court for damages and injunctive relief specifically granted to owner-operators by Congress in 1995.”
  • Congress looked to two factors when it formed FAA Sec. 1’s scope: “the maintenance of a smooth operating transportation system and Congressional concerns for enacting specific regulations governing the contracts of transportation workers.” The legislative and regulatory history demonstrates that motor carrier/owner-operator contracts are among those Congress exempted from FAA application by Sec. 1 to achieve the goals in the statute’s adoption: The “provision of different procedures and forums to resolve disputes under those contracts demonstrate precisely the type of contract for employment of persons engaged in interstate commerce that Congress intended to exempt from the FAA.”
  1. International Brotherhood of Teamsters, National Employment Law Project Inc., Economic Policy Institute, and National Employment Lawyers Association
  • Like AAJ and the state amicus briefs, the four-party amicus brief also is concerned about the misclassification of independent contractors by employers, which, among other things, cuts off employers’ responsibility for taxes and liability on behalf of and to their workers. The brief is concerned that a ruling in favor of petitioner New Prime would create incentives for more companies to misclassify their employees as independent contractors in order to evade worker protections.
  • The interest in this case by the amicus filers—a big union, an employment lawyers’ association that focuses on plaintiffs’ representation; an employees’ advocacy research organization, and an economics policy think tank–is to ensure that drivers involved in interstate commerce, including those classified as independent contractors, are afforded the FAA Sec. 1 exemption granted to contracts of employment in the transportation industry.
  • The brief also states that Prime’s errant suggestion that employment relationships under the FAA should be identified by the terms of the contract alone may affect misclassification analysis under other statutes.
  • Truck drivers, like respondent Oliveira, “are frequently misclassified by their employers as independent contractors. This treatment excludes drivers from basic labor and employment protections like the minimum wage, health and safety, and discrimination protections, to name a few.”
  • The brief says that the Supreme Court doesn’t need to determine whether Oliveira was misclassified by New Prime, “because he and the company entered into a contract of employment that should be exempt under the plain language of the Federal Arbitration Act.”
  • Alternatively, the brief argues, if the Court decides that the employee versus independent contractor relationship must be decided in order to determine FAA applicability, “it should take into account the independent contractor misclassification problems endemic in the trucking industry, the impacts on workers, other employers, and state budget and tax coffers, and on employers’ economic incentives to misclassify more drivers that will result.”
  • And if the Court finds that the contract-of-employment analysis requires a determination of whether a worker is an independent contractor, that determination must consider all incidents of the relationship and not be limited to the unilaterally imposed terms of the contract.
  • The FAA’s plain text shows that the Court should find that truckers’ independent contractor arrangements are “contracts of employment” and exempt from the FAA’s coverage. The brief emphasizes the policy consequences of a holding to the contrary.
  • Independent contractor misclassification and the unlawful and exploitative working conditions it engenders are rampant across the economy, but particularly prominent in the trucking sector.
  • Bad-actor employers misclassify works in attempts to avoid tax and other liability, imposing significant societal costs on the public, law-abiding employers, and workers.
  1. Statutory Construction Scholars
  • The amicus brief was written on behalf of 14 law school professors engaged in the teaching and study of statutory construction principles. They believe that a “shared commitment” to certain standards of analytical care “leads to only one conclusion in this case–that application of key canons of statutory construction” to the FAA contracts-of-employment language “applies to all transportation workers without exclusion of workers who are deemed to be independent contractors, and without the legally protected status of “employees.”
  • “The First Circuit’s opinion in Oliveira v. New Prime Inc., reflects a well-reasoned, thoughtful approach to statutory construction. Petitioner attempts to upend that decision and contorts the canons of statutory construction beyond their reasonable parameters in a miscarriage of justice.”
  • The petitioner’s conclusion that the FAA’s contracts-of-employment statutory exception is limited to only those with the legal status of “employees” is not sound.
  • First, the words in statutes are read in light of their ordinary, plain meaning. Those words, the brief notes, “are understood from the perspective of what was meant when they were drafted.” [Emphasis is in the brief.] The petitioner’s argument, “which rests on modern dictionary definitions instead of inquiring into the terms’ meaning at the time the FAA was enacted, fails to comply with those canons of statutory construction and should be disregarded.”
  • The ejusdem generis canon (see above) does not support limiting contracts of employment to employees.
  • Reading the residual exclusion of the FAA’s Sec. 1 to include all transportation workers does not negate FAA Sec. 2 language, which must be read independently because it has a different substantive mandate.

Steve Viscelli, et al.

  • Steve Viscelli is a University of Pennsylvania sociologist who studies work, labor markets, and public policy related to freight transportation, automation and energy. He submitted the brief to provide a better picture of the economic incentives at work in the trucking industry. He provides an analysis of trucking industry’s employment evolution to a “Lease-Operator” model from owner-operators in urging the Court to avoid requiring arbitration to settle employment disputes in the industry.
  • Viscelli is joined by six current or former owner-operators or Lease-Operator truck drivers, whose situations are used as examples in the brief. Also joining the brief as amicus parties is two nonprofits, the Wage Justice Center, a Los Angeles advocacy group for economic justice and fair pay, and REAL Women in Trucking Inc., a trade group that advocates for better working conditions (see http://www.realwomenintrucking.com).
  • The brief explains that New Prime, like other trucking firms, mostly now operates under a relatively new economic structure, the Lease-Operator model. The drivers lease their rigs directly from the company they work for, and often still may owe the company after they are paid for runs. The system often harms employees by misclassifying them as independent contractors.
  • “Because Lease-Operators lease a truck and pay for fuel, maintenance, and insurance, firms can potentially shift a significant amount of capital and operating costs to them, translating into much lower labor costs per unit of work. And, though Lease-Operators are often nominally free to choose what loads they haul, they are generally under greater pressure than employees to accept whatever work is offered to them and to spend more days working because they need to work many more hours per day and days per year to meet fixed expenses and then earn take-home pay at levels even close to what they would earn as company drivers.”
  • The FAA Sec. 1 exclusion prohibits courts from applying the statute to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The brief says that the Court should include the employment arrangements of drivers like respondent OIiveira, who are misclassified by their employers within the definition of contracts of employment.
  • “Workers who must arbitrate their claims are 59% less likely to win than those who take their case to federal court and 38% less likely to win than workers litigating in state courts. The median award in mandatory arbitration is 21% of the median award in the federal courts and 43% of the median award in the state courts. [Citations omitted.] . . . Employers who misclassify employees stand to gain significantly by using forced arbitration to resolve disputes. This Court should not read the FAA in a way that allows them to require arbitration of disputes about the nature of employment in the industry.”

Higgins was a 2018 CPR Institute summer intern and is a student at Northeastern University School of Law. Bleemer edits Alternatives to the High Cost of Litigation, published by the CPR Institute with John Wiley & Sons (see http://www.cpradr.org/news-publications/alternatives and altnewsletter.com).

US Sup Ct Grants Cert to Review Whether Courts Can Decline to Enforce Delegation of Arbitrability to Arbitrators When Court Concludes Arbitrability Claim is Wholly Groundless

By Mark Kantor

Kantor Photo (8-2012)

Continuing their now years-long effort to mold the relationship between the courts and arbitrators, the US Supreme Court today granted certiorari in Henry Schein Inc. v. Archer and White Sales Inc., No. 17-1272, to answer the question of “[w]hether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is “wholly groundless.””  In the lower appellate phase of this dispute, the US Court of Appeals for the 5th Circuit had ruled last December that Federal courts did indeed have the authority to do so.

Granting this cert petition will allow the Supreme Court to resolve a “Circuit split” on the issue between the Fourth, Fifth, Sixth, and Federal Circuits, holding on the one hand that Federal courts may decide an arbitrability issue if the claim for arbitrability is “wholly groundless,” and the Tenth and Eleventh Circuits, holding on the other hand that if there is a contractual delegation of arbitrability to the arbitrators then the courts must compel arbitration to resolve the arbitrability issue even if it appears to the court that the claim of arbitrability is entirely groundless.

The dispute will be argued in the October Term of the Court.

The case record for this matter, including the appeals court decision and the filings relating to certiorari, can be found on www.Scotusblog.com at http://www.scotusblog.com/case-files/cases/henry-schein-inc-v-archer-and-white-sales-inc/.

 

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.

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.

District Court Overrules Arbitrator’s Authority on Class Certification

By Ginsey Varghese

A recent decision in a long-running New York case permitting federal review of an arbitrator’s authority in class arbitration may have substantial implications for arbitration law.

In January, a New York Southern District Court decision vacated an arbitrator’s class certification award to protect the due process rights of more than 70,000 absent class members in a gender discrimination matter, Jock v. Sterling Jewelers Inc., No. 08 CIV. 2875, 2018 WL 418571 (S.D.N.Y. Jan. 15, 2018) (available at http://bit.ly/2EjEQWp).

U.S. District Court Judge Jed Rakoff held that the arbitrator exceeded her powers under the Federal Arbitration Act because an arbitrator cannot bind non-parties when the arbitration agreement does not allow class-action procedures. Id. at 2018 WL 418571, at *5; 9 U.S.C. §10(a)(statute available at http://bit.ly/120BmfV).

The FAA authorizes vacatur in four limited circumstances, one of which Rakoff employed in this case, “where the arbitrators exceeded their powers, or so imperfectly executed them that a . . . final and definite award upon the subject matter was not federal made.” 9 U.S.C. §10(a).

The case began in March 2008 with several female Sterling employees filing a class action discrimination suit against the company. The district court compelled arbitration. Jock v. Sterling Jewelers, Inc., 564 F. Supp. 2d 307, 310-12 (S.D.N.Y 2008).

The case has since endured several procedural appeals, with the latest decision resting in part on U.S. Supreme Court Associate Justice Samuel A. Alito Jr.’s concurrence in Oxford Health Plans LLC v. Sutter, where Alito distinguished “absent members,” reasoning that “it is far from clear [whether] they will be bound by the arbitrator’s ultimate resolution of the dispute.” 569 U.S. 564, 574 (2013).

This case appears to be the first time that Alito’s concurrence has been used to overrule an arbitrator’s authority. See Andrew C. Glass, Robert W. Sparkes III, Roger L. Smerage, and Elma Delic, “A First in Second (Circuit): On Remand, District Court Breaks New Ground by Vacating Arbitrator’s Class Certification Award,” K&L Gates blog (Feb. 1, 2018)(available at http://bit.ly/2ELn66I).

At this stage, Rakoff’s decision provides protection for companies with arbitration provisions that are silent on class action procedures, but it undermines and challenges arbitrator authority.

As has been a constant in the litigation, there’s more to come. Rakoff’s decision is the subject of a Jan. 18 notice of appeal, and is now, once again, pending review before the Second U.S. Circuit of Appeals. Jock v. Sterling Jewelers Inc., 18-153.

More on Jock, including its long history and pending appeal will appear in the April issue of Alternatives. March is out now, free here for CPR members, and here for the public.

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

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.

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.