For years courts have been struggling to determine the proper application of the Section 1 exemption of the Federal Arbitration Act (FAA). See 9 U.S.C. § 1. Now the U.S. Supreme Court has brought some clarity to the analysis. In Southwest Airlines Co. v. Saxon, Case No. 21-309 (June 6, 2022), the court unanimously concluded that Latrice Saxon, an airline ramp supervisor, was part of the “class of workers engaged in foreign or interstate commerce” and consequently was exempted from the FAA’s coverage. Saxon alleged that she regularly had to handle baggage, airmail and commercial cargo that had moved throughout the country, although Southwest disputed this on the ground that Saxon was merely a supervisor in charge of managing the people who actually handle baggage. See 993 F.3d 492, 494 (7th Cir. 2021).
Supreme Court Holds Prejudice Not Required for Waiver of Right to Arbitrate – But Does Little Else
In a much-anticipated opinion, the Supreme Court unanimously held this morning that a party claiming waiver of the right to arbitrate need not show prejudice, in Morgan v. Sundance, Inc., Case No. 21-328 (May 23, 2022). While the holding on this point is clear, the Court very explicitly declined to address a series of related issues raised by the parties. Thus, the opinion will likely make it easier to assert waiver, but many questions remain unanswered.
The case arose from a claim asserted by an hourly employee of a Taco Bell franchise, who had signed an agreement to arbitrate when he applied for work. In addition to his own claim, he asserted a nationwide collective action for unpaid wages under the Fair Labor Standards Act. For reasons the opinion does not disclose, the employer litigated the matter in federal court for nearly eight months, including filing a motion to dismiss and participating in mediation, both of which were unsuccessful. It then moved to compel arbitration pursuant to the Federal Arbitration Act (FAA).
The Vote is In, FAA Sections 9 And 10 Do Not Provide “Look-Through” Jurisdiction to Confirm or Modify Arbitral Awards
Our prior blog articles predicted that the outcome in Badgerow v. Walters, No. 20-1143, might turn on whether the plain text of the Federal Arbitration Act (FAA) or its purposes would prevail. See our June 16 and Nov. 9, 2021 blog articles on the Badgerow case and the employment dispute that fueled it. As it turns out, Justice Elena Kagan and seven of her colleagues followed the “clear statutory directive” of the FAA and held that federal courts do not have subject matter jurisdiction to confirm or vacate an award under Sections 9 and 10 of the FAA. See 596 U.S. ____ (2022).
Lessons from 2021 on Avoiding Class Action Claims for Meal and Rest Break Violations in California
In 2021, the California Supreme Court handed down two important decisions, Donohue v. AMN Services, LLC and Ferra v. Loews Hollywood, LLC, that reinforce and refine tried-and-true lessons about meal and rest breaks. As California employers look ahead to their 2022 goals and try to lessen their risk of class action employment claims based on meal and rest break issues, compliance with these decisions should be top of mind.
Donohue: Do Not Round, Do Use a Drop-Down Menu
The first case, Donohue, was about an employer that rounded time punches to the nearest preset time increment. The employer in Donohue also used a timekeeping system that prompted an employee who punched a noncompliant break to select whether (a) she was provided an opportunity to take a break but chose not to, (b) she was provided a chance to take a break but chose to take a shorter break, or (c) she was not provided an opportunity to take a break.
The Fifth Circuit Now Considers Who Are ‘Parties’ in an FAA Action to Compel Arbitration
By John B. Lewis
In two prior blogs, we have focused on a dispute over federal court jurisdiction to confirm or vacate an arbitration award under Section 9 and Section 10 of the Federal Arbitration Act (FAA). The dispute resulted in a Fifth Circuit opinion that ultimately made its way to the U.S. Supreme Court. See our blog post on Nov. 9, 2021. Now the Fifth Circuit has taken on a new FAA issue – who are the “parties” to the controversy for purposes of determining federal court jurisdiction? Does it include state-court pleadings or only “the parties to the petition to compel arbitration”? See ADT L.L.C. v. Richmond, No. 21-10023 (5th Cir. Nov. 10, 2021).
Telesforo Aviles was employed by ADT to install home security systems. At some point, Aviles began spying on customers with cameras he set up. Upon discovering this, ADT terminated Aviles, but only after over 200 customers were impacted. Kamala Richmond believed she and her family were victims. They sued ADT and Aviles in a Texas court seeking over $1 million in damages. The Richmonds’ contract with ADT, however, contained an arbitration provision. ADT then filed an action under Section 4 of the FAA in federal court based on complete diversity between the Richmonds and ADT, a citizen of Florida and Delaware.
The Supreme Court Argument Only Underscored the Complexities of Federal Court Jurisdiction Over Arbitration Awards
One might expect that the plain text of a statutory provision would be in line with the overall goal of the law. But when that statute is the Federal Arbitration Act (FAA), it’s not necessarily the case. And many people even differ on what the original intent of the FAA was in 1925. In our June 16, 2021 blog article, we outlined the issues and challenges in Badgerow v. Walters, No. 20-1143, which was argued before the Supreme Court on Nov. 2, 2021. In Badgerow, the Court must decide whether federal courts have subject matter jurisdiction to confirm or vacate an award under Sections 9 and 10 of the FAA, as opposed to Section 4, which governs petitions to compel arbitration. See 9 U.S.C. §§ 9 and 10 compared to § 4.
As we stated in our June 16 blog, if the Court’s opinion is driven solely by the language of the act’s Section 4, it could have a far different result then the presumed purpose of the FAA – to facilitate enforcement of arbitration agreements.
Third Circuit Rejects District Court’s Trial-Before-Certification Plan
Years ago, employers argued unsuccessfully that plaintiffs should not be able to pursue so-called hybrid claims pursuing both Rule 23 opt-out classes and Fair Labor Standards Act (FLSA) opt-in collective claims at the same time. They noted that combining the two would create procedural anomalies and that doing so would make case resolution unwieldy. They lost that argument, but a recent case demonstrates that they were probably right.
In In re Citizens Bank, Case No. 19-3046 (3d Cir. Oct. 5, 2021), the plaintiffs brought suit based upon the theory that the defendant had an unofficial policy of requiring off-the-clock work for approximately 1,000 mortgage loan officers. They brought FLSA collective claims and Rule 23 state law claims under the law of Pennsylvania. Following notice, 350 individuals opted in to the FLSA collective (interestingly, this was roughly twice the percentage one would ordinarily see in these types of cases). The plaintiffs then brought additional Rule 23 state law claims, ultimately involving the laws of 10 different states.
The Fifth Circuit Again Considers the ‘Forby’ Case and When the Right To Arbitrate Is Waived Based on an Amended Complaint
As we have said in the past, determining when a party waives its right to arbitrate is never easy and the nuanced standards vary among the circuits. Now a case that has come to the U.S. Court of Appeals for the Fifth Circuit a second time confirms our belief. The Fifth Circuit opinion in Forby v. One Technologies, L.P. (No. 20-10088, decided Sept. 14, 2021) (Forby II), arises from a class action asserting that One Technologies, L.P. (One Tech), deceived customers into signing up for purportedly “free” credit reports that weren’t. In the first Forby decision, reported at 909 F. 3d 780, 784 (5th Cir. 2018) (Forby I), the appellate court ruled that One Tech waived its ability to arbitrate plaintiffs’ state law claims when it filed a motion to dismiss rather than seeking arbitration. See our Dec. 4, 2018 blog article on the Forby I decision.
The Forby I panel declared, “One Tech was fully aware of its right to compel arbitration when it filed its 12(b)(6) motion to dismiss, it pursued and partially obtained a dismissal with prejudice, showing a desire to resolve the dispute in litigation rather than arbitration.”
Divided Ninth Circuit Reinstates Part of California’s Anti-Arbitration Law
For many years, state and federal courts in California have opposed arbitration and have manufactured frameworks under which they become unenforceable despite the clear directives of the Federal Arbitration Act (FAA) and countless Supreme Court cases. While a string of Supreme Court cases over the past decade gave employers some respite, the Ninth Circuit has now issued a split decision in which it has devised yet another means of trying to evade the FAA’s mandate.
Just two years ago, California enacted AB 51 to discourage the use of mandatory arbitration agreements in the employment setting, establishing both civil and even criminal penalties for doing so. These provisions were in obvious violation of the FAA, and a California district court swiftly enjoined them for that reason. We previously wrote about the district court’s lengthy and solid opinion and its grant of the injunction here.
Spending Bill Would Place Class Action Waivers in Jeopardy
Only three years ago, the Supreme Court reversed the holdings of a large number of lower courts and held that class action waivers in arbitration agreements were enforceable. Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). We blogged about that decision here. With the Supreme Court’s ruling, many employers either adopted such agreements or began to enforce their preexisting agreements more effectively. Particularly in the realm of Fair Labor Standards Act litigation, these agreements became an important part of the defense, providing a counterbalance to courts’ frequent application of the reduced standards for “conditional certification” and the resulting undue economic pressure placed on defendants to settle.
The plaintiffs’ bar reacted immediately, and numerous efforts were made at the state and federal levels to limit Epic Systems’ reach. We have blogged about many of those efforts here: August 11, 2021, February 11, 2020, October 11, 2019, March 28, 2019, and November 16, 2018. Employment arbitration again became an issue following the 2020 elections. With the change in control of Congress, various bills were introduced that would effectively make Epic Systems a nullity.