Supreme Court Backs Federal Arbitration Act’s Power to Require Mandatory Individual Arbitration

By Russ Bleemer

The U.S. Supreme Court this morning has affirmed the ability of companies to use mandatory arbitration clauses in employment agreements that are accompanied by waivers of class processes in litigation and arbitration.

In 5-4 decision by Associate Justice Neil Gorsuch, the Court held that the Federal Arbitration Act requires enforcement of employees’ agreements to mandatory individual arbitration. Gorsuch, joined by Chief Justice John G. Roberts Jr., and Associate Justices Anthony Kennedy, Clarence Thomas and Samuel Alito, held that the employees’ arguments that the FAA’s Sec. 2 Savings Clause, which would exempt arbitration agreement provisions from enforcement when they run afoul of “generally applicable contract defenses,” and the National Labor Relations Act, do not counter the FAA’s mandate.

The case is available at https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf

The long-running controversy involves 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 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 Corp. v. Lewis (No. 16-285)—had been consolidated into the Court’s 2017-2018 term’s kickoff argument on Oct. 2, with Epic Systems as the lead case, and four attorneys arguing the case on behalf of the parties in all three cases.

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 involve white-collar employees and nonunion workers with little bargaining power.

The Court previously definitively permitted mandatory arbitration contract clauses accompanied by class waivers for products and services contracts where consumers have little or no bargaining power. The Federal Arbitration Act-focused decision today now settles how arbitration is used in workplace matters.

Gorsuch’s opinion rejects a 2012 National Labor Relations Board administrative that held that FAA Sec. 2 removed mandatory individual arbitration from FAA application for employee agreements.  The Court’s opinion notes that the reasoning interfered with a fundamental attribute of arbitration.

After rejecting the Sec. 2 argument, Gorsuch dismantled the employees’ other arguments.  He develops the Supreme Court precedent concerning two clashing federal statutes, finding that the National Labor Relations Act, passed in 1935, didn’t override 1925’s FAA to require class or collective actions.

“Section 7 focuses on the right to organize unions and bargain collectively,” Gorsuch writes. “It may permit unions to bargain to prohibit arbitration. Cf. 14 Penn Plaza LLC v. Pyett, 556 U. S. 247, 256–260 (2009). But it does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.”

Moreover, Gorsuch notes that NLRA Sec. 7’s definition of protected employees’ “concerted activities” didn’t include, nor was it amended to include, class-action litigation. “[W]e’ve stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act,” the majority opinion states.

Similar arguments regarding claims under the Fair Labor Standards Act and the Norris-LaGuardia Act also were rejected.

Finally, Gorsuch, a longtime critic of Chevron U. S. A. Inc. v. Natural Resources Defense Council Inc., 467 U. S. 837, which provides Court deference to agency determinations made in the areas of the agency’s expertise, writes that the NLRB’s decision that launched the case, In re Horton, 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), didn’t meet the Chevron deference standards.

The NLRB, the opinion notes “has sought to interpret this statute in a way that limits the work of a second statute, the Arbitration Act. And on no account might we agree that Congress implicitly delegated to an agency authority to address the meaning of a second statute it does not administer. One of Chevron’s essential premises is simply missing here.”

Gorsuch, after countering the lengthy dissent—we will return to the dissent and majority’s counterpoints in a subsequent CPR Speaks post later today–concludes:

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.

 

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

Uber Eliminates Mandatory Arbitration of, and NDAs for, Sexual Assault and Harassment Claims

AnnaBy Anna M. Hershenberg, Esq.

Uber Technologies Inc. announced that it will no longer require its customers, drivers or employees to arbitrate sexual assault or harassment claims, and that it would allow victims to decide whether to enter into non-disclosure agreements or confidentiality provisions as a part of any settlement with the company.

Uber is the second tech company to announce it has changed its dispute resolution policies in response to the #MeToo movement, following Microsoft’s December move.  Brad Smith, “Microsoft endorses Senate bill to address sexual harassment,” Microsoft blog (Dec. 19, 2017)(available at http://bit.ly/2mR65jR).

In a blog post yesterday, “Turning the lights on,” Uber’s Chief Legal Officer Tony West announced the details of three major changes to Uber’s policies. Tony West, “Turning the lights on,” Uber blog (May 15, 2018) (available at https://ubr.to/2KrVhD1).

First, Uber states it “will no longer require mandatory arbitration for individual claims of sexual assault or sexual harassment claims by Uber riders, drivers or employees.” The company instead will allow victims to choose whether to mediate, arbitrate or litigate their individual claims.

In an interview with the New York Times, West confirmed that the “waiving of arbitration only applied to those claims and not for other legal claims, like discrimination.” Daisuke Wakabayashi, “Uber Eliminates Forced Arbitration for Sexual Misconduct Claims,” New York Times (May 15, 2018)(available at https://nyti.ms/2GjbBTW).

West also noted that the new policy applies “to people currently in arbitration with Uber over sexual assault or harassment claims.” Id. 

The Uber blog post specifically states that the company waives application of mandatory arbitration to “individual” claims, still barring class actions. Notably, as of the writing of this blog post, Uber’s driver agreement still contains a mandatory arbitration clause.  Uber US Terms of Use (Dec. 13, 2017)(available at https://ubr.to/2jrKPBW).

Second, Uber will no longer require people who settle sexual harassment or abuse claims with the company to sign confidentiality provisions or NDAs that forbid them from speaking about their experience in order to “help end the culture of silence that surrounds sexual violence.” Tony West, “Turning the lights on,” Uber blog (May 15, 2018)(available at https://ubr.to/2KrVhD1).

This does not appear to prohibit victims from agreeing to keep the terms of the settlement confidential. “Whether to find closure, seek treatment, or become advocates for change themselves, survivors will be in control of whether to share their stories,” the blog post states.

Third, Uber has committed to publishing “a safety transparency report that will include data on sexual assaults and other incidents that occur on the Uber platform.” Id.

Soon after Uber announced these changes, competitor Lyft announced the same changes, and said on Twitter it would join Uber in producing a safety report.  Johana Bhuiyan, “Following Uber’s lead, Lyft is also allowing alleged victims of sexual assault to pursue cases in open court.” Recode (May 15, 2018)(available at https://bit.ly/2ILLXfO).

Some news sources have linked Uber’s policy change to its hopes for an initial public offering in 2019, and mounting public pressure following a CNN investigation, which found that 103 U.S. Uber drivers had been accused of sexual assault or abuse in the past four years.  Daisuke Wakabayashi, “Uber Eliminates Forced Arbitration for Sexual Misconduct Claims,” New York Times (May 15, 2018)(available at https://nyti.ms/2GjbBTW); Stephanie Forshee, “Uber CLO Explains Decision to Scrap Mandatory Arbitration Clauses and NDAs Around Sexual Harassment, Assault,” Corporate Counsel (May 15, 2018)(available at https://cnnmon.ie/2I35QyI); see also Sara Ashley O’Brien, Nelli Black, Curt Devine and Drew Griffin, “CNN investigation: 103 Uber drivers accused of sexual assault or abuse,” CNN Money (April 30, 2018) (available at https://cnnmon.ie/2I35QyI).

Uber’s Tony West, however, insists that the new policies are aimed at winning back the “public’s trust,” “respect of customers [Uber] lost through [its] past actions and behavior,” and, in the words of the company’s new “cultural norm,” to “do the right thing, period.”  Tony West, “Turning the lights on”, Uber blog (May 15, 2018) (available at https://ubr.to/2KrVhD1); see also Dara Khosrowshahi, Uber’s new cultural norms, Linked In (Nov. 7, 2017)(available at https://bit.ly/2jaoiL7)(the author is the company’s chief executive officer).

The legal profession’s use of mandatory employment arbitration also has recalibrated, at least at some firms, in the wake of the #MeToo movement. In March, major law firms, including New York-based Skadden, Arps, Slate, Meagher & Flom, San Francisco’s Orrick, Herrington & Sutcliffe and Los Angeles’ Munger, Tolles & Olson announced they would no longer require employees to sign onto mandatory employment arbitration agreements. The moves followed a Twitter attack invoking #MeToo directed primarily at Munger.

And on Monday, Yale Law School sent a letter on behalf of top law schools asking law firms that recruit on their campuses to “disclose whether they require summer associates to sign mandatory arbitration agreements and nondisclosure agreements related to workplace misconduct, including but not limited to sexual harassment.” Staci Zaretsky, “Elite Law Schools Demand That Biglaw Firms Disclose Whether Students Will Be Forced to Sign Arbitration Agreements,” Above the Law (May 14, 2018)(available at https://bit.ly/2ILJMZU).

 

Ms. Hershenberg is Vice President of Programs and Public Policy at CPR. She can be reached at ahershenberg@cpradr.org.

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

By Mark Kantor

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

The agreed text reads as follows:

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

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

 

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

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

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.

U.S. Court of Appeals Upholds Trial Court’s Sanctions Against Attorney for Frivolous Arguments Seeking to Avoid Arbitration Agreement

By Mark Kantor

The US Court of Appeals for the Seventh Circuit, in Appeal of Jana Yocum Rine in Hunt v. Moore Brothers, No. 16-2055 (June 27, 2017), recently upheld sanctions imposed by the trial court against an attorney personally for her frivolous arguments seeking to avoid an arbitration agreement in a contract between an independent trucker and a trucking company.  The appellate opinion is available at http://cases.justia.com/federal/appellate-courts/ca7/16-2055/16-2055-2017-06-29.pdf?ts=1498759242.

Very briefly, the trial court had required Ms. Rine, counsel for Mr. Hunt, to pay $7,500 in legal fees and expenses incurred by Moore Brothers defending against frivolous claims in a complaint filed by Ms. Rine in District Court and frivolous arguments that the arbitration agreement in the contract between Hunt and Moore Brothers was unenforceable, including a claim that the trucking company was holding Hunt “in peonage.”

James Hunt worked as a truck driver in Nebraska. On July 1, 2010, he signed an Independent Contractor Operating Agreement with Moore Brothers, a small company located in Norfolk, Nebraska.  Three years later, Hunt and Moore renewed the Agreement.  Before the second term expired, however, relations between the parties soured.  Hunt hired Attorney Jana Yocum Rine to sue Moore on his behalf.  She did so in federal court, raising a wide variety of claims, but paying little heed to the fact that the Agreements contained arbitration clauses.  Rine resisted arbitration, primarily on the theory that the clause was unenforceable as a matter of Nebraska law.  Tired of what it regarded as a flood of frivolous arguments and motions, the district court granted Moore’s motion for sanctions under 28 U.S.C. § 1927 and ordered Rine to pay Moore about $7,500.  The court later dismissed the entire action without prejudice.

****

The relevant part of the arbitration clauses in the Agreements reads as follows:

This Agreement and any properly adopted Addendum shall constitute the entire Agreement and understanding between us and it shall be interpreted under the laws of the State of Nebraska. … To the extent any disputes arise under this Agreement or its interpretation, we both agree to submit such disputes to final and binding arbitration before any arbitrator mutually agreed upon by both parties.

When Rine decided to take formal action on Hunt’s part, she ignored that language and filed a multi‐count complaint in federal court.  The complaint was notable only for its breadth: it accused Moore of holding Hunt in peonage in violation of 18 U.S.C. § 1581 (a criminal statute), and of violating the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962; the federal antitrust laws, 15 U.S.C. §§ 1, 4, 14; the Illinois Employee Classification Act, 820 ILCS 185/1 et seq.; and for good measure, the Illinois tort of false representation.

The Court of Appeals, and the District Court before then, concluded that Rine had blown up a simple commercial dispute beyond all rational proportion; “This was a simple commercial dispute between Hunt and Moore, but one would never know that from reading Rine’s complaint.  She blew it up beyond all rational proportion.”

Writing for a unanimous appellate panel, Chief Justice Wood upheld the trial court’s imposition of sanctions against Rine personally as “within the district court’s broad discretion, in light of all the circumstances of this case….”

We have no need to consider whether the sanctions imposed by the district court were also justified under the court’s inherent power.  See Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991).  Nor are we saying that the district court would have erred if it had denied Moore’s sanctions motion.  We hold only that it lay within the district court’s broad discretion, in light of all the circumstances of this case, to impose a calibrated sanction on Rine for her conduct of the litigation, culminating in the objectively baseless motion she filed in opposition to arbitration.  We therefore AFFIRM the district court’s order imposing sanctions.

The judicial decisions in Hunt v. Moore Brothers are yet another illustration of the increasing peril to counsel personally in US Federal courts if the attorney pursues a frivolous “take no prisoners” approach seeking to avoid arbitration.

 

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.