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Posts Tagged ‘arbitration agreement’

D.R. Horton Rising: The Ninth Circuit Sides with the Seventh Circuit and the National Labor Relations Board on Class Action Waivers, in Morris v. Ernst & Young, LLP

Wednesday, September 7th, 2016
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Yesterday, the Ninth Circuit took sides in a major split within the U.S. Courts of Appeals over the enforceability of class arbitration waivers. In Morris v. Ernst & Young, LLP, No. 13-16599, Slip. Op. (9th Cir. Aug. 22, 2016), the Ninth Circuit held that employers violate Sections 7 and 8 of the National Labor Relations Act (“NLRA”) by requiring employees covered by the NLRA to waive, as a condition of their employment, participation in “concerted activities” such as class and collective actions. (Slip Op. at 1.)

By this holding, the Ninth Circuit joins the Seventh Circuit, which in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. May 26, 2016) adopted the National Labor Relations Board (“The Board”) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012). Under this line of authority, the Federal Arbitration Act (“FAA”) does not mandate enforcement of a contract that waives the substantive federal right to engage in concerted action established in Section 7 of the NLRA. (Slip Op. at p. 18-19.) Bryan Schwartz Law blogged in detail about the Lewis v. Epic Systems Corp. decision, here.

In Morris, two employees filed a class and collective action alleging that their employer had misclassified workers as exempt and deprived them of overtime in violation of the Fair Labor Standards Act (“FLSA”) and California labor laws. As a condition of employment, the employees were required to sign contracts containing a “concerted action wavier” that obligated them (1) to pursue legal claims against their employer exclusively through arbitration and (2) to arbitrate individually in “separate proceedings.” Based on these agreements, the employer moved to compel the employees to arbitrate their claims individually. The U.S. District Court granted the employer’s motion. (Slip Op. at p. 4-5.)

The Ninth Circuit reversed, reviewing the decision to compel arbitration de novo. Chief Judge Sidney R. Thomas explained in the opinion:

This case turns on a well-established principal: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity – the right of employees to act together – is the essential substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly the concerted action waiver violates the NLRA and cannot be enforced.

(Id. at p. 6.)

The Ninth Circuit explained that the FAA does not dictate a contrary result. (Id. at 14.) While the FAA creates a “federal policy favoring arbitration” clause enforcement, the Act contains a savings clause that prohibits enforcement of arbitration agreements that defeat substantive federal rights, including the right to engage in concerted activity under the NLRA. (Id. at 15, 26.) In Morris, employees’ waiver was illegal not because it required the employees to pursue their claims in arbitration, but rather, because they could not do so in concert. (Id. at p. 16.)

Other circuit courts have taken a contrary position, enforcing employers concerted action waivers under the FAA. See Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772, 776 (8th Cir. June 2, 2016); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1053-54 (8th Cir. 2013); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 361 (5th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013).

As more circuits choose sides on whether class action waivers in arbitration agreements are enforceable, Supreme Court review becomes an inevitability.

The High Court would also be wise to resolve a disagreement between the Ninth and Seventh Circuits regarding such waivers. In the Seventh Circuit, any “[c]ontracts that stipulate away employees’ Section 7 rights . . . are unenforceable.” Epic, 823 F.3d. at 1155. The Ninth Circuit precedent is narrower, making such contracts enforceable if employment is not conditioned on agreeing to the clause. (Slip. Op. 11, n. 4.) For example, if an employee has the opportunity to opt-out of a class action waiver and keep his or her job, but chooses not to, that waiver would be enforceable by the employer in the Ninth Circuit. (Id. (citing Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1076 (9th Cir. 2014))). The Seventh Circuit provides a clearer rule, one that better comports with the purposes of the NLRA, and one that the Supreme Court should adopt.

For now, workers in the Ninth and Seventh Circuits, as well as their advocates, should take note that employers cannot force employees to sign class action waivers as a condition of employment, because Epic and Morris tell us that the NLRA provides employees with the right to vindicate their employment rights collectively.

This blog appeared on Bryan Schwartz Law on August 23, 2016. Reprinted with permission.

Rachel Terp is an associate at Bryan Schwartz Law, where she focuses on employment discrimination, whistleblower, and wage and hour claims. Previously, Ms. Terp was a Bridge Fellow with the East Bay Community Law Center (EBCLC), where she specialized in consumer litigation.

 Bryan Schwartz Law is an Oakland, California-based law firm dedicated to helping employees protect their rights in the workplace. Mr. Schwartz and his firm have fought to prohibit discrimination, retaliation, and harassment obtained reasonable accommodation for disabled employees, vindicated whistleblowers’ rights and ensured that corporations pay workers all wages they are owed. Bryan Schwartz Law has successfully litigated individual and class action complaints nationwide, helping to recover millions of dollars for thousands of employees, forcing corporations and Government agencies to change their practices and punish wrongdoers. Bryan Schwartz Law is also one of the few Bay Area-based law firms with extensive experience representing Federal employees in their unique Merit Systems Protection Board and Equal Employment Opportunity Commission complaints.

 

CFPB Hearing: Data on One Side, Empty Rhetoric on the Other

Wednesday, March 11th, 2015

GabeHopkinsLarge In today’s era of Big Data, analytics, and sabermetrics, the cheeky motto “in God we  trust, all others must bring data” has never seemed more relevant. Well, in the arena of  mandatory arbitration provisions in consumer contracts the data is in, and the verdict is  clear: mandatory arbitration is unfair to consumers and harmful to the public interest.

Yesterday, the Consumer Financial Protection Bureau officially released its long-  awaited report on the use of mandatory arbitration clauses in consumer financial  services contracts. At a field hearing in Newark, N.J., CFPB Director Richard Cordray  discussed the report’s essential findings, noting that it was “the most comprehensive empirical study of consumer financial arbitration ever conducted.”

I’ll briefly outline the results, but what was really interesting – and what I’ll discuss below – is the discussion among panelists at the hearing Tuesday.

The 768-page report, three years in the making, was mandated by Congress in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. It analyzed six different consumer financial markets to compare the relative value of arbitral forums and courts for resolving disputes between customers and service providers. The evidence led to several key conclusions:

  • Mandatory arbitration clauses affect tens of millions of Americans. In both the credit card and checking account sectors, half of all accounts were covered by such provisions. The CFPB estimates that 80 million credit card holders are subject to mandatory arbitration.
  • Consumers don’t know they’ve signed away their rights. In a survey conducted for the report, 75% of consumers did not know whether they were subject to mandatory arbitration clauses. Of the 25% who thought they did know fully half were wrong about the true nature of the contracts they had signed. The survey also revealed that only a small fraction of consumers actually understand what mandatory arbitration and class action bans really mean for their rights.
  • Consumers rarely act on an individual basis. Over a three-year period, consumers filed only 1,800 claims in arbitration and 3,500 individual claims in federal court. Evidence from small-claims courts showed that individuals rarely turn to that forum for redress, and that most activity in those courts was by companies filing debt-collection suits against consumers.
  • Consumer class actions work. Over a five-year period 420 class action settlements in federal court netted $2.7 billion in cash, fees, and other relief. Contrary to the familiar protests of industry advocates, only 18% of this money went to plaintiffs’ lawyers, meaning $2.2 billion accrued to the benefit of affected consumers, with approximately half paid directly to consumers in cash payouts. These settlements benefitted at least 34 million consumers across America, not to mention all those protected by the settlements’ deterrent value.
  • Companies use arbitration clauses to kill class actions. Companies rarely invoke arbitration clauses to move individual suits out of court. In contrast, such provisions are raised in nearly two-thirds of class actions, and almost all arbitration clauses prohibit class treatment in the arbitral forum.
  • Arbitration does not make financial services cheaper for consumers. There is no evidence for the claim that arbitration clauses make the cost of doing business cheaper for companies who pass those savings onto consumers. Indeed, after four large credit card issuers removed arbitration clauses from their form contracts under an antitrust settlement, they did not significantly increase costs or reduce access to credit compared to other unaffected companies.

At the hearing in Newark, Director Cordray’s overview of the report’s findings was followed by a panel discussion between advocates for the financial industry and consumer protection advocates, including Public Justice Executive Director Paul Bland.

Given the reams of empirical data contained in the report, the industry-side panelists had little ground to stand on. Their responses consisted largely of nit-picking about the report’s methodology and doubling-down on their belief that arbitration is cheaper, faster, and fairer for consumers. For example, Ballard Spahr attorney Alan Kaplinsky  cited “studies” and his own “personal experience” representing financial institutions to back up these claims. , but did not cite any specific study by name. . He protested that it’s too early to judge how consumers fare in arbitration compared to court because arbitration is “in its infancy,” ignoring the fact that the report analyzed three years’ worth of data from the nation’s largest arbitration provider.  He also raised the familiar bugbear of the predatory plaintiffs’ bar, which reaps untold profits from “frivolous” lawsuits without any real benefit for their clients. His most intriguing comment, if only for its irony, was that his clients in the financial sector are regulated well enough by the CFPB and other federal and state agencies. Leave enforcement to government actors, he argued, they are far better at protecting consumers than the private sector.

Probably the most interesting comments from the industry side of the aisle came from Louis Vetere, president and CEO of a New Jersey credit union. Though he also did not grapple directly with the report, he agreed with his ideological colleagues that arbitration was good for consumers. However, he also repeatedly clarified that his company did not mandate arbitration in its contracts, nor did it think doing so was proper. Rather, he preferred to offer arbitration as an option when disputes with depositors arose, ultimately accepting whichever forum the depositor felt most comfortable with.

The panel’s consumer advocates fired back on several fronts, refuting both the specific arguments made by the industry advocates, and pointing out the many systemic problems caused by mandatory arbitration. Jane Santoni, a consumer lawyer in Maryland, said that arbitration was never a better option for her clients. More troubling to her was the fact that she has had to turn away the majority of prospective clients who have meritorious claims because as individual cases they are simply untenable for her to take. From her perspective mandatory arbitration has an “astronomical chilling effect” on the civil justice system.

Myriam Gilles, professor at Cardozo School of Law, noted that deciding consumer law cases in the “hermetically sealed” forum of private arbitration rather than in public court proceedings undermines the common law system in which future decisions build upon past precedents. She also pointed out that companies put mandatory arbitration clauses in their contracts because it’s in their interests and is a matter of “common sense” from their perspective: as the report clearly bears out, arbitration is not about dispute resolution. It’s about avoiding liability.

Public Justice’s Paul Bland drove this point home in his remarks, noting that the innocent-sounding claim that arbitration is just about moving disputes to a simpler, easier forum is a “fairy tale.” He noted that mandatory arbitration prevented consumers from protecting themselves, particularly as marginal financial actors such as payday lenders move their practices online, burying arbitration agreements in tiny-text terms and conditions on obscure webpages, all to avoid answering to consumers and government overseers when they violate consumer protection statutes. Mandatory arbitration does little more, he argued, than permit companies to break the law with impunity by taking away people’s basic constitutional and statutory rights via mouse print contracts.

The hearing closed with comments from the assembled audience. Dozens of consumer advocates stood up and added further arguments against the use of mandatory arbitration. The points raised were remarkably varied, ranging from the practical – poor consumers can’t even afford the AAA’s $200 filing fee – to the theoretical – pre-dispute arbitration agreements violate consumers’ First Amendment right to petition for redress in a government court. One common refrain in the public comments, made in response to industry panelists’ claims that consumers enjoy the simplicity and informality of arbitration, is that if arbitration is such a good deal for consumers, it should be offered as a choice rather than being forced upon them as a condition of signing up for a credit card, cell phone or car loan.

Now that the data is in, the CFPB will soon announce what, if any, action it should take to regulate the use of mandatory arbitration provisions in consumer financial services contracts. Given the content of the report, the wealth of arguments supporting its conclusions, and the empirically bankrupt arguments from the other side, it is hard to imagine that the Bureau won’t come down hard on these clauses, perhaps even banning them outright. We here at Public Justice certainly hope that it does.

This post originally appeared at http://publicjustice.net/content/cfpb-hearing-data-one-side-empty-rhetoric-other. Reprinted with permission.

About the Author: Gabriel Hopkins joined the Public Justice DC Office in September 2014 as the Thornton-Robb Attorney. Before joining Public Justice he spent a year clerking on the New York State Court of Appeals for the Honorable Susan P. Read.  Gabriel attended New York University Law School and received his J.D. in 2013. While at NYU he worked with attorneys from the New York Civil Liberties Union to sue the New York Department of Corrections over its unconstitutional use of solitary confinement to discipline prisoners, securing significant relief from this practice for minors and the mentally ill in the prison system. He also summered at the New York Attorney General’s Civil Rights Bureau, and the Los Angeles civil rights firm Schonbrun DeSimone Seplow Harris & Hoffman, where he helped partner Paul Hoffman bring the landmark international human rights case Kiobel v Royal Dutch Petroleum to the US Supreme Court.

 

When merely considering your rights can get you fired!

Wednesday, September 3rd, 2014

Employers may be reluctant to admit that their policies are designed to shut workers out of our civil justice system.  But there is no denying their intent.

Consider this example.  Elizabeth is a widow with five children who came into my office this spring.  Since the death of her husband a few years ago, she immersed herself in her work to provide for her family. Elizabeth didn’t earn much at her job, but her work as a waitress was enough to support her children.  She had been working for a California-based restaurant chain for nine years.

During a Friday shift last year, Elizabeth was informed about a new kind of company policy – an arbitration agreement that she was told she had to sign and return by Monday.  Elizabeth tried to find an attorney over the weekend to explain the document to her, and when she couldn’t, she asked her employer for more time to review the agreement.  She was fired a few days later for missing the 72-hour deadline.  The company also fired several other employees for either declining to sign the arbitration agreement or not doing so by the company-imposed deadline.

Elizabeth’s case is not uncommon, but it underscores just how much “free choice” goes into these “agreements.” Remarkably, courts have held that terminating employees for not signing employer-mandated arbitration agreements is not illegal.  These and other decisions are beginning to reach their absurd conclusions, where courts enforce arbitration agreements without regard to the rights of the affected individuals, enforcement of our laws, or the administration of justice. As Judge Jack Zouhary (a George W. Bush appointee) recently wrote in an order compelling arbitration of an antitrust claim, “This Court is bound by case law’s pro arbitration bent … common sense plays no role.”

Compulsory private arbitration has been the favored corporate practice for years.  It is easy to understand why.  Highly-paid private arbitrators, whose livelihood often depends on the repeat business from the same large corporations, render “justice” to an aggrieved employee who almost certainly will never appear before them again.  The inherent disadvantage for low wage workers facing off against multi-million dollar corporate employers in any setting is obvious, but the disadvantage is compounded in an arbitral forum.  Despite this, our courts have generally enforced these “agreements.”

I often see aggrieved employees who have signed arbitration agreements without understanding the content or the significance of the document. They sign the documents that their employers put in front of them, in order to continue working and to feed their families.  In fact, most workers don’t learn what the term “arbitration” means until they consult with an attorney and learn that they have already signed away their right to seek justice in a court.

But the compulsory nature of these arbitration agreements is undeniable when we look at the employees that don’t blindly “agree” to an employer’s mandatory arbitration policy, or those like Elizabeth who merely ask for time to conduct a careful review and to consider their rights before agreeing to sign them away.  If there was any question whether such “agreements” are a condition of employment, Elizabeth’s experience offers the answer.

Are we beginning to see the end to these extreme practices? On July 31, President Obama signed an executive order prohibiting certain federal contractors from forcing their employees out of court and into arbitration in workplace discrimination cases.

Although this executive action is a step in the right direction, it does not go far enough. Congress continues to ignore this systematic denial of justice to our workers by failing to move forward on the Arbitration Fairness Act, which has been pending since last year.  The Act would ban forced arbitrations in employment and consumer settings. Until workers have a real choice in deciding where to claim their rights, the scales of justice will remain unbalanced.

This blog originally appeared in CELA Voice on August 26, 2014. Reprinted with Permission. http://celavoice.org/category/afshin-mozaffari/.

About the Author: Afshin Mozaffari is the founder and principal of Mozaffari Law. Mr. Mozaffari’s practice focuses on civil rights and employee rights litigation, including discrimination (based on race, religion, color, national origin, ancestry, physical or mental disability or medical condition, marital status, gender, sexual orientation, age, and pregnancy, childbirth or related medical conditions), sexual harassment, retaliation, disability accommodation, wrongful termination, and wage & hour. Prior to the founding of Mozaffari Law, Mr. Mozaffari represented numerous corporations, schools, and non-profits in employment law, torts, business litigation, and class action cases. He recently left the defense side to follow his long-held passion for representing the rights of employees and other individuals.

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