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AT&T Mobility v. Concepcion Avoiding Employment Law Class Actions Through the Use of Class Action Waivers October 4, 2011 Presented By: William J. Anthony, Jackson Lewis LLP Moderated By: Bridgette Roman, GC, Senior Vice President, & Secretary, Community Choice Financial Company 2
TODAY S AGENDA AT&T v. CONCEPCION: DOES THIS DECISION PROVIDE THE SILVER BULLET TO AVOIDING CLASS ACTIONS? ARBITRATION AGREEMENTS: SHOULD I HAVE ONE AND, IF SO, WHAT SHOULD IT SAY? CLASS ACTION WAIVERS OUTSIDE THE CONTEXT OF AN ARBITRATION AGREEMENT: ARE THEY WORTH THE PAPER THEY ARE WRITTEN ON? DEFENDING CLASS ACTIONS: SHOULD I MOVE TO COMPEL ARBITRATION IF MY AGREEMENT IS SILENT ON WHETHER CLASS ARBITRATION IS PERMITTED? 3
AT&T MOBILITY v. CONCEPCION Vincent and Liza Concepcion entered into a cell phone contract with AT&T which guaranteed them a free phone But there was a catch: AT&T charged $30.22 sales tax on the phone s retail value The Concepcions filed a complaint consolidated with a class action alleging that AT&T was liable for false advertising and fraud Though not an employment scenario, the resulting decision may be helpful to employers 4
The AT&T Contract s Arbitration Agreement The arbitration agreement required that all disputes be resolved through arbitration The arbitration agreement prohibited participation in class or representative actions only individual cases allowed AT&T made several amendments to the arbitration provisions, which the agreement permitted 5
The Arbitration Provisions Seemed Pro-Customer Easy to initiate proceedings by a one page form available on AT&T website If there is no settlement within 30 days, the customer can invoke arbitration with 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 6
The Discover Bank Case Rule The U.S. Supreme Court had to address the California Supreme Court Discover Bank holding that class waivers in consumer arbitration agreements are not enforceable The California Court s concern: Arbitration agreements are typically contained in a boilerplate or wrap around contract Since these disputes are typically modest claims, people like the Concepcions are placed in weaker bargaining position and are powerless to object to a provision, even if it is fraudulent Such agreements are not enforceable because they are unconscionable 7
The Discover Bank Case Rule In California, a contract must be neither procedurally nor substantively unconscionable to be enforceable Substantive unconscionability focuses on whether the terms of the contract are so one-sided as to shock the conscience Procedural unconscionability focuses on whether there existed any oppression or surprise in the manner in which the contract was negotiated, and the circumstances of the parties at the time of negotiation 8
The U.S. Supreme Court Nixes Discover Bank The Supreme Court held the Federal Arbitration Act preempts the Discover Bank rule the FAA mandates that arbitration agreements be enforced as they are written 9
Stolt-Nielsen S.A. v. Animalfeeds International Corp. The parties stipulated that the contract was silent as to class claims and there was no agreement with regard to class arbitration. Parties cannot be compelled to arbitrate on a class basis against their will. Class action arbitration changes the nature of arbitration with respect to efficiency and speed. The Court stated it had no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration and emphasized the stipulation of the parties that there was no agreement on the issue of class-action arbitration. 10
Post-Concepcion/Stolt-Nielson What have the lower courts done since Concepcion/ Stolt-Nielson? Some have found creative ways around these rulings, others have enforced class action waivers This is still an evolving area of the law -- lower courts are not rubber-stamping class waivers 11
Post-Concepcion/Stolt-Nielson Ø Examples: Plows v. Rockwell Collins, Inc., 2011 U.S. Dist. LEXIS 88781 (C.D. Calif. Aug. 9, 2011) (holding that (1) a class action waiver in an employment agreement is still invalid under Gentry v. Superior Court, 42 Cal. 4th 443 (2007) which is not preempted by the FAA, (2) the four factor test of whether a class action waiver is to be enforced remains intact, and (3) Concepcion does not apply to representative actions under California Private Attorney General Act of 2004). NAACP of Camden County East v. Foulke Management Corp., 2011 N.J. Super. LEXIS 151 (N.J. App. Div. Aug. 2, 2011) (holding that binding arbitration clauses in consumer contracts which bar classaction suits may be challenged and invalidated if they are too vague, inconsistent or confusing). 12
Post-Concepcion/Stolt-Nielson Ø Williams v. Securitas Sec. Servs. USA, Inc., 2011 U.S. Dist. LEXIS 75502 (E.D. Pa. July 13, 2011) (holding that arbitration provision was confusing, granting plaintiffs motion for a protective order and corrective mailing to address defendant s improper communications with absent class members implementing the provision, and finding Concepcion irrelevant to the issue. ) 13
Applying Concepcion to the Employment Arena The Supreme Court has held the FAA applies to most employment contracts. EEOC v Waffle House, 534 U.S. 279, 289 (2002), citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) Concepcion and Waffle House stand for the proposition that the FAA likely preempts state laws prohibiting arbitration of employment claims 14
After Concepcion, Its Time To Revisit Arbitration Programs Analysis: Arbitration is purported to cost less than trials Arbitration is supposed to cut through the administrative red tape of the court action Arbitration is supposed to avoid runaway jurors Arbitration is supposed to be more private than a trial No more class actions? 15
But We Also Know: Difficult to get dispositive motions granted in arbitration Runaway arbitrators who make findings unsupported by the law as facts Arbitration decisions are virtually impossible to appeal: Even the incorrect application of the law and facts will not mandate that the decision be vacated An avalanche of single plaintiff cases 16
Are We Home-Free After Concepcion? Courts are still wary of certain language in arbitration agreements: Limiting the available remedies that would otherwise be available in courts Costs and fees shifting that is contrary to applicable law (e.g., attorney s fees are awarded to the prevailing party) Shortening applicable limitations periods 17
Are We Home-Free After Concepcion? Clauses giving employer unilateral right to modify the agreement Clauses giving the employer the unilateral right to get injunctive relief Limits or restrictions on discovery (e.g., one deposition per party; no written discovery) 18
Are We Home-Free After Concepcion? We also hold that the recent decision of the United States Supreme Court in AT&T Mobility LLC v. Concepcion et ux. (2011) U.S. 131 S.Ct. 1740 (AT&T), holding that California decisional law invalidating class action waivers in consumer arbitration agreements is preempted by the Federal Arbitration Act (9 U.S.C. 1 et seq. (FAA)), does not apply to representative actions under the PAGA, and thus the trial court correctly ruled that the waiver of plaintiff s right to pursue a representative action under the PAGA was not enforceable under California law. Brown v. Ralphs Grocery Co. (2d DCA July 12, 2011) Cal.App.4 th (emphasis supplied) 19
The Arbitration Agreement Should Contain: Class action waiver Written award to be issued by an arbitrator Choice of law and severability provisions At-will employees: continued employment can provide consideration for an agreement to arbitrate One solution: an opt-out clause in the arbitration provision 20
What About Congress? Will Congress, by statute, overturn AT&T? 21
What Does Congress Have To Say About This? Ø Ø Arbitration Fairness Act of 2011 (Pending Legislation) Prevents corporations from requiring that consumer disputes and employment cases be heard in arbitration. Employees and consumers would have the right to have disputes arbitrated if they so chose, with that choice being made after the dispute arose so that an informed decision about the individual s options could be made. Department of Defense Appropriations Act Signed into law on December 19, 2009. Applies to defense contracts over $1 Million. Defense contractors may not require any employee to agree to mandatory arbitration of any claim under Title VII or any tort related to or arising out of sexual assault or harassment. Does not prohibit mandatory arbitration of claims under ADEA, FMLA, FLSA, ADA or state labor statutes. 22
What Does Congress Have To Say About This? (cont d) Ø Dodd-Frank Act No pre-dispute arbitration agreement shall be valid and enforceable... in consumer mortgage agreements. Does not prohibit mandatory arbitration of claims under ADEA, FMLA, FLSA, ADA or state labor statutes. 23
Laws Already State Arbitration Is Invalid Makes Predispute Arbitration Agreements Unlawful USERRA Unusual pre-emption provision 38 U.S.C. 4302: Nothing in this chapter shall supersede, nullify or diminish any Federal or State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that establishes a right or benefit that is more beneficial to, or is in addition to, a right or benefit provided for such person in this chapter. This chapter supersedes any State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that reduces, limits, or eliminates in any manner any right or benefit provided by this chapter, including the establishment of additional prerequisites to the exercise of any such right or the receipt of any such benefit. 24
Attacks on Class Action Waivers By Government Agencies NLRB The concerted filing of a class or collective action or demand for arbitration to enforce employment statutes is protected under Section 7. A mandatory arbitration agreement with language that is so broadly worded that a reasonable employee could believe the agreement waives his or her Section 7 rights, such as the right to join other employees in a class or collective action to improve working conditions, is impermissible under the NLRA. Employers may still require employees to enter into mandatory arbitration agreements regarding non-nlra statutory claims, and seek to compel arbitration in the event a lawsuit is filed for an arbitrable claim. The enforceability of those agreements, including any class or collective action waiver, should be determined under non-nlra law. Employers must make clear to employees that their Section 7 rights are not waived and they will not be subjected to retaliation, even if they challenge the validity of an arbitration agreement. 25
Attacks on Class Action Waivers By Government Agencies EEOC Individuals may file charges of discrimination with the EEOC under Title VII, ADEA, and ADA despite any restrictions on their rights to institute private, class-wide litigation. A broadly worded arbitration provision with a class action waiver might fail to hold up in the EEO context to the extent that it purports to restrict an employee s right to bring a charge with the EEOC. Given the potential that class action waivers could be invalidated to the extent that they preclude employees from filing charges of discrimination with the EEOC, employers should consider including provisions specifying that employees retain the right to do so. 26
CLASS ACTION WAIVERS WITHOUT ARBITRATION SEVERANCE AGREEMENTS OFFER LETTERS EMPLOYMENT CONTRACTS APPLICATIONS FOR EMPLOYMENT HANBOOKS 27
MOVING TO COMPEL ARBITRATION IF AN EMPLOYEE BRINGS A CLASS ACTION BUT HAS SIGNED AN ARBITRATION AGREEMENT THAT IS SILENT AS TO CLASS ACTIONS, SHOULD I MOVE TO COMPEL ARBITRATION 28
Questions? 29
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