On October 17, 2013, the California Supreme Court revisited the enforceability of arbitration agreements in California. The Court released its decision Sonic-Calabasas Inc. v. Moreno (Sonic II). In that 5 – 2 ruling, the California Supreme Court reversed its prior decision to strike down an arbitration agreement on the ground of FAA preemption, but remanded the case for analysis of the enforceability of the arbitration agreement under an unconscionability analysis. Read More
Lest there be any lingering confusion, the U.S. Supreme Court has once again reminded us that arbitration agreements are to be “rigorously enforced.” In this latest installment of pro-arbitration decisions from the high court, a majority of the justices (5-3) upheld a class arbitration waiver as enforceable even when the cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Although the decision arose in the antitrust context, the broad language in the opinion opens the door for enforcement of class action waivers in wage-and-hour class and collective actions where employers have included such waivers in their arbitration agreements with their employees. Read More
Ever have that feeling that your arbitrator just doesn’t understand you? You may be right, but there’s not much you can do about it. A recent unanimous ruling by the United States Supreme Court should encourage employers to review the language in their arbitration agreements to ensure clarity on the issue of class arbitration. In Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. at 4-5, 8-9 (U.S. June 10, 2013), the Supreme Court reiterated that parties who agree to arbitration and ask the arbitrator to decide an issue are stuck with the “good, bad, or ugly” decision of the arbitrator. Even where, as in this case, the arbitrator makes a dubious decision that the parties’ contract allows class arbitration, Federal Arbitration Act § 10(a)(4) does not allow a court to second-guess that decision.
Sutter, a pediatrician, and Oxford Health Plans, an insurance company, entered into a contract for services that included the following arbitration clause: “[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration . . . .” Id. at 1-2. Later, Sutter brought suit in state court on behalf of himself and a proposed class of other doctors alleging that Oxford Health Plans had violated their contracts and various state laws. Id. Upon Oxford Health Plans’ motion, the case was compelled to arbitration. Id. at 2. Critically, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and the arbitrator determined that, based on the terms of the clause quoted above, it did. See id. at 2, 3. Oxford Health Plans brought a motion in federal court arguing the arbitrator’s decision should be vacated on the ground that he had “exceeded [his] powers” under Federal Arbitration Act § 10(a)(4). Id. Read More
In a July 30, 2012 decision the Second Appellate District of the Court of Appeal ruled that an employee was not bound by the arbitration clause in his employee handbook for a slew of reasons:
- the clause itself was buried (or as the Court said “not specifically highlighted”) in a lengthy handbook and was not called to the employee’s attention;
- the employee did not specifically acknowledge the clause or agree to arbitrate, but merely signed an acknowledgment of receipt of the handbook itself;
- the handbook contained a (relatively) standard clause that it was not intended to create a contract but, the employer also “had it both ways” and retained the rights to unilaterally amend the handbook’s provisions;
- the employer failed to provide the employee with the specific arbitration rules; and
- the clause itself was found unconscionable: procedurally, because the employer did not distribute the rules governing the arbitration to employees and because the issue of arbitration was not negotiable and, substantively, because it required the employee to relinquish administrative and judicial rights and made no express provision for discovery rights.
While this decision points out the pitfalls of this particular factual scenario, it also highlights some nuances. As courts reinvigorate their scrutiny of arbitration clauses and agreements, due to what this Court called “the increasing phenomenon of depriving employees of the right to a judicial forum,” employers may want to revisit and revise their handbook language.
A California Court of Appeal recently required a plaintiff to forego class and representative action claims in Nelsen v. Legacy Partners Residential, Inc., No. A132927 (Cal. App. July 18, 2012) finding that she failed to show the employer’s arbitration agreement was unconscionable or that compelling individual arbitration would violate state or federal law or public policy. Knocking down the attempt to keep class and representative claims alive in either a judicial or arbitration proceeding, the First Appellate District held that all of the plaintiff’s California Labor Code claims, as well her claim for injunctive relief, had to be arbitrated on an individual basis. Read More
In Iskanian v. CLS Transportation Los Angeles, LLC, (Cal. Ct. App. June 4, 2012), the California Court of Appeal for the Second Appellate District affirmed a decision to compel individual arbitration of wage-and-hour claims pursuant to an employment agreement that contained class and representative action waivers, holding that the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion was controlling. Read More
In the wake of the Supreme Court’s landmark decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (“Concepcion”), there has been a flurry of litigation pertaining to class action waiver provisions in employment arbitration agreements and, more generally, the permissibility of class arbitration. The results of this uptick in litigation have been decidedly mixed, particularly in the undisputed epicenters of post-Concepcion activity – California and New York. Several recent decisions exemplify the wide range of post-Concepcion activity, including Kilgore v. KeyBank Nat’l Assoc., 2012 WL 718344 (9th Cir. March 7, 2012), a decidedly pro-employer decision that is the first subject of our three-part series on “the good, the bad, and the ugly” of recent arbitration decisions.
Kilgore is a helpful example of a court applying Concepcion to a state law rule that would have otherwise prohibited arbitration. The question in Kilgore was whether, in light of Concepcion, the Federal Arbitration Act (“FAA”) pre-empted California’s “Broughton-Cruz” rule prohibiting arbitration of claims for public injunctive relief. The Court also considered whether the arbitration and class waiver provision at issue was unconscionable. Read More
This continues our series regarding the good, the bad, and the ugly of recent arbitration decisions. One of the more disappointing recent arbitration cases – Balasanyan, et al. v. Nordstrom, Inc., No. 3:11-cv-02609 (S.D. Cal. March 8, 2012) – adds a new wrinkle to the arbitration issue that could constrain employers wishing to take advantage of the post-Concepcion landscape.
In Balasanyan, the U.S. District Court for the Southern District of California invalidated a mandatory arbitration agreement containing a class action waiver on the ground that it constituted an impermissible communication with putative class members. In doing so, the Court did not distinguish or even address Concepcion, and instead relied on its own authority to control the proceedings in class action litigation – including by monitoring communications with putative class members. Balasanyan is thus notable for the unique basis on which it invalidated the arbitration agreement, which in turn presents a new issue for employers to consider when implementing or updating their arbitration agreements. Read More
The final installment of our series regarding the good, bad and ugly of recent arbitration decisions is – you guessed it – ugly. Jock v. Sterling Jewelers, Inc., 646 F. 3d 113 (2d Cir. 2011), a Second Circuit decision that the Supreme Court declined to review last month, is notable for its disappointing discussion of the Supreme Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010). In Stolt-Nielsen, the Supreme Court clarified that where an arbitration agreement is “silent” regarding the permissibility of class-wide arbitration, an arbitrator exceeds her authority if she imposes class arbitration on the parties. The Second Circuit’s discussion of Stolt-Nielsen, while dicta, is troublesome because of its extremely narrow view of when an arbitration agreement is “silent” on the issue of class-wide arbitration.
Sterling Jewelers, a putative class action asserting claims of gender discrimination, stemmed from an arbitrator’s determination that the defendant’s “RESOLVE” dispute resolution program did not prohibit the arbitration of plaintiffs’ claims on a class-wide basis. The arbitrator hinged her decision on the fact that the arbitration agreement (1) was drafted by the defendant and was a condition of the plaintiffs’ employment (and, therefore, was to be construed against the employer under applicable Ohio law); (2) contained no express prohibition of class-wide arbitration; and (3) gave the arbitrator “the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction.” Given these facts, the arbitrator declined to read into the contract a prohibition on class arbitration, which in turn cleared the way for plaintiffs to move for certification of a class before the arbitrator. Notably, the arbitrator rendered her decision in Sterling Jewelers before the Supreme Court decided Stolt-Nielsen. Read More