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"Consumer And Employee Disputes: Statute v. Agreement To Arbitrate" by Anna Mitchell


Consumer And Employee Disputes: Statute v. Agreement To Arbitrate

by Anna Mitchell
Introduction

In some legal practices, arbitration is favored to litigation. This is particularly true for businesses that may want to avoid disputes going before a jury, desire flexibility in the dispute resolution process, require extensive enforceability of an award, prefer an expedited and private dispute resolution process, or want to avoid class action suits. Russell on Arbitration, 23d, David Sutton, Judith Gill, Matthew Gearing, 1:5 (2011). On the flip-side, arbitration can be just as costly and suffer just as many delays as litigation, disallow joinder or consolidation of claims by numerous petitioners or claimants, and impact the quality of decision making based on the arbitrators. Id. at 1:6 (2011).

As a result of the downsides of arbitration, some parties to arbitrations, such as consumers and employees, seek to evade arbitration agreements on the basis that they were compelled to agree to the process. For example, credit card or employment contracts incorporating arbitration agreements are often offered to consumers and employees on a take-it-or-leave-it basis, arguably forcing these parties to accept arbitration.

Thus, the question of whether courts should enforce arbitration agreements or grant consumers and employees rights as established by statutes is ubiquitous. This is due to the increasing use of arbitration as a method to resolve business and labor disputes, the enforcement of agreements to arbitrate in light of statutes giving consumers and employees the "right to litigate," and complications with class action suits. Based on current litigation and shifting perspectives on the enforcement of arbitration in these types of disputes, it appears that the court's deference to arbitration agreements will persist, but the use of arbitration clauses will be impacted by legislation and public policy.

I History: The enforceability of arbitration agreements

The background law governing the enforceability of arbitration agreements is the Federal Arbitration Act (FAA). The FAA was enacted in 1925 as a response to judicial hostility to arbitration. 9 U.S.C. § 1 et seq.; AT&T Mobility LLC v. Concepcion, 563 U.S. ___, ___, 131 S.Ct. 1740, 1745, 179 L.Ed.2d 742 (2011). The FAA provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2.

This provision of the FAA establishes "a liberal federal policy favoring arbitration agreements." Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); See also, e.g., Concepcion, supra, at ___, 131 S.Ct., at 1745; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). It requires courts to enforce agreements to arbitrate according to the terms of the agreements. See Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Courts must enforce arbitration agreements according to the terms even when the claims at issue are federal statutory claims, unless the FAA's mandate has been "overridden by a contrary congressional command." Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). As such, all matters are arbitrable unless congress specifically indicates that the matter is not.

Agreements to arbitrate are also considered to be non-arbitrable and invalid when the arbitration agreement itself is impeached or the existence of an arbitration agreement is disputed. Russell on Arbitration, 23d, David Sutton, Judith Gill, Matthew Gearing, 2-012 (2011). In these cases, the question of jurisdiction may never reach the arbitrators because the court will determine whether a matter is arbitrable. Id.; Arbitration Act 1996, §1(b). Courts draw a distinction between disputes as to the existence of the arbitration agreement and to the validity of the agreement. Id.; Watson v. Prager, 3 All E.R. 487 (1991). The validity of an agreement is generally a determination to be made by the arbitral tribunal. Id. The existence of an agreement is generally a determination made by the court. Id. An arbitral tribunal may decide the question of whether an arbitration agreement is invalid and this decision can be reviewed by the court. See Leigh v. English Property Corp Ltd, 2 Lloyd's Rep. 298 (1976).

An arbitration agreement will only be impugned in exceptional circumstances. See Mallozzi v. Carapelli,1 Lloyd's Rep. 407 (1976). For example, in Fiona Trust v. Privalov, allegations of bribery were raised in general terms but not so as to specifically impugn the arbitration agreement. See EWCA 20 (2007) (aff'd in Premium Nafta Products Ltd. v. Fili Shipping Co. Ltd., UKHL 40(2007)). In this case, the court upheld the application of the arbitration agreement by declining to decide the question of jurisdiction itself and instead referred the matter to the arbitrators. Id. The court held:

If the arbitrators can decide whether a contract is void for initial illegality, there is no reason why they should not decide whether a contract has been procured by bribery, just as much as they can decide whether a contract has been procured by misrepresentation or non-disclosure. Illegality is a stronger case than bribery which is not the same as non est factum or the sort of mistake which goes to the question of whether there was any agreement ever reached. It is not enough to say that the bribery impeaches the whole contract unless there is some special reason for saying that the bribery impeaches the arbitration clause in particular. Id.

Even bribery -- a dire allegation -- will not bring the validity of an arbitration agreement before the court.

By contrast, in a case where it was alleged that the signature of one of the parties to the contract had been forged, so no agreement to arbitrate had been reached, the question was to be decided by the court. Albon v. Naza Motor Trading Sdn. Bhd. (No.3), EWHC 327 (2007).

Thus, the circumstances under which a court will assess the validity of an arbitration agreement are extremely narrow. Significant deference is given to the arbitration panel in making decisions about the arbitrability of a dispute. Understanding the current judicial climate favoring the enforcement of arbitral awards provides an essential platform for appreciating the impact these agreements may have for consumers or employees. This is particularly significant for those not savvy to the arbitration process or aware of the future implications agreeing to arbitration may have for disputes.

Currently, consumers and employees are raising the "illusory" argument as a major issue for consumer and employee rights and arbitration clauses. These claimants and plaintiffs seek to evade the arbitration agreements they subjected themselves to by alleging that they did not fairly bargain for or agree to the process, or that the process wrongly deprives them of rights granted in statutes. In essence, consumers and employees argue that their agreement to arbitrate was not legitimate.

II Consumer rights

Current consumer rights litigation focuses on the degree to which companies can enforce arbitration agreements with consumers in the face of these "illusory" agreements, statutes delineating consumers' rights to litigation, and the desire of consumers to join in class action suits. In two recent Supreme Court cases, CompuCredit Corp. v. Greenwood and AT&T Mobility v. Concepcion, the court clearly defined this very line between the enforceability of arbitration agreements in two scenarios: first, the enforcement of arbitration agreements in the face of statutes providing consumers rights to litigate, and second, the enforceability of arbitration agreements over the desire of consumers to join in class action suits. 132 S. Ct. 665 (2012); 131 S.Ct. 1740 (2011).

A. Consumers and the right to litigate

In CompuCredit Corp., consumers joined in a class action suit alleging rights to litigate under the Credit Repair Organizations Act (CROA) and CompuCredit Corp. sought to enforce the terms of the arbitration agreement. 132 S. Ct. 665, 668 (2012). The respondents were individuals who applied for and received an Aspire Visa credit card marketed by petitioner CompuCredit Corp. and issued by Columbus Bank and Trust. Id. at 668. The claims largely involved the defendants' allegedly misleading representation that the credit card could be used to rebuild poor credit and the defendants' assessment of multiple fees upon opening of the accounts, which greatly reduced the advertised credit limit. Id. In their applications, consumers agreed to be bound by a provision which read, "Any claim, dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to your Account, any transferred balances or this Agreement (collectively, 'Claims'), upon the election of you or us, will be resolved by binding arbitration." Id. at 668.

Initially, the District Court denied CompuCredit Corp.'s motion to compel arbitration of the claims, concluding that "Congress intended claims under the CROA to be non-arbitrable." 617 F.Supp.2d 980, 988 (2009); 615 F.3d 1204 (2010). A panel of the United States Court of Appeals for the Ninth Circuit affirmed the District Court's ruling. Id. However, the Supreme Court granted certiorari and held that the CROA did not preclude enforcement of the arbitration agreement. 563 U.S. ___, 131 S.Ct. 2874, 179 L.Ed.2d 1187 (2011).

The Supreme Court explained that the flaw in the District Court and Ninth Circuit's finding was that CROA's grant of the non-waivable right to litigate applied only to a specific right under CROA. 132 S. Ct. 665, 669 (2012). Essentially, the District Court and the Ninth Circuit interpreted the following provision to apply to every dispute under CROA:

Any waiver by any consumer of any protection provided by or any right of the consumer under this subchapter--(1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person. 132 S. Ct. 665, 669 (2012); CROA § 1679f(a).

However, the non waiver provision existed under the subchapter on disclosure, and not as a general provision of the CROA. 132 S. Ct. 665, 669 (2012).

Supporting the enforceability of arbitration agreements and specifying that language providing the right to litigate is insufficient to render arbitration agreements void, the Supreme Court held that:

It is utterly commonplace for statutes that create civil causes of action to describe the details of those causes of action, including the relief available, in the context of a court suit. If the mere formulation of the cause of action in this standard fashion were sufficient to establish the "contrary congressional command" overriding the FAA, valid arbitration agreements covering federal causes of action would be rare indeed. But that is not the law. 132 S. Ct. 665, 670 (2012); American Express v. McMahon, 482 U.S. 220, 226 (1987).
The Supreme Court further held that, "It takes a considerable stretch to regard the non-waiver provision as a 'congressional command' that the FAA shall not apply." 132 S. Ct. 665, 671 (2012).

Specifically, the court emphasized that "had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse than what respondents suggest. When it has restricted the use of arbitration in other contexts, it has done so with a clarity that far exceeds the claimed indications in the CROA." 132 S. Ct. 665, 672; see 7 U.S.C. § 26(n)(2) (2006 ed., Supp. IV) ("No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section"); 15 U.S.C. § 1226(a)(2) (2006 ed.) ("Notwithstanding any other provision of law, whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy"); cf. 12 U.S.C. § 5518(b) (2006 ed., Supp. IV) (granting authority to the newly created Consumer Financial Protection Bureau to regulate pre-dispute arbitration agreements in contracts for consumer financial products or services). 132 S. Ct. 665, 672.

By contrast, Justice Ginsberg stated in her dissent:

The Court today holds that credit repair organizations can escape suit by providing in their take-it-or-leave-it contracts that arbitration will serve as the parties' sole dispute-resolution mechanism. The "right to sue," the Court explains, merely connotes the vindication of legal rights, whether in court or before an arbitrator. That reading may be comprehensible to one trained to "think like a lawyer." But Congress enacted the CROA with vulnerable consumers in mind--consumers likely to read the words "right to sue" to mean the right to litigate in court, not the obligation to submit disputes to binding arbitration. 132 S. Ct. 665, 676.

Justice Ginsberg's dissent demonstrates that Congress' intentions and the language used in legislation may not be accurately reflected in the way the Supreme Court has upheld arbitration agreements. Recognizing that legal interpretation may convolute Congressional intention will allow future legislation to be more specific in its language granting consumers certain rights.

The holding and dissent in CompuCredit Corp. demonstrate that there is a measure by which an act can disallow waiver of the right to litigate, but that it must be clearly indicated that it was the intention of the legislation. In sum, CompuCredit Corp. established two principles: first, it reinforced the validity of arbitration agreements, and second, it spelled out the condition by which an act could render arbitration agreements void.

By clearly indicating the line between an arbitration agreement and the ability of an act to overcome the enforceability of such agreement, CompuCredit Corp. impacts the ways legislators write acts. Approaching the enforceability of arbitration agreements through legislation will be one way that consumers respond to courts' strong enforcement of these types of business agreements.

B. Consumers' right to class actions

In addition to considering the enforceability of arbitration agreements over a consumer's right to litigate provided by an act, the Supreme Court considered whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of class wide arbitration procedures. AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1744 (2011). In AT&T Mobility v. Concepcion, the Supreme Court upheld an arbitration clause in a cell phone contract that forced consumers to waive their right to take part in a class action. Id.

AT&T Mobility involved two consumers, Mr. and Mrs. Conception, who entered into an agreement for the sale and servicing of cell phones by AT&T Mobility. 131 S. Ct. 1740, 1744 (2011). The contract provided for arbitration of all disputes between the parties, but required that claims be brought in the parties' "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." Id. at 1744. Mr. and Mrs. Conception filed a complaint against AT&T in the United States District Court for the Southern District of California. The complaint was later consolidated with a putative class action alleging, among other things, that AT&T had engaged in false advertising and fraud by charging sales tax on phones it advertised as free. Id. at 1744.

AT&T then moved to compel arbitration, but the District Court of California denied its motion on the basis that the arbitration agreement was unconscionable and unlawfully exculpatory under California law. Id. at 1745. The Court stated that the arbitration agreement disallowed class wide procedures, which would render a class of wronged consumers "worse off." Id. The District Court held that the arbitration provision was unconscionable because AT&T failed to demonstrate that bilateral arbitration adequately substituted for the deterrent effects of class actions. Id. at 1745. The Supreme Court then granted certiorari. 560 U.S. ___, 130 S.Ct. 3322, 176 L.Ed.2d 1218 (2010); 131 S. Ct. 1740, 1745 (2011).

The Supreme Court held that federal law enforcing arbitration agreements takes precedent over state laws. The court explained its reasoning:

When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008). But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration. In Perry v. Thomas, for example, we noted that the FAA's preemptive effect might extend even to grounds traditionally thought to exist 'at law or in equity for the revocation of any contract.' 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). We said that a court may not 'rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what ... the state legislature cannot.' Id. at 493, n. 9, 107 S.Ct. 2520.

Essentially, the court looked to the power of the FAA and concluded that its preemptive effect may go beyond grounds that would traditionally revoke a contract. This holding yet again demonstrated the Court's desire to uphold agreements to arbitrate.

It should be noted, however, that four Supreme Court justices dissented with the holding in AT&T Mobility v. Concepcion, finding:


The Federal Arbitration Act says that an arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (emphasis added). California law sets forth certain circumstances in which "class action waivers" in any contract are unenforceable. In my view, this rule of state law is consistent with the federal Act's language and primary objective. It does not "stan[d] as an obstacle" to the Act's "accomplishment and execution." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). And the Court is wrong to hold that the federal Act pre-empts the rule of state law. 131 S. Ct. 1740, 1756 (2011)

The large number of dissenting justices indicates a shift in the general deference to the FAA.

C. Consumers and overcoming arbitration agreements: changes in public policy

In considering recent consumer rights litigation and decisions by the Supreme Court through the purview of these cases, it is clear that the circumstances to overcome an agreement to arbitrate are very limited. Nonetheless, changed public perception of consumers' desire to litigate is reflected in changes in industry standards and acts.

Responding to the change in public perception, private dispute resolution providers that create industry standard arbitration agreements are making shifts in their policies regarding consumer disputes. In 2009, Judicial Arbitration and Mediation Services (JAMS) created new minimum standards on procedural fairness for consumer disputes. JAMS' policy standards "are applicable where a company systematically places an arbitration clause in its agreements with individual consumers and there is minimal, if any, negotiation between the parties as to the procedures or other terms of the arbitration clause." Arbitration and Mediation Service Policy on Consumer Arbitrations Pursuant to Pre Dispute Clauses: Minimum Standards of Procedural Fairness, JAMS (July 15, 2009).

Relevant standards include the following provisions:

1. The arbitration agreement must be reciprocally binding on all parties such that: A) if a consumer is required to arbitrate his or her claims or all claims of a certain type, the company is so bound; and, B) no party shall be precluded from seeking remedies in small claims court for disputes or claims within the scope of its jurisdiction.

2. The consumer must be given notice of the arbitration clause. Its existence, terms, conditions and implications must be clear.

3. Remedies that would otherwise be available to the consumer under applicable federal, state or local laws must remain available under the arbitration clause, unless the consumer retains the right to pursue the unavailable remedies in court. Id.

Organizations', like JAMS, efforts to heighten the standards for businesses entering into arbitration agreements with consumers indicates recognition that arbitration should be conducive to the needs of both businesses and consumers. Such standards function as a tool to make arbitration a fairer forum for consumers and businesses alike.

Similarly, changes in federal law reflect the acknowledgement that arbitration agreements need to be assessed for fairness to consumers. Section 1028 of the Dodd-Frank Act, the financial-reform bill signed into law by President Obama in July 2010, gives the Consumer Financial Protection Bureau (hereinafter "Bureau") explicit authority to study use of arbitration clauses related to financial products and services. 124 STAT. 2004 (2010). The Act further gives the Bureau the power to restrict mandatory pre-dispute arbitration. It states:

The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. 124 STAT. 2004, §1028(b) (2010) (emphasis added).

The power given to the Bureau reflects recent shifts in public perception of arbitration and consumer needs. The Bureau's power to impose conditions or limitations on the way arbitration agreements can be structured in consumer disputes serves as a mechanism through which consumers can implement change from a public policy standpoint.

Changes in industry requirements for consumer arbitration agreements and changes in government regulation of these types of agreements reflect a public desire to offer consumers more rights in disputes with businesses. The regulations are particularly significant in circumstances where consumers do not have as much power to negotiate for dispute resolution processes with businesses.

To overcome the court's enforcement of arbitration agreements in these types of disputes, consumers will have to refuse to sign arbitration agreements, influence arbitration organizations to heighten standards of procedural fairness, address changes in legislation through Congress, or look to the Consumer Financial Protection Bureau. The same may also be true for employment disputes.

III Employment law and arbitration

As a condition of employment, employers frequently utilize agreements requiring employees to address workplace disputes in arbitration or other types of alternative dispute resolution, instead of bringing claims before a court. The employees' only option is often to sign employment contracts including an agreement to arbitrate or turn down the job. Arguably, employees are compelled to agree to arbitration clauses in the face of not being gainfully employed.

There are many reasons why employers use these types of agreements. Employers may prefer arbitration agreements because they pre-empt court challenges on workplace disputes, prevent arbitrators from consolidating similar claims, and prevent employees from asserting class action suits. See J. O'Keefe, Preserving Collective-Action Rights in Employment Arbitration, 91 VA. L. REV. 823 (2005) (class-action avoidance as a principal, if not paramount, motivation for requiring workers to contractually waive their right to sue in court and instead submit claims to binding arbitration).

Over the past few decades, controversy over mandatory employment arbitration provisions has grown as employment litigation increases exponentially, litigation costs continue to rise, and employers search for ways to minimize risks. Employment Arbitration Law and Practice, Paul Starkman, Gail Golman Holtzman, Donald J. Spero, § 1:3 (2011). The controversy stems from the fact that some employers have tried to use the procedural flexibility available in arbitration to "stack the deck" in their favor, for example, by keeping the dispute private and limiting discovery. Id. At the same time, many employees prefer to bring forth their claims in front of a jury in the hope of maximizing their potential recovery. Id.

In Cole v. Burns International Security Services, the United States Court of Appeals for the District of Columbia identified and addressed a variety of concerns regarding the arbitral forum. These included: (1) the arbitrator's assumption of the role of "private judge" who is "neither publicly chosen nor publicly accountable," (2) the arbitrator's competence to adequately decide purely legal issues connected to statutory claims, (3) the employer's possible benefit in choosing an arbitrator as a result of the employer being a "repeat player in cases involving individual statutory claims," (4) the employers' requirement that employees pay arbitration fees, (5) the employer's potential advantage over employees due to lack of public disclosure of arbitration decisions, and (6) questions regarding the abridged procedural processes of arbitration as they relate to discovery, testimonial, and evidentiary issues. 105 F.3d 1465 (D.C. Cir. 1997).

In light of the restrictions employees may suffer in labor and employment disputes and concern with the arbitral forum, arbitration is viewed by some as a restrictive and undesirable dispute resolution process. However, changes in the use of arbitration agreements are beginning to occur on the forefront of labor and employment issues.

A. Arbitration agreements and labor law historically

Similarly to consumer disputes, the Supreme Court has generally upheld employer-employee agreements to arbitrate. Two cases demonstrate the Supreme Court's stance on upholding arbitration agreements: Gilmer v. Interstate/Johnson Lane Corp. and Circuit City Stores, Inc. v. Adams.

In 1991, the Supreme Court issued its first ruling on an FAA claim based on an employer-employee contract in Gilmer v. Interstate/Johnson Lane Corp. 500 U.S. 20 (1991). In Gilmer, the Court affirmed an appeals court decision holding that federal statutory claims of an employee against his employer could be precluded by an existing arbitration agreement barring a showing of contrary congressional intent. Id.

In this case, the plaintiff sued his former employer claiming a violation of the Age Discrimination in Employment Act ("ADEA"). Gilmer, 500 U.S. 20, 23 (1991). The employer responded to the claim by asking the court to compel arbitration pursuant to an arbitration agreement found in the employee's registration with the New York Stock Exchange. Id. Having held in Alexander that statutory claims can be subject to arbitration, the Court placed the burden to demonstrate Congress intended to preclude arbitration of statutory claims in an employer-employee contract squarely on Gilmer. Id. at 26. The Court, finding no such congressional intent within the ADEA, ruled that "having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue." Id.

The Court dismissed Gilmer's concerns regarding the adequacy of the arbitration process. Gilmer, 500 U.S. 20, 26 (1991). The Court held that the arbitration process adequately protected Gilmer's substantive rights, because the arbitration agreement did not require him to forfeit his rights, rather "[he] only submits to resolution in an arbitral, rather than a judicial, forum." Id. The Court concluded that arbitration agreements should be upheld as long as they meet the standards applicable to any other contract. Id.

In Circuit City Stores, Inc. v. Adams, the Supreme Court held that the FAA applies to the pre-dispute contracts of the majority of employees, excluding only seamen, railroad employees, and other transportation workers (i.e., those directly engaged in the act of interstate commerce). 532 U.S. 105 (2001). The majority opinion concluded that had the architects of the FAA intended for all employment contracts to be exempt, seamen and railroad employees would not have been specifically identified. Id. at 114. The Court regarded the identification of such professions as evidencing Congress's intent that only those professions, and others immediately related, be exempt. Id. at 114-5. Shortly after the Circuit City decision, the Ninth Circuit ruled that Title VII claims can be subject to compulsory arbitration as a condition of employment, and that Duffield was now to be regarded as within the category of 'fruitful error.' EEOC v. Luce, et al., 303 F.3d 994, 1003-4 (9th Cir. 2002).

Both Gilmer and Circuit City yet again demonstrate the Court's liberal deference to arbitration agreements, historically and presently.

B. Current changes in labor law and arbitration

In a recent ruling, however, the National Labor Relations Board (NLRB) concluded that employees' federal right to engage in concerted action trumps any arbitration agreement that bars group claims. D. R. Horton, Inc. and Michael Cuda., Case 12-CA-25764 (2012). This ruling represents a landmark shift in court conceptualization of employee rights in the face of an agreement to arbitrate. The ruling provides that employers can still require arbitration, but they must also offer ways for employees to bring collective claims, either in arbitration or in court. Id.

To provide some context, the NLRB is an independent federal agency vested with the power to safeguard employees' rights to organize and to determine whether to have unions as their bargaining representative. NAT'L LABOR REL. BD., http://www.nlrb.gov/what-we-do (May 4, 2012). The agency also acts to prevent and remedy unfair labor practices committed by private sector employers and unions. Id. The NLRB has jurisdiction over U.S. Postal Workers and employees in most private-sector workplaces, including manufacturing plants, retail centers, private universities, and health care facilities. Id. Because the dispute in D.R. Horton involved a home builder corporation, the dispute fell into NLRB jurisdiction.

In D.R. Horton, the employer required all of its employees to sign a mutual arbitration agreement (MAA), which stipulated that all employment-related disputes must be resolved through individual arbitration and waived the employees' rights to a judicial forum. D. R. Horton, Inc. and Michael Cuda., Case 12-CA-25764 (2012). In relevant part, the MAA provision read:

1. That all disputes and claims relating to the employee's employment with Respondent (with exceptions not pertinent here) will be determined exclusively by final and binding arbitration;

2. That the arbitrator "may hear only Employee's individual claims," "will not have the authority to consolidate the claims of other employees," and "does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding"; and

3. That the signatory employee waives "the right to file a lawsuit or other civil proceeding relating to Employee's employment with the Company" and "the right to resolve employment-related disputes in a proceeding before a judge or jury." Id.



Thus, employment was contingent upon the signing of the MAA. D.R. Horton, Case 12-CA-25764 (2012). As a result, employees were barred from pursuing class or collective litigation of claims in any forum, arbitral or judicial.

The NLRB case arose when an employee gave the employer notice that he intended to initiate arbitration of Fair Labor Standards Act wage and hour claims on behalf of himself and other employees. D.R. Horton, Case 12-CA-25764 (2012). The employer objected, citing the arbitration agreement's class action waiver provision. Id.

The dispute was then filed and the NLRB General Counsel alleged that the NLRA was violated by the mandatory MAA because it would lead employees to believe that they could not file unfair labor practice charges with the NLRB. D.R. Horton, Case 12-CA-25764 (2012). NLRB General Counsel also alleged that the class action waiver violated the NLRA. Id. The judge dismissed the allegation that the class action waiver violated the NLRA. Id. The NLRB reversed and held that it was in fact a violation. Id.

In its decision the NLRB held that employers violate the NLRA by requiring their employees to sign agreements precluding the filing of joint, class or collective claims addressing wages, hours or other working conditions in any arbitration or judicial forum. D.R. Horton, Case 12-CA-25764 (2012). The NLRB drew attention to Section 7 of the NLRA, which vests employees with a substantive right to engage in specified forms of associational activity. Id. It provides that employees shall have the right "to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . ." Id.; 29 U.S.C. §157. The NLRB further stated that it is well-settled that "mutual aid or protection" includes employees' efforts to "improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee-employer relationship." Id.; Eastex, Inc. v. NLRB, 437 U.S. 556, 565-566 (1978).

The NLRB's decision D.R. Horton opened the door for employees in labor disputes to challenge class action waivers. It did not, however, indicate that all arbitration agreements are in violation of the NLRA. Employers may still require employees to arbitrate employment labor disputes, but the NLRB held that such agreements must also provide a way for workers to bring group claims. D.R. Horton, Case 12-CA-25764 (2012).

Even though the ruling does not denounce the enforceability of arbitration agreements in all employee-employer disputes, it does indicate a shift in the generally strict enforcement of arbitration agreements by courts. Significantly, the NLRB ruling provides a means for employees to seek justice through the court system when they have been collectively wronged by their employer.

The NLRB's decision in D.R. Horton was surprising in light of historical decisions and the court's enforcement of arbitral agreements. It was, in fact, a notable departure from the Supreme Court's holding in CompuCredit Corp. that the FAA preempts state laws that invalidate class action waivers.

The NRLB's decision in D.R. Horton is also in direct opposition with other historical cases. For example, as noted in Gilmer v. Interstate/Johnson Lane Corp., the Court allowed arbitration of claims arising under the Age Discrimination in Employment Act, despite the plaintiff's allegations of unequal bargaining power between employers and employees. 500 U.S. 20 (1991). In Rent-A-Center, West, Inc. v. Jackson, the Court held that arbitrators, rather than courts, have jurisdiction to determine challenges to the validity of arbitration clauses where questions of arbitrability are delegated to the arbitrator. 131 S. Ct. 2722 (2010). The dispute in Rent-A-Center involved an arbitration agreement that was required as a condition of employment. Id. Collectively, these cases leave no question that the United States Supreme Court recognizes that arbitration agreements are enforceable for dealing with labor and employment disputes. As such, the NRLB's movement away from Supreme Court rulings makes the viability of the holding in D.R. Horton questionable.

In addition to the NRLB's departure from historical findings regarding the enforceability of arbitration agreements is the fact that the opinion was made by only two of the board members. The Supreme Court has held that final decisions of the five-seat NLRB may not be delegated to a panel with fewer than three members. New Process Steel v. NLRB, 130 S. Ct. 2635 (2010). This fact further indicates that the opinion is likely to be appealed.

Regardless of whether the D.R. Horton opinion will be appealed, the decision has an effect on employers' future contracts with employees. Employers will have to consider whether they want to include a class action waiver provision in their arbitration agreements. Also, they will have to consider the language of agreements that may lead employees to believe they cannot file unfair labor practices with the NLRB.

The NLRB's decision in D.R. Horton not only shows another way by which agreements to arbitrate may be evaded, but also indicates a shift in the public's view of the use of arbitration in these types of disputes.

IV Conclusion

The recent litigation in both business-consumer and employment and labor disputes demonstrates that the courts will maintain the liberal enforcement of arbitration agreements. However, claims that consumers and employees are raising to evade the enforcement of arbitration agreements are likely to impact the use of arbitration agreements in these types of disputes, whether through legislation or changes in industry standards.

Despite some of the issues consumers and employees raise with arbitration, the process continues to serve as a common and effective forum for settling disputes. For arbitration to continue to serve as a viable alternative to litigation, all parties will need to take steps to ensure that it continues to develop as a fair and accessible dispute resolution process. Whether these steps will entail compromises, such as allowing employees to bring group claims even in arbitration settings, remains to be seen. Nevertheless, arbitration will be most effective if all parties (1) enter into it willingly, (2) accept it as a fair means of dispute resolution, and (3) have equal bargaining power throughout the process.

Anna Rae K. Mitchell is a recent Dispute Resolution LL.M. Graduate at Benjamin N. Cardozo School of Law. She completed her J.D. at Seattle University and currently lives in New York, NY. Her primary areas of interest are arbitration, commercial litigation, and general civil litigation. As a recent graduate and member of the New York State Bar, Anna aspires to practice law in the greater New York City area.

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This page contains a single entry from the blog posted on August 4, 2012 10:19 AM.

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