Articles Posted in Arbitration and Alternative Dispute Resolution

Earlier this year, we blogged about the United States Supreme Court’s decision to consider whether requiring employees to agree to arbitration and a waiver of their rights to assert claims through class actions violated the National Labor Relations Act (NLRA).  During the Obama administration, the U.S. Department of Justice supported the position of the National Labor Relations Board (NLRB) that requiring class action waivers as a condition of employment violated the NLRA.  Now, the Justice Department has switched sides and is supporting business, acknowledging in an amicus brief filed with the Supreme Court on June 16 that “[a]fter the change in administration, . . . [it] reconsidered the issue and has reached the opposite conclusion.”

The cases being considered by the Supreme Court are National Labor Relations Board v. Murphy Oil USA, Case No. 16-307,  Epic Systems Corp. v. Lewis, Case No. 16-285, and Ernst & Young LLP v. Morris, Case No. 16-300.  The Supreme Court’s decision will directly affect violations of employment laws, like the Fair Labor Standards Act (FLSA) and Title VII of the Civil Rights Act of 1964, as amended.   Oral argument in these cases is scheduled for October 2017.

Although courts of appeal are split on the issue, the Second Circuit Court of Appeals (which covers New York, Connecticut, and Vermont) has previously held that class action waivers do not violate the NLRA.  As a result, such waivers are currently legal in New York, Connecticut and Vermont.

Over the last several years, federal courts have relied on the Federal Arbitration Act (“FAA”) in enforcing predispute mandatory arbitration agreements between employers and employees, which require an individual employee to waive his or her rights to assert employment related claims in court, in favor of arbitration.  Such agreements, however, do not by themselves mandate that class or collective actions be submitted in court or arbitration.  Consequently, employers have included class and collective action waiver provisions in such agreements; these waivers serve to  prevent employees from bringing class and collective claims in any forum.

The National Labor Relations Board (“NLRB”) has opposed class and collection action waivers, and has held that requiring employees to agree to such waivers as a condition of employment violates the National Labor Relations Act (“NLRA”).  Not surprisingly, there has been a split among the U.S. Circuit Courts of Appeal, with some disagreeing with the NLRB and others agreeing that class and collective action waivers violate the NLRA.

U.S. Circuit Courts Finding No Violation of the NLRA

In an apparent case of first impression, Judge Harold Baer of the United States District Court for the Southern District of New York, denied defendants’ motion to compel the arbitration of a collective and class action for overtime pay filed by financial advisors under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).

In Zeltser, et. al v. Merril Lynch, 13 CV 1531, Judge Baer rejected motions to compel arbitration filed by Merrill Lynch, Pierce, Fenner & Smith, Inc; and Bank of America Corporation.  In Zeltser, former and current Financial Solutions Advisors (“FSAs”) alleged that they were entitled to overtime pay for working overtime hours.  FSAs were required to register with the Financial Industry Regulatory Authority (“FINRA”) and sign a Uniform Application for Securities Industry Registration or Transfer, which is referred to as a “Form U-4.”

Form U-4s contain an arbitration clause requiring registered representatives, like the FSAs, to “agree to arbitrate any dispute, claim or controversy that may arise between [the registered representative] and [his or her] firm. . . .that is required to be arbitrated under the rules, constitutions or by-laws of [FINRA]. . . .”  However, FINRA rules, which also govern Form U-4s, provide that an agreement to arbitrate may not be enforced against any registered representative who is a “member of a certified or putative class action with respect to “any claim that is the subject of the certified or putative class action until: [t]he class certification is denied, [t]he class is decertified; [t]he member of the certified or putative class is excluded from the class by the court; or [t]he member of the certified or putative class elects not to participate in the class or withdraws from the class according to conditions set by the court, if any.”

Employers are requiring with greater frequency that employees accept mandatory arbitration as a condition of employment. In difficult economic times, employees are less likely to reject a job conditioned upon accepting mandatory arbitration. Indeed, employees often agree to waive their rights to go to court over future employment disputes in exchange for at-will employment. Although arbitrations are not inherently inappropriate for resolving employment disputes, an employee’s acceptance of mandatory arbitration is rarely, if ever, voluntary.

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The United States Supreme Court recently ruled that a union could contract away a union member’s rights to pursue a statutory discrimination claim in court. In 14 Penn Plaza L.L.C. v. Pyett, the Supreme Court considered whether a union member with an age discrimination claim under the Age Discrimination Employment Act (“ADEA”) could be required to privately arbitrate the claim rather then pursue it in court. Surprisingly, a divided Supreme Court concluded that a union member could be mandated by a collective bargaining agreement (“CBA”) to arbitrate a statutory discrimination claim.

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