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

By Anna Hershenberg

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

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

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

CPR covered this issue earlier this month on CPRSpeaks:

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

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

Section 7515: Mandatory arbitration clauses; prohibited

(a) Definitions. As used in this section:

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

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

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

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

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

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

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

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

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

Workplace Mandatory Arb Ban Reversed by Kentucky Lawmakers

By Vincent Sauvet

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

The author was a CPR Institute Spring 2019 intern. 

 

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

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.