Employment Class Action Blog - Information and Commentary on Employment Class Action Cases Affecting Employers

Once again a court has been required to consider whether a federal statutory claim might limit the reach of the Federal Arbitration Act, 9 U.S.C. § 1 et. seq. (“FAA”), and prevent arbitration of an individual discrimination claim.  This twenty-two-page decision reflects the on-going struggle by plaintiffs to discover potential exceptions to the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion.

On April 18 a Massachusetts district court held that a plaintiff must arbitrate gender discrimination claims despite alleging that her employer engaged in a pattern-or-practice of sex discrimination violative of Title VII of the 1964 Civil Rights Act and state law.

In Karp v. CIGNA Healthcare Inc.pdf (Case No. 11-CV-10361, D. Mass, 04/18/2012), Judge F. Dennis Saylor, IV compelled arbitration of Bretta Karp’s individual sex discrimination claim despite her arguments that she never waived her rights to a class action or class arbitration proceeding and that individual arbitration would deny her statutory rights under Title VII to bring a pattern-or-practice claim.

The Dispute Resolution Procedure

Karp, a former Provider Contract Manager, began working for CIGNA in 1997 and in early 1998 signed a receipt acknowledging that she received the Company’s 1998 Employment Dispute Arbitration Policy requiring employees to arbitrate their disputes with the company instead of going to court.  The 1998 policy did not reference class actions or class arbitration.

In 2005, CIGNA revised its Employee Handbook to reflect changes in its policies and procedures and circulated an e-mail to advise employees. The e-mail provided a link to an electronic version of the Handbook and required employees to complete an electronic receipt.  Karp checked “yes” on the Handbook receipt, which acknowledged that she reviewed the 2005 Handbook and agreed that disputes would be resolved through CIGNA’s Employment Dispute Arbitration Program.  Neither the Handbook, CIGNA’s e-mails nor the electronic receipt mentioned class arbitration or a class action waiver.  However, as noted above, the Handbook referred to the company’s Employee Dispute Arbitration Policy, Rules and Procedures which clearly provided that no class-wide arbitrations were allowed and “no class or representative actions permitted.”  And, while the court expressed concerns that the Company policies and procedures could be enforced against Karp, there was “no doubt that [CIGNA] did not agree to permit class arbitration.”  Thus based on AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1840, 1750 (2011), the court held that CIGNA “could not be compelled to submit to class arbitration.”

Is Litigation an Option?

While the District Court found Karp could not arbitrate her class claims, “it did not necessarily follow that she may litigate those claims in a judicial forum.”  Indeed, it ultimately found she could not.  The Opinion found that “by agreeing to arbitrate her individual claims, [Karp] cannot serve as a class representative in a litigated class action.”  But, Karp had contended that if she was compelled to arbitrate her claims individually, she would not be able to vindicate her statutory right under Title VII to pursue pattern-or-practice claims.  Thus, according to Karp, the arbitration clause could not be enforced because it was not a viable alternative to litigation.  The Court disagreed after considering the history, potential viability and practical impact of those claims. 

According to the Court, the pattern-or-practice “claim” under Title VII was in reality “merely a method of proof.”  The District Court would not permit “a procedural device – a burden-shifting rule contained within a method of proof – to trump the arbitration agreement and the FAA.”

Based upon that analysis, the District Court granted CIGNA’s Motion to Compel arbitration and stayed Karp’s action pending arbitration.

The Bottom Line:  Another lower court enforces U.S. Supreme Court precedent supporting arbitration.  An individual cannot assert a pattern-or-practice discrimination claim to defeat arbitration.

Is the Supreme Court’s January 10th opinion in CompuCredit Corp v. Greenwood.pdf a potential antidote for the National Labor Relations Board’s (“NLRB”) decision in D.R. Horton? Perhaps. CompuCredit Corp. considered whether the Credit Repair Organizations Act (“CROA”), 15 U.S.C. § 1679 et seq., foreclosed enforcement of an arbitration agreement in a class action filed in the Northern District of California alleging CROA violations stemming from alleged misrepresentations made by CompuCredit in marketing its Aspire Visa credit card.

The District Court denied CompuCredit’s motion to compel arbitration, finding that claims under CROA were non-arbitrable based on its language. The Ninth Circuit affirmed and the Supreme Court reversed.

I. The Arbitration Provision

The arbitration provision in CompuCredit Corp. required individual arbitration of all claims. It provided:

Any claim, dispute or controversy (whether in contract, tort or otherwise) at any time arising from or relating to your Account . . . will be resolved by binding arbitration . . . .

* * *

In addition, you will not have the right to participate as a representative or member of any class of claimants relating to the claim subject to arbitration.

II. The CROA’s Provisions

The CROA regulates the practices of credit repair organizations and provides a private cause of action for violations as well as federal and state administrative enforcement. The CROA also has disclosure and nonwaiver provisions, which were focused upon by the District Court and the Ninth Circuit. The required disclosure statement, stated in pertinent part: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” (Emphasis added). The non-waiver provision declares:

“Any waiver by any consumer of any protection provided by or any right of the consumer under their subchapter – (1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person.” (Emphasis added).

III. The FAA and Federal Statutory Claims

As a threshold matter, Justice Antonin Scalia, writing for the Court, examined the Federal Arbitration Act (“FAA”) as background for resolution of the case. He found that the FAA’s “liberal policy favoring arbitration agreements” applied to federal statutory claims “unless the FAA’s mandate has been ‘overridden by a contrary Congressional Command.’” With that understanding, Justice Scalia reviewed CROA’s provisions to determine if the Act contained such a Congressional command.

IV. CROA’s Provisions and The Duty to Arbitrate

The opinion found that the disclosure provision did not give consumers a right to bring an action in court. Instead, Justice Scalia concluded “[t]he only consumer right it creates is the right to receive the statement, which is meant to describe the consumer protections that the law elsewhere provides.”

The opinion went on to note that it was common for statutes creating civil causes of action to detail the claims, and relief available in a judicial context. Yet, the mere reference to a cause of action is insufficient to establish a “’contrary congressional command’ overriding the FAA.”

The opinion commented that in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991), an arbitration agreement was enforced as to an Age Discrimination in Employment Act of 1967 (“ADEA”) claim despite language that declared: “Any person aggrieved may bring a civil action in any court of competent jurisdiction for such legal or equitable relief as will effectuate the purpose of this chapter.” Justice Scalia emphasized that the court had “repeatedly recognized that contractually required arbitration of claims satisfies the statutory prescription of civil liability in court.”

The opinion reasoned that at the time of CROA’s enactment in 1996, arbitration provisions in agreements were not unusual. So, if Congress intended to prohibit arbitration of CROA claims it would have done so with greater clarity. This reasoning led Justice Scalia to conclude “[b]ecause the CROA is silent on whether claims under the Act can proceed in an arbitral form, the FAA requires the arbitration agreement to be enforced according to its terms.” (Emphasis added). In her concurring opinion, Justice Sotomayor attempted to place the majority opinion in the context of existing precedent. She wrote: “I do not understand the majority opinion to hold that Congress must speak so explicitly in order to convey its intent to preclude arbitration of statutory claims.”

V. The Antidote or Just Another Pro-Arbitation Opinion?

Does CompuCredit Corp. signal an even more aggressive enforcement of arbitration procedures with class action waivers? Does the silence of the 1930’s vintage National Labor Relations Act on the key “congressional command” needed to foreclose arbitration mean that D.R. Horton is destined to be overturned? Or, as Justice Sotomayor states, can the Congressional will be “discovered in the history or purpose of the statute in question?” Too soon to tell. Yet, the CompuCredit Corp. opinion plainly raises additional doubts about the future viability of D.R. Horton.

The Bottom Line: Only time will tell what role the CompuCredit Corp. opinion will play in the future development of the law on mandatory arbitration. But, the opinion certainly provides at least one basis to challenge the NLRB’s decision in D.R. Horton.

In the much anticipated ruling in D.R. Horton, Inc. and Michael Cuda.pdf, released Friday, January 6, the National Labor Relations Board (“NLRB”) held that the Company violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) by “requiring employees to waive their right to collectively pursue employment-related claims in all forums, arbitral and judicial.” The decision, which will have a far-reaching impact on all employers, also concluded that recent United States Supreme Court rulings on the Federal Arbitration Act and class arbitration were not implicated. To many management observers, the ruling elevates a procedural device, a class or aggregate proceeding, to the status of an individual statutory right applicable to any employment claim. The decision reasoned:

“an individual who files a class or collective action regarding wages, hours or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by Section 7.”

The Company and the Arbitration Agreement

The Company, D.R. Horton, Inc., builds homes and operates in more than 20 states. Starting in 2006, the Company required employees to sign a Mutual Arbitration Agreement (“MAA”) that essentially provided that all employment-related disputes be resolved through individual arbitration. The Charging Party Michael Cuda worked for the Company as a superintendent and had signed the MAA. His attorney later informed the Company that it was misclassifying superintendents as “exempt” under the Fair Labor Standards Act and that he had been retained to represent Cuda and a nationwide class of superintendents. Cuda’s attorney also attempted to give notice of intent to arbitrate on a class or collective basis. When the Company resisted, Cuda filed an unfair labor practice charge with the NLRB.

A Necessary Substantive Right?

Several groups that filed Amici Curiae briefs with the NLRB urged that employees’ Section 7 rights were not impacted because they could jointly discuss their claims, pool their resources to hire a lawyer, seek litigation advice and support from a union, seek support from other employees and coordinate the filing of claims. The Board majority was unpersuaded, responding,

“if the Act makes it unlawful for employers to require employees to waive their right to engage in one form of activity it is no defense that employees remain able to engage in other concerted activities.”

The decision also categorically rejected arguments that the right to bring a class or collective action was “procedural” rather than substantive.

“Any contention that the Section 7 right to bring a class or collective action is merely ‘procedural’ must fail.”

According to the decision, the salient issue is:

“Whether [the Company] may lawfully condition employment on employees’ waiving their right under the NLRA to take the collective action inherent in seeking class certification . . . .. Rule 23 may be a procedural rule but the Section 7 right to act concertedly by invoking Rule 23 . . . or other legal procedures is not” (emphasis added).

Supreme Court Precedent Found Not Implicated

The ruling also found that the U.S. Supreme Court’s opinions in Stolt-Nielsen v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) (discussed in detail in other blog articles here and here) were not implicated. The Board majority reasoned that “[n]either involved the waiver of rights protected by the NLRA or even employment agreements.” AT&T Mobility (which arose in a consumer context) was distinguished by the majority because it involved a conflict between the Federal Arbitrator Act (“FAA”) and state law not where two federal statutes potentially conflict. The FAA did not preempt the NLRA which gave employees a federally protected right to engage in concerted action. And, the Cuda decision emphasized it did not require class arbitration to protect employees’ rights under the NLRA. Instead, it held “only that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.

Impact and Next Steps

The decision was completed last Tuesday and signed by the two Democratic Board members, before one, Craig Becker, had his recess appointment expire. The Board’s sole Republican member, Brian Hayes, recused himself, without explanation.

The decision, which applies both to union and non-union workforces, will undoubtedly be appealed to a federal court of appeal.

The Bottom Line: The controversial NLRB has created another potential obstacle to the enforcement of class action waivers. A federal appellate court or the Supreme Court will likely resolve these important issues.

The enforcement of arbitration agreements in the employment context has been maddeningly inconsistent, with different jurisdictions creating their own requirements and rules that might render such an agreement unenforceable. Predictably, California courts were in the vanguard of invalidating employment arbitration agreements. California courts created their own rules that, among other things, largely required class action procedures to be available if a claim was to be arbitrated. Six months ago, the Supreme Court held that the Federal Arbitration Act ("FAA"), 9 U.S.C. section 2, preempts state laws that would condition arbitration agreements on the availability of class action arbitration procedures. AT&T Mobility v. Concepcion.pdf, 563 U.S. ____ (April 27, 2011). This holding overturned prior holdings from California as well as other jurisdictions, and made arbitration agreements a much more attractive prospect for employers. Indeed, in the wake of Concepcion, many employers revised their arbitration agreements to contain express class action waivers.

One concern arising from the Concepcion decision was how closely courts would follow it and, equally importantly, whether courts hostile to arbitration would find new means to avoid enforcing otherwise valid arbitration agreements. So far, we have seen cautious acceptance by a number of courts. Commentary on several of these decisions can be accessed under the "topics" heading to this blog. A recent case, however, represents the clearest sign that the Concepcion decision will not only result in more cases being referred to arbitration, but that they will be arbitrated on an individual basis if that is what the contract provides. In Dauod v. Ameriprise Financial Services, Inc.pdf, Inc., Case No. 8:10-cv-00302-CJC(MANx) (C.D. Cal. Oct. 12, 2011), the plaintiffs were financial advisors whose employment agreements required arbitration of disputes before the Financial Industry Regulatory Authority ("FINRA"). FINRA is the successor to the National Association of Securities Dealers, better know by the acronym "NASD." The arbitration agreement also prohibited the employee from pursuing claims on a representative basis on behalf of other employees.

The Dauod case had an interesting procedural posture. One of the plaintiffs received a large loan from the employer at the outset of her employment, with a related agreement that provided for bonuses over the course of five years that could be used to retire the debt. When her employment ended less than a year later, however, the employer commenced FINRA arbitral proceedings to recover the loan amount outstanding. While that arbitration was pending, the plaintiffs filed a putative class action in court asserting violations of California's wage and hour laws. They also successfully moved to stay the FINRA proceedings, and the district court's 2010 ruling granting the stay was most likely correct under the pre-Concepcion California law. Thus, prior to Concepcion, the plaintiffs appeared to have won a procedural victory, with the arbitration stayed and the putative class action proceeding in federal court in southern California.

In the wake of Concepcion, however, the defendant moved to lift the stay and for summary judgment on the class allegations. The court found that Concepcion dictated enforcement of the arbitration provisions. Rejecting the argument that Concepcion should be limited to consumer cases, the court had no difficulty in disposing of the argument that a class action waiver rendered the agreement unconscionable. It also rejected arguments relating to the California Private Attorney General Act ("PAGA") as the plaintiffs did not assert any PAGA claims. Thus, the court vacated the stay, directed arbitration on an individual (not class basis) and dismissed the case. Almost overnight, what had been a procedural victory for the plaintiffs only a year ago had become a complete victory for the employer, with arbitration compelled on an individual basis.

The Bottom Line: The Concepcion decision can be used to compel arbitration of employment class action claims on an individual basis even in jurisdictions traditionally hostile to arbitration.

The battle between California courts and the U.S. Supreme Court over arbitration agreements wages on. Though California courts frequently make perfunctory statements about the strong public policy in favor of arbitration agreements, these statements are undercut by the many cases in which the courts appear to bend over backwards to find arbitration agreements unconscionable or otherwise unenforceable. This is particularly true where the arbitration agreements attempt to waive or limit class action or representative claims.

While the Supreme Court held in AT&T Mobility v. Concepcion.pdf ("Concepcion"), 563 U.S. __, 131 S. Ct. 1740 (2011), that a class action waiver is enforceable in the arbitration context, cynical observers believed that some courts, particularly in California, would try to find a way around its clear holding: that the scrutiny applied to arbitration agreements should be no different than the scrutiny applied to all other contracts and that an arbitration agreement must be enforced according to its terms. (We wrote about the Concepcion decision in a post on April 27.) In a divided ruling, the California Court of Appeal took its first swing at Concepcion, and held that arbitration agreements cannot be applied to claims brought under the California Private Attorney General Act of 2004 ("PAGA").

In Brown v. Ralphs Grocery Co.pdf., the Court of Appeal considered the enforceability of an arbitration agreement that contained the following provision: "there is no right or authority for any Covered Disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims ort disputes brought in a representative capacity on behalf of the general public." The primary question presented was whether the Concepcioncase--which had invalidated another California decisional rule forbidding certain kinds of class action waivers--also preempted California law that PAGA claims cannot be subject to an arbitration agreement.

The majority acknowledged the long history of the U.S. Supreme Court overturning California law contravening enforcement of arbitration agreements (on various ground), but it concluded that "United States Supreme Court authority does not address a statute such a the PAGA."

The Court’s basis for distinguishing PAGA claims from other employment claims was that PAGA claims are "in large part 'for the benefit of the general public rather than the party bringing the action.'" Therefore, the Court (citing past cases) determined that PAGA waivers are contrary to California law. The Court found that making PAGA claims unarbitrable did not contradict the Federal Arbitration Act (“FAA”) because, unlike class actions which require a formal certification process and other procedural requirements, PAGA does not have any such requirements. Therefore, reasoned the Court, taking PAGA off the list of arbitrable disputes did not frustrate the FAA in the same way as the rule at issue in Concepcion.

This reasoning is more than arguably contrary to several pages of the analysis in Concepcion, which pointed to numerous problems with compelling the arbitration of class-wide claims, including the issue of absent parties and the fact that representative and class claims often involve much higher stakes for the employer than individual claims. Moreover, because of CCP section 1281.2 which grants courts the discretion refuse arbitration on all claims rather than split a case between civil court and arbitration (where a complaint alleges both arbitrable and non-arbitrable claims), a court might refuse arbitration merely because Plaintiff has alleged PAGA claims among a slew of other arbitrable claims. (Note: after Concepcion, there is a strong argument that the discretion afforded courts under CCP section 1281.2 is preempted by the FAA, but so far this issue has not been ruled on.)

In light of the Browndecision, employers should be aware that California courts will likely not send PAGA claims to arbitration. Further, a court may also find that a PAGA provision in an arbitration agreement is not severable (an issue left open in the Brown case) and therefore hold that the entire agreement is not enforceable. To that end, employers may consider revising existing arbitration agreements to make any PAGA provisions clearly severable.

The Bottom Line: California courts remain hostile to arbitration agreements that purport to limit class/representation claims despite the strongly worded Concepcion opinion. Employers will therefore need to exercise caution in this arena.

Authorship credit: Alastair Gamble

In the wake of the Supreme Court’s April 27th decision in AT&T Mobility v. Concepcion.pdf, Senator Al Franken (D-Minn) and others re-introduced legislation (S.987, H.R. 1873.pdf) that would forbid pre-dispute mandatory arbitration agreements in employment, consumer or civil rights disputes. 

The Concepcion opinion (reviewed in Greg Mersol's April 27, 2011 post on this blog and in the May 5, 2011 Baker Hostetler Employment Class Action newsletter) involved a consumer class action but will impact the enforcement of many types of arbitration agreements. 

The Concepcions, customers of AT&T Mobility LLC (“AT&T”), brought suit after they were charged sales tax on a phone that had been advertised as “free” with the purchase of an AT&T service plan.  The service contract included an arbitration agreement requiring that claims be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.”

When AT&T moved to compel arbitration, the Concepcions successfully had the class waiver provision declared invalid under a California rule (the so-called “Discover Bank rule”, named for the seminal case on the issue: Discover Bank v. Superior Court, 36 Cal. 4^th 148 (2005)), which held that class waiver provisions, like that contained in the AT&T arbitration agreement, are unconscionable and in violation of the state’s public policy against exculpation.  AT&T appealed, and the Ninth Circuit affirmed.

The Supreme Court reversed.  Justice Antonin Scalia, writing for the majority, held that the Discover Bank rule conflicted with the purpose and language of the Federal Arbitration Act (“FAA”) and therefore was preempted as an improper challenge to the enforcement of arbitration agreements.  The Concepcion decision means that an employer now can avoid class action liability by providing for mandatory arbitration of employment claims and restricting that arbitration to individual disputes.

The reintroduced bill, entitled “the Arbitration Fairness Act of 2011” (the original was introduced in 2009), is intended to counter that outcome.  It contains a number of “findings” including that “[a] series of decisions by the Supreme Court . . . have changed the meaning of the [FAA] so that it now extends to consumer disputes and employment disputes.”  Another finding declares that “mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review . . . . ”

This bill was not unexpected but has no Republican support and little chance of passage at this time.  But, never say never.  Senator Franken did succeed with earlier legislation, known as the “Franken Amendment”, which required withholding defense contracts if companies required their employees or independent contractors to enter mandatory arbitration agreements.  (See Section 8816 of the Department of Defense Appropriation Act for 2010, and the implementing regulations at 48 C.F.R. Section 222.7401).

The Bottom Line: We have not seen the last of the opposition to the Concepcion decision or to mandatory arbitration for employees or consumers.  Many pro-employee and consumer groups would like to take a bite out of all non-commercial arbitration and give every American an inalienable right to present their claims in a class action or other aggregate proceeding.