CLASS ACTION WAIVERS AND ENFORCEABLE ARBITRATION AGREEMENTS AFTER THE SUPREME COURT'S 2011 DECISION IN AT&T

Transcription

1 Employment Law Alliance Helping Employers Worldwide AUDIO CONFERENCE ON CLASS ACTION WAIVERS AND ENFORCEABLE ARBITRATION AGREEMENTS AFTER THE SUPREME COURT'S 2011 DECISION IN AT&T MOBILITY V. CONCEPCION June 7, 2011 CERTIFICATE OF ATTENDANCE The undersigned certifies that attended the Class Action Waivers and Enforceable Arbitration Agreements after the Supreme Court's 2011 Decision in AT&T Mobility v. Conception Audio Conference sponsored by the Employment Law Alliance on June 7, The program consisted of 90 instructional minutes. The program contained no credit continuing legal education for legal ethics, elimination of bias in the legal profession or prevention, detection and treatment of substance abuse. Susan Frederick To be completed by Attorney after participation in the above-named activity. By signing below, I certify that I participated in the activity described above and am entitled to claim the following CLE credit hours: Total Hours

2 Class Action Waivers and Enforceable Arbitration Agreements after the Supreme Court's 2011 Decision in AT&T Mobility v. Concepcion Tuesday, June 7, 2011

3 Presenters Moderator Rosalee M. McNamara, Partner, Lathrop & Gage LLP, Kansas City, MO 2

4 Speakers Stephen L. Barker, Partner, Sturgill, Turner, Barker & Moloney, PLLC, Lexington, KY John Baum, Partner, Curiale Hirschfeld Kraemer LLP, San Francisco, CA 3

5 Speakers Howard L. Cole, Partner, Lewis and Roca, LLP, Las Vegas, NV Steven M. Knecht, Special Counsel, Kramer Levin Naftalis & Frankel LLP, New York, NY 4

6 Speakers Patricia Penny L. Zobel, Partner, DeLisio Moran Geraghty & Zobel, P.C., Anchorage, AK 5

7 Factual Background AT&T promised the Concepcions free phones Free wasn t free - AT&T charged $30.22 sales tax on phones retail value Concepcions filed a Federal District Court Action So. Dist. of California the complaint was consolidated with a putative class action alleging that AT&T was liable for false advertising and fraud 6

8 AT&T s Arbitration Agreement The contract provided for arbitration of all disputes The contract allowed only individual suits no participation in a class or representative proceeding The contract allowed AT&T to make unilateral amendments to the arbitration provisions, which it did several times 7

9 User Friendly Provisions Included Initiation of proceedings via one page form available on AT&T website If AT&T doesn t offer to settle, or the cases aren t resolved within 30 days, the customer can easily invoke arbitration with a Demand for Arbitration form AT&T pays all arbitration costs for non-frivolous claims Arbitration held in customer s home county For claims of less than $10,000, customer can elect to proceed by telephone, in person or by written submission 8

10 The Federal Arbitration Act Passed in 1922, the Act reflected a liberal federal policy favoring arbitration Courts must enforce arbitration agreements according to their terms Agreements can be invalidated only by generally applicable contract defenses such as duress or unconscionability which would allow revocation of the contract. 9

11 California s Discover Bank Rule Class waiver in consumer arbitration agreements are unconscionable if: Contained in an adhesion (i.e., boilerplate) contract Disputes are likely to involve small amounts Party (like Concepcion) with inferior bargaining position alleges a deliberate scheme to defraud The District Court and Ninth Circuit refused to compel arbitration based on this rule 10

12 Supreme Court Holding The Discover Bank rule is preempted by the FAA Class arbitration cannot be manufactured, i.e., non-consensual because: It does not facilitate informal streamlined proceedings It greatly increases the risk to defendant It limits multi-layered reviews of decisions 11

13 Supreme Court Holding (Cont d) Arbitration is poorly suited to these [class] higher stakes Parties may decide with whom they will arbitrate and cannot be compelled to submit to class arbitration absent an agreement to do so o Stolt-Nielsen 12

14 Key Statements from the Court 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. Although 2 s saving clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA s objectives. In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms. 13

15 What Does this Mean for Employers? Employment contracts, except for those covering workers engaged in transportation, are covered by the FAA. EEOC v. Waffle House, 122 S.Ct. 754, 761 (2002). Therefore, under Concepcion and Waffle House, state laws that prohibit arbitration of employment claims are likely preempted by the FAA. 14

16 What Does this Mean for Employers? Examples Are these statutes now invalid? KRS (2) ( Notwithstanding any provision of the Kentucky Revised Statutes to the contrary, no employer shall require as a condition or precondition of employment that an any employee or person seeking employment waive, arbitrate, or otherwise diminish any existing or future claim, right or benefit to which the employee or person seeking employment would otherwise be entitled under any provision of the Kentucky Revised Statutes or any federal law ). 15

17 What Does this Mean for Employers? KRS (1) ( A written agreement to submit any existing controversy to arbitration or a provision in written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. This chapter does not apply to Arbitration agreements between employers and employees or between their respective representatives ). 16

18 What Does this Mean for Employers? See Johnson v. Career Systems Development, 2010 WL (W.D.Ky)(addressing KRS (2) and KRS (1) as applied to employment arbitration agreements, comparing them to California law, and finding Kentucky s policy providing special protection to employees is similarly preempted by this Congressional policy and that the Kentucky statutes unmistakably conflict with 2 of the FAA and violate the Supremacy Clause ). 17

19 What Does this Mean for Employers? But see also Jacob v. Dripchak, 331 S.W.3d 278 (Ky.App. 2011)( we do not interpret [KRS ] as prohibiting, invalidating, or otherwise precluding the enforceability of arbitration clauses contained in employment contracts nor does it otherwise limit Kentucky Courts from consideration of the same, but rather, it simply exclude[s] arbitration clauses contained in employment contracts from application of the procedural rules set forth throughout KRS Chapter 417 that are applicable to various arbitration clauses ). 18

20 What Does this Mean for Employers? Generally speaking, employers are likely free to use arbitration agreements with their employees, notwithstanding state law to the contrary. Query: What if the employer is purely a local employer that clearly is not engaged in interstate commerce? 19

21 Benefits and Drawbacks of Arbitrating Employment Disputes Benefits of Arbitration Lower cost in terms of both dollars and expenditure of time Increased flexibility in scheduling discovery and hearing dates Reduced chance of excessive awards often associated with juries Less publicity 20

22 Benefits and Drawbacks of Arbitrating Employment Disputes Drawbacks of Arbitration Willingness of certain arbitrators to ignore law and do equity Virtual elimination of any effective appeal procedure 21

23 Benefits and Drawbacks of Arbitrating Employment Disputes Drawbacks of Arbitration (cont d) Probable increase in employee claims due to relative ease of commencing an arbitration proceeding compared to court proceeding Risk that arbitrator will split the baby when issuing award 22

24 Benefits and Drawbacks of Arbitrating Employment Disputes Decision Whether to Arbitrate Must weigh pros and cons of arbitration Take into account culture of organization Look to types of claims organization confronts Special considerations for securities firms 23

25 Key Issues to Consider in Drafting an Enforceable Arbitration Agreement What Should the Agreement Include at a Minimum? Broad submission of claims to final and binding arbitration Exception subject to state law, insert carve-out giving right to seek injunctive or equitable relief from court to enforce certain obligations employee may have Arbitral forum, rules, location, number of arbitrators 24

26 Key Issues to Consider in Drafting an Enforceable Arbitration Agreement What Should Agreement Include at a Minimum? (cont d) Class action waiver Written award to be issued by arbitrator Choice of law and severability provisions 25

27 Key Issues to Consider in Drafting an Enforceable Arbitration Agreement Red Flags for Courts Provisions limiting arbitrator s ability to award remedies provided by law Shortening statutes of limitations Fee-shifting provisions requiring that attorneys fees must be awarded to the prevailing party 26

28 Key Issues to Consider in Drafting an Enforceable Arbitration Agreement Red Flags for Courts (cont d) Clauses that forbid any court review of an arbitrator s award Clauses giving employer unilateral right to modify the agreement 27

29 Key Issues to Consider in Drafting an Enforceable Arbitration Agreement Other Potential Provisions Be cognizant of rules, and ability to deviate from rules, in arbitration agreement Arbitrator decides arbitrability of the dispute Cost-sharing provisions Discovery parameters Mediation and summary disposition provisions 28

30 What Forum Should We Use? AAA (American Arbitration Association) JAMS FINRA (Financial Industry Regulatory Authority) Home grown 29

31 To Implement Arbitration, Should the Employer Use It as Part of an Overall Process? Investigation Mediation Arbitration 30

32 Should a New Arbitration Program Apply to Existing Employees or Only New Hires? Consideration (ongoing employment) Communication and timing Employee refusal (opt out) Termination 31

33 Can an Employer Set the Terms of How the Arbitration Proceeds? AAA rules v. drafting the terms Discovery, motions, selection of arbitrator, timing 32

34 Explosive Growth of the Collective Action Over the last decade, wage and hour collective actions more than quadrupled Wage and hour collective actions currently outnumber all other forms of workplace class actions, making up almost one-fourth of all class action lawsuits. 33

35 FLSA Collective Actions Is a Collective Action Similar to a Class Action? YES, BUT, plaintiffs have to Opt-In to the lawsuit as opposed to automatically being included with the right to Opt-Out Certification of a Collective Action tends to be approved more easily than certification of a Class 34

36 FLSA Collective Actions What is a Collective Action? A collective action asserts that a group of similarly-situated employees and/or former employees seek relief for the same or substantially the same violation of the FLSA in a single lawsuit 35

37 Why Plaintiff Lawyers Have Embraced Collective Actions Money - Collective Actions increase the amount of damages for lawyer s contingency percentage Conditional Certification of Collective Action has historically been low Increased size of Collective group creates more pressure for company to settle based on increased potential for monetary damages 36

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