Federal Arbitration Act

By David S. Baffa, Noah A. Finkel, and Joseph S. Turner

Seyfarth Synopsis: Congress has once again proposed legislation that would seek to ban mandatory workplace arbitration of employment claims, despite a string of United States Supreme Court decisions upholding arbitration and class/collective action waivers as a lawful and appropriate mechanism to resolve workplace disputes. 

H.R. 7109, the Restoring Justice for Workers Act, was introduced by Representative Jerrold Nadler, D-N.Y., and Representative Bobby Scott, D-Va., with 58 Democratic co-sponsors.  Similar legislation is expected to be introduced in the Senate by Senator Patty Murray, D-Wash, with eight Democratic co-sponsors.  The proposed legislation would  overturn the U.S. Supreme Court’s decision in Epic Systems, and would amend the National Labor Relations Act to specifically prohibit class and collective action waivers under a new “Section 8(a)(6).”

As proposed, the new law would prohibit any pre-dispute agreement requiring arbitration of employment disputes.  The law also would prohibit post-dispute agreements to arbitrate, unless the agreement is obtained without coercion or condition of employment-related privilege or benefit.  Employees entering into voluntary post-dispute agreements also must be made aware of their rights under what would be a new section of the National Labor Relations Act.  That new section would make it an unfair labor practice to “enter into or attempt to enforce any [pre-dispute] agreement” that would bar or prohibit class or collective actions relating to employment, or to retaliate against any employee for refusing to promise not to pursue a class claim.

While there is no chance that this bill will move in the House of Representatives as currently comprised, it previews the legislation Democrats are likely to pursue if the House changes control next week.  A bill like this could even put a narrowly-controlled Republican Senate to the test, as the perceived unfairness of pre-dispute mandatory arbitration has been the target of considerable media attention, social media campaigns, and as recently as yesterday — large-scale employee activism.  As such, protecting mandatory arbitration of workplace disputes may be an issue on which even conservative legislators might waver.

Indeed, this is not Congress’ first attempt to ban workplace arbitration.  Before the Supreme Court’s decision in Epic Systems, and as part of the #metoo movement, Congress introduced in December 2017, bi-partisan legislation ostensibly aimed at preventing employers from enforcing arbitration agreements of sexual harassment claims.  That bill, “Ending Forced Arbitration of  Sexual Harassment Act,” was introduced by Senator Kristen Gillibrand, D-NY (and attracted some Republic support), but was penned in a way that would actually ban workplace arbitration in its entirety.  We figured it was an oversight at the time, as written in our blog, “Slow Down Congress: You Are About to Render the FAA Inapplicable to Employment Disputes (and Class Waivers), and You Probably Don’t Realize It.”  Clearly, this week’s Halloween bill was no accident.

Most legislative action against workplace arbitration has centered on the idea of prohibiting arbitration of sexual harassment claims, and by extension all other Title VII claims.  Among the earliest efforts begun in 2009, when — perhaps ironically — then-Senator Al Franken pursued the Arbitration Fairness Act, which sought to prohibit the mandatory arbitration of sexual harassment claims.  While that legislation was not successful, Senator Franken’s efforts led to provisions in the Department of Defense Appropriations Act of 2010, which to this day prohibits contractors to the U.S. DoD, with limited exceptions, from requiring arbitration of Title VII claims (including sexual harassment claims).  Under President Obama, the DoD prohibition was expanded by his Fair Pay and Safe Workplaces Executive Order on July 31, 2014, effective January 2016, to all federal contractors.  President Trump, however, rescinded this EO shortly after taking office in late 2016.

Several state legislatures have sought to ban mandatory arbitration of sexual harassment claims.  Washington, Maryland, and New York each passed laws that would prohibit mandatory arbitration of sexual harassment claims, but those laws are either explicitly or presumptively preempted by the Federal Arbitration Act.  See our Client Alert on the New York Ban.

Facing increasing headwinds against mandatory arbitration of sexual harassment claims, several large companies have proactively and publicly declared that they will exempt sexual harassment claims from existing mandatory arbitration programs.  Other companies also are considering more limited arbitration programs, such as mandatory arbitration and class waivers for wage-hour claims only.  But the Halloween bill and other attempts to ban workplace arbitration altogether are also becoming more common following Epic.  The California legislature passed a law that would have barred arbitration of any violation of the California Labor Code or the Fair Employment and Housing Act, but it was vetoed by Governor Brown on September 30, 2018.  Governor Brown’s term ends this year, and on November 6th Californians will pick a new Governor of California to take office on January 7, 2019.

Kentucky also recently joined the fray.  On September 27, 2018, the Kentucky Supreme Court, in Northern Kentucky Area Development District v. Snyder shot down a workplace arbitration agreement on the basis that a mandatory arbitration agreement for employment claims is prohibited by Kentucky law, and not preempted by the Federal Arbitration Act.   Kentucky’s law prohibits any employer from requiring as a condition of employment an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit…”.  The Court ruled that the statute was not an anti-arbitration clause provision, but an anti-employment discrimination provision.  Of course, calling arbitration a diminution of rights are “fightin’ words” to the U.S. Supreme Court, so we remain on the lookout for a cert petition.

For now, employers are staying the course.  Many companies remain interested in implementing dispute resolution procedures and mandatory arbitration programs that would limit their exposure to class and collective actions.  Most employers report faster and more efficient resolution of workplace grievances and concerns, with more ability to direct money and time to the resolution of real complaints, rather than simply to line the pockets of class action plaintiffs’ lawyers.

For more information on this topic, please contact the authors, your Seyfarth Attorney, or any member of the Firm’s Labor & Employee Relations Team.

Authored by Simon L. Yang

As discussed by our Consumer Class Defense Blog, this week’s Supreme Court decision in DirecTV, Inc. v. Imburgia reversed a California Court of Appeal that had applied the California Consumer Legal Remedies Act’s prohibition of class waivers in arbitration agreements. According to the lower court’s decision, an arbitration agreement’s terms—directing application of the “law of your state”—permitted the court to effect the California law’s ban on class waivers. But as DirecTV reiterated, courts cannot ignore the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act (“FAA”) trumps contrary state laws when it comes to class waivers.

But on the same day the Supreme Court reaffirmed that California’s continuing hostility to honoring class waivers is impermissible, the Supreme Court also declined an opportunity to weigh in on California’s similar hostility to “PAGA waivers” in arbitration agreement. By denying a petition to review in CarMax Auto Superstores California, Inc. v. Areso, the Supreme Court left standing California’s “Iskanian rule” that holds PAGA waivers—or representative action waivers concerning claims under California’s Private Attorney General Act—are unenforceable.

Even though this is the third time that the Supreme Court has passed up an opportunity to invalidate the Iskanian rule, employers shouldn’t jump to conclusions that this week’s action in DirecTV and inaction in CarMax suggests that the Supreme Court is tacitly approving the Iskanian rule.

The Supreme Court simply may be deferring the question, since a petition for rehearing en banc is pending before the Ninth Circuit in Sakkab v. Luxottica Retail North America, Inc. Unlike several prior federal district court decisions that considered the Iskanian rule and found it inconsistent with both the FAA and Concepcion, the Ninth Circuit upheld the Iskanian rule in Sakkab. The Supreme Court might be waiting to see how the en banc panel addresses the Iskanian rule and take up that decision, if necessary. Or the Supreme Court may believe review is not procedurally proper because the CarMax decision is not final, since it did not hold PAGA claims to be non-arbitrable but held only that representative claims under PAGA could not be waived entirely.

In any event, while employers can all take solace from DirecTV’s reaffirmation of Concepcion, employers need not despair that CarMax means the Iskanian rule shall remain the law of the land (in California) forever. Maybe an en banc Ninth Circuit panel will deliver justice. If not, maybe the Supreme Court finally will weigh in. The only certainty is we’ll keep you posted.

Co-authored by David D. Kadue and Simon L. Yang

On Tuesday, January 20, 2015, the Court declined to take the case of CLS Transportation Los Angeles, LLC v. Iskanian, in which an employer asked the Court to reverse a ruling of the California Supreme Court. At issue was whether an employee who has agreed to submit all employment-related claims to arbitration, and who has also agreed to waive participation in class and representative actions, can evade that agreement and sue the employer under California’s Private Attorney General Act (“PAGA”). The California Supreme Court in June 2014 had sided with the suing employee.

Many observers expected that the case would be the latest episode in a drama that features a complicated relationship between two supreme courts. To simplify a bit, the U.S. Supreme Court traditionally has read the Federal Arbitration Act (“FAA”) to require the enforcement of private arbitration agreements by their terms. The California Supreme Court, meanwhile, has often searched creatively for some Cal-centric reason to deny enforcement to arbitration agreements.

Recent examples of the contrasting supreme viewpoints have occurred in the context of arbitration agreements that waive the procedural right to proceed or participate in a class action. The California Supreme Court once held, in both the consumer-claim context and in the employee-claim context, that a class-action waiver in an arbitration agreement is unenforceable, because any such waiver offends the California public policy favoring class actions. But then the U.S. Supreme Court, in Concepion v. AT&T Mobility, ruled in 2011 that the FAA preempts the California ban on class-action waivers. Concepion involved a consumer complaint. For several years, California courts resisted the clear implication that Concepcion also applies to employee complaints. Finally, in Iskanian, the California Supreme Court relented, acknowledging that, under the FAA, class-action waivers in arbitration agreements are enforceable, even in California.

But even then the Iskanian court also sounded a note of resistance, based on a special Cal-peculiarity: the court held that Concepcion does not apply to a PAGA claim. The rationale for creating this PAGA exception to Concepcion was that a PAGA claim differs from a class action in that PAGA plaintiffs act as private attorneys general, on behalf of the State of California—an entity that never agreed to arbitrate. Meanwhile, a dozen or more federal district court decisions repudiated this rationale, holding that the FAA, as interpreted by Concepcion, requires courts to enforce arbitration agreements calling for individual arbitration of PAGA claims, even if that enforcement keeps the plaintiff from acting as a private attorney general.

The employer petitioned the U.S. Supreme Court for a hearing on whether the California Supreme Court, in Iskanian, has once again strayed from the FAA’s true path. In supporting this request for intervention, the employer community explained that Iskanian’s rationale does not withstand scrutiny, for several reasons. First, the injuries that PAGA addresses are Labor Code violations that have harmed the suing “aggrieved employee.” The notion that this injury is really to the State of California is an overbroad legal fiction that could apply to any statutory claim—as California presumably has an interest in compliance with all of its statutes. This legal fiction contrasts with the actual governmental injury asserted in a true qui tam claim under the False Claims Act, in which a private party, on behalf of the government, alleges fraud on the government, after notifying the government of the claim and letting the government decide whether to sue for itself. Second, PAGA differs from a true qui tam action in that the State of California plays almost no role in a PAGA action. Under the False Claims Act, the government investigates the claims and a case cannot proceed as a qui tam action unless the government expressly consents, so the government plays a true gatekeeper role. Under PAGA, by contrast, the California Labor and Workforce Development Agency (“LWDA”) has a limited chance to investigate and intervene after the aggrieved employee gives written notice of a violation, and the LWDA almost never investigates. On the contrary, unless, within 33 days, the LWDA says it will investigate (a once-in-a-blue-moon occurrence), the aggrieved employee can sue, without any government oversight, so that the aggrieved employee may unilaterally dismiss the action. Third, the State of California rarely sees the 75% share of the civil penalties that PAGA nominally promises. Settlements of Labor Code claims often involve no PAGA penalty whatsoever. The only judicial oversight is to approve any PAGA penalty sought: if no PAGA penalties are allocated, the court has nothing to approve. Individual plaintiffs can thus use PAGA claims to pressure a greater settlement of their private claims, while producing nothing for the State. In short, because individuals control PAGA actions from start to finish, enabling them to seek recovery for their own alleged injuries, there is no good reason to distinguish PAGA claims from other wage and hour claims. As to all these claims, the FAA preempts any state public policy that would interfere with the enforcement of arbitration agreements. So why should PAGA be any different?

Yet, alas, on Tuesday the U.S. Supreme Court denied the employer’s petition. We thus expect to see continuing discord between federal and California courts on whether PAGA represents an exception to the general rule that courts should enforce arbitration agreements that waive class and representative actions.

Co-authored by Colleen Regan and David Kadue

Gentry is dead.  Back in 2007, the California Supreme Court, in Gentry v. Superior Court held that California public policy favoring class actions was so important that employers cannot have employees, in arbitration agreements, waive their right to pursue a class action.  Many thought that the Gentry rule contradicted the Federal Arbitration Act, and further thought that the U.S. Supreme Court so indicated in a 2011 decision, AT&T Mobility LLC v. Concepcion.  But many California courts, post-Concepcion, continued to apply Gentry to invalidate class action waivers in arbitration agreements.  On Monday, however, the California Supreme Court confirmed that the rumors of Gentry’s death were not exaggerated after all:  in light of Concepcion, the Gentry rule really is FAA-preempted.  Iskanian v. CLS Transportation Los Angeles, LLC (Cal. Sup. Ct., filed 6/23/2014).

The Iskanian decision will be welcome news to those employers that wish to limit potential exposure to class actions by using arbitration agreements that include class action waivers.

The Iskanian court also rejected the employee’s argument that class action waivers are invalid under the National Labor Relations Act.  Only one of the seven California Supreme Court justices accepted that argument.

PAGA lives to fight another day. The plaintiff in Iskanian not only pursued a class action to prosecute allegations of Labor Code violations, but also asserted a representative action under the Private Attorneys General Act of 2004. Another important question presented in Iskanian was whether the arbitration agreement had effectively waived the employee’s right to bring a representative PAGA action.  Here, the California Supreme Court sided with the employee, holding that the PAGA claim is beyond the scope of the FAA, which addresses only private disputes.  The PAGA claim, by contrast, is brought in the name of the State of California, and thus is not a private claim.

California’s high court has notoriously been a holdout against the enforcement of mandatory arbitration agreements, notwithstanding frequent prodding by the U.S. Supreme Court.  With the Iskanian decision, it is likely that other states will reach similar conclusions.

Seyfarth Shaw LLP will be bringing you a One Minute Memo, with in-depth analysis of the decision, shortly.  Stay tuned.

Authored by Gena Usenheimer

In a decision that is becoming more and more commonplace, last week the Central District of California enforced a class action waiver in an arbitration agreement, rejecting the panoply of arguments raised by the plaintiff in opposition.

In Appelbaum v. AutoNation, Inc., et al., the plaintiff sought to representative a putative class of service technicians and mechanics in a suit alleging the defendants failed to comply with California’s wage and hour and meal break laws.  In its April 8, 2014 decision, the Central District granted the defendants’ motion to compel arbitration on an individual basis.  Among other dubious arguments raised by the plaintiff, the Court rejected the contention that the Federal Arbitration Act did not govern the agreement as well as plaintiff’s argument that the arbitration agreement was so unconscionable as to be unenforceable under California law.  Dedicating much of its analysis to this unconscionability argument, the Court ultimately found that the substantive terms of this particular agreement were not so one-sided or unfair as to “shock the conscience” or to otherwise render the agreement unenforceable.   Notably, the Court found California PAGA claims are subject to arbitration on an individual basis and declined to follow D.R. Horton, expressly rejecting the argument that the National Labor Relations Act or Norris-LaGuardia Act preclude enforcement of class action waivers.

Thus, while employers utilizing class action waivers in arbitration agreements may still face scrutiny, particularly before the National Labor Relations Board, Appelbaum makes clear that the growing trend in the federal courts is to enforce them.

Seyfarth_Logo.jpgCo-authored by Loren Gesinsky and Scott Rabe

Employers across the country are in the midst of planning, decorating, and reveling in good cheer as they prepare to enjoy — or perhaps already did enjoy — an office holiday party.

While most employment attorneys and human resources professionals appreciate the potential morale-building of office holiday parties — and do not want to be viewed as Scrooge-like objectors to festivities — they also bear in mind the potential legal issues such parties raise.  Perhaps most obviously, alcohol, especially if provided without limitation, can lead to employee DUIs and tort claims, as well as reduced inhibitions that might engender harassment claims.  Whether employees must be paid for attendance is another such issue, although not one that has received much attention.  We summarize below a few wage-and-hour considerations relevant to this issue.

When must an employee be paid for attendance at an office holiday party?

As an initial matter, the obligation to pay employees for attendance at a holiday party applies only to nonexempt employees.  Exempt employees do not need to be paid extra for time spent attending or in relation to a holiday party.

With respect to nonexempt employees, however, an employer’s obligation to pay will likely turn on when the holiday party is scheduled and whether the employee is required to attend.  Holiday parties scheduled during the regular work day will virtually always be compensable.  Even if scheduled after hours, a holiday party will still be compensable “work” for nonexempt employees required to attend.  Conversely, it is clear that no compensation is owed for holiday-party attendance that is 100% voluntary and strictly for the benefit of employees.  The grey legal area for compensability falls on the spectrum between attendance that is mandatory and 100% voluntary.  For example, the facts behind a claim that attendance was strongly encouraged could lead a fact-finder to conclude that the implicit message was attend or face negative work consequences, thereby rendering attendance compensable “work.”

It is important to recognize also that, while attendance at a holiday party may be 100% voluntary for the majority of employees, those who are working the event or helping prepare for the event — even if the work is voluntary — must be paid.  Neither the Department of Labor nor the courts recognize an exception for “volunteering” if the nonexempt employee is performing nonexempt functions. 

So is the time compensable that is spent waiting between the end of a nonexempt employee’s shift and the beginning of the holiday party and/or in travel to the party?  The answer is no if party attendance is voluntary and compensation for it is not required.  However, if attendance is mandatory or functionally close enough, waiting and travel time might be compensable, especially if there is a relatively small gap of time between the end of the shift and the start of the party.  (A larger gap in time during which nonexempt employees are relieved of all work and entirely free to go wherever and do whatever they desire would likely not be compensable).  To avoid potential liability, employers can simply pay employees for the gap and/or travel time if they are already paying nonexempt employees for attendance at the party itself.

Cost-Saving Tips

  • Make attendance at the holiday party entirely voluntary and convey that message to employees with unwavering clarity.
  • Consider scheduling the party during regular working hours when nonexempt employees are paid anyway.
  • To the extent attendance is required, publish the hours of the party and enforce them.
  • Neither ask nor permit nonexempt employees to prepare for and/or work at the party outside regular work hours.

Conclusion

We are not Scrooge-like enemies of office holiday parties.  We appreciate (and personally enjoy) their positive effects.  At the same time, we wish to caution employers about the potential legal consequences of a refusal to pay nonexempt employees for time spent in connection with such a party that is essentially a mandatory work event.  The simplest ways to avoid this concern are to schedule the party during regular work hours or ensure that it is both entirely voluntary to attend and fun enough to encourage high attendance anyway.  Happy Holidays!

Ninth Circuit.jpgCo-authored by David Kadue and Julie G. Yap

On Tuesday, an en banc panel of the Ninth Circuit heard oral argument regarding whether California’s rule against compulsory arbitration for claims of public injunctive relief was preempted by the Federal Arbitration Act (“FAA”) in Kilgore v. KeyBank NA.  As we reported in March of this year, a three judge panel of the Ninth Circuit held that the California rule did not survive the U.S. Supreme Court’s vehement reaffirmation of the preemptive effect of the FAA in AT&T Mobility v. Concepcion.  But then came the Ninth Circuit’s decision to grant en banc review.  This development appeared to breath new life into the plaintiffs’ argument that certain claims are immune to mandatory arbitration agreements when judicial resolution is needed to “vindicate statutory rights.” 

Yet at oral argument, the en banc panel of Ninth Circuit seemed unwilling to land the knock-out punch, either in favor of or against FAA preemption.  Instead, the questioning focused on whether the court could resolve the case on a more narrow ground.

In Kilgore, former students of a vocational school sued KeyBank, the school’s preferred tuition lender, alleging that KeyBank violated California’s Unfair Competition Law (“UCL”) by continuing to lend the students tuition money even while knowing that the school was moving toward bankruptcy.  The students sought to have KeyBank enjoined from enforcing the loan agreements.  These agreements contained an arbitration clause, which KeyBank moved to enforce.  The district court, ruling prior to Concepcion, denied the motion to compel arbitration, reasoning that California precedent prohibited mandatory arbitration of claims for injunctive relief under the UCL. .

The original Ninth Circuit panel reversed this result, because Concepcion expressly rejects state laws that place a blanket prohibition on the arbitration of certain types of claims.   California’s pre-Concepcion law, the panel explained, was no longer valid.  The panel rejected the plaintiffs’ arguments that the FAA’s preemptive scope does not reach injunctive relief primarily designed to protect the public.  Rather, the panel cited Concepcion’s dismissal of state public policy arguments, concluding that “states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

The grant of an en banc rehearing signaled potential openness to a theory that Concepcion does not apply where arbitration would impede the vindication of statutory rights.  The Second Circuit has adopted this argument as applied to federal claims, and the U.S. Supreme Court recently granted review to address this issue in American Express Co. v. Italian Colors Restaurant.  Because American Express involves the vindication of federal statutory rights, however, the Supreme Court’s decision would not necessarily determine how Concepcion applies to state law claims such as the one that the Ninth Circuit faces in Kilgore.

At oral argument, the en banc court seemed hesitant to address the broad preemption issues.  Instead, judges asked if this case really presents a claim for public injunctive relief, since what the students really want is an order that they need not repay their loans to KeyBank.  Meanwhile, the students’ school has gone out of business, so what is the public harm that the requested “public injunctive relief” would avert?  In a further expression of judicial restraint, the en banc judges asked both whether the Ninth Circuit should stay its hand until the U.S. Supreme Court has decided American Express or the California Supreme Court has decided Iskanian.

The en banc Ninth Circuit’s decision in Kilgore could be groundbreaking precedent on the issue of the scope of Concepcion and the enforceability of arbitration agreements generally.  A ruling for the plaintiffs could open the floodgates to arguments that any arbitration agreement should be set aside to accommodate various important public policies.  A ruling for the defendant could powerfully reinforce Concepcion’s message that states cannot interpose state public policies to frustrate the enforcement of arbitration agreements.  Yet it appears that, after all the excitement aroused by the Ninth Circuit’s decision to go en banc, the case now may go out with a whimper instead of a bang. 

Employ Agmt.jpgAuthored by Fred Sanderson 

On February 24, 2011, in Sonic-Calabasas A, Inc. v. Moreno, the California Supreme Court invalidated an employment arbitration agreement in the context of an administrative wage proceeding.  According to the court, requiring an employee to waive his or her right to a formal administrative hearing before the California Labor Commissioner was both “contrary to public policy and unconscionable.”  It found that an employee had a right to an administrative wage hearing before being ordered to arbitration.

Two months later, on April 27, 2011, the U.S. Supreme Court decided AT&T Mobility, LLC. v. Concepcion, finding that federal law preempted a different California rule invalidating class action waivers in arbitration agreements.  In May, Sonic petitioned the U.S. Supreme Court for review, arguing that Concepcion dictated a different result in its case.  On October 31, 2011, the United States Supreme Court vacated the California Supreme Court’s ruling and ordered it to reconsider its decision in light of the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion.  The California Supreme Court now must decide whether wage proceedings before the California Labor Commissioner are inconsistent with the Federal Arbitration Act.

Mass.jpgCo-authored by Richard Alfred and James Hlawek

A Massachusetts Superior Court judge recently invalidated an arbitration class action waiver, even though the U.S. Supreme Court found in its AT&T Mobility LLC v. Concepcion ruling earlier this year that federal law preempts state laws that interfere with an employer’s ability to enforce arbitration agreements with class action waivers.  This ruling shows that, at least in Massachusetts, courts may still be willing to invalidate class action waivers in arbitration agreements, particularly where the waivers are not carefully drafted or where small claims are at stake.

In Feeney v. Dell, Inc., two plaintiffs sought to bring a consumer class action against Dell arising out of Dell’s collection of sales tax on their computer service contracts.  Their claims were both worth less than $250.  The plaintiffs’ contracts with Dell required arbitration and prohibited arbitration class actions.  The arbitration provision did not allow consumers to be awarded anything more than the value of their claims.

In 2009, the Massachusetts Supreme Judicial Court invalidated Dell’s class action waiver because it found that the waiver was contrary to public policy.  The SJC ruled that, given the small amount of damages at stake, aggregation of claims was the only realistic option for the consumers to pursue their claims against Dell.

After the SJC’s ruling, the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that the Federal Arbitration Act (“FAA”) preempted a California rule that banned class action waivers in a certain category of consumer arbitration agreements.  The Supreme Court found that the California rule required companies with certain arbitration agreements to allow class-wide arbitration, even though class actions are more formal, riskier, and less efficient than individual arbitrations.  The Supreme Court therefore decided that the rule frustrated the company’s ability to resolve disputes efficiently, thereby interfering with one of the purposes of the FAA.

The Supreme Court pointed out that arbitration class action waivers could not be invalidated simply because claims were likely to involve small amounts that would not be prosecuted on an individual basis.  The Supreme Court added that the claim before it was likely to be prosecuted on an individual basis because the company agreed to pay claimants at least $7500 and twice their attorneys’ fees if they obtained an arbitration award greater than the company’s last settlement offer. 

After Concepcion was issued, Dell argued in Massachusetts Superior Court that the SJC’s earlier ruling was no longer valid because, similar to Concepcion, the SJC required Dell to allow arbitration class actions, thereby frustrating the purpose of the FAA.  The Superior Court judge, however, found that, unlike the arbitration provision in Concepcion, Dell’s provision did not include features that would make individual-based arbitration of small claims feasible.  The judge concluded that the SJC’s ruling did not frustrate the purpose of the FAA because efficient, individual-based arbitration was not a realistic option for Dell’s consumers.  The judge added that he would have upheld Dell’s class action waiver if Dell had made individual-based claims feasible.

Employers, at least in Massachusetts, should be aware of the Feeney decision because it shows that, regardless of Concepcion, some judges may continue their skepticism towards arbitration class action waivers, particularly where small-dollar claims are involved.  However, given the Supreme Court’s broad ruling in Concepcion, those waivers should be enforceable.  Employers that have or plan to have arbitration agreements with class action waivers may nonetheless want to consider taking a relatively conservative approach in their arbitration agreements that include class action waivers by making individual-based arbitrations more feasible for small-dollar claims.

As the law in this area is evolving rapidly, it is important for employers to consult with their employment counsel before implementing any new policies or programs in this area.