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Employment class arbitration An oxymoron Or a matter of contract.

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Alternatives
TO THE HIGH COST OF LITIGATION
INTERNATIONAL INSTITUTE FOR CONFLICT PREVENTION & RESOLUTION
Alternatives
TO THE HIGH COST OF LITIGATION
Publisher:
Susan E. Lewis
John Wiley & Sons, Inc.
Editor:
Russ Bleemer
VOL. 24 NO. 9 OCTOBER 2006
Jossey-Bass Editor:
David Famiano
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Alternatives to the High Cost of Litigation (Print ISSN 1549-4373, Online ISSN 1549-4381) is a newsletter published 11 times a year by the International Institute for
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Alternatives
TO THE HIGH COST OF LITIGATION
INTERNATIONAL INSTITUTE FOR CONFLICT PREVENTION & RESOLUTION
DIGEST
COMMENTARY
To what extent will courts send employment
arbitration cases for class or collective
actions? According to Jay W. Waks and
William Poorten, of New York, waiving
class action arbitrations doesn’t impair
claimants’ substantive rights, and contractual
silence means no class actions. The authors
analyze the latest case law supporting their
positions........................................Page 145
CPR NEWS
A keynote speaker is named for the CPR
Corporate Leadership Award Dinner next
month in New York, and registration is still
open for soon-to-be-held special arbitrator
training sessions for lawyers and for business
executives ....................................Page 146
NEGOTIATION
Stephen B. Goldberg, of Evanston, Ill.,
explains how mediators can help a party’s
internal deliberations leading up to a
transaction................................Page 147
COURT DECISIONS
Looking back to this year’s sole ADR-related
U.S. Supreme Court decision, Joseph
T. McLaughlin, Kathleen M. Scanlon
and James Clare, of New York, revisit
Buckeye Check Cashing Inc. v. Cardegna,
and explain why it reaches further in
supporting an arbitrator’s jurisdiction
than it initially appeared ............Page 149
ADR BRIEF
Mediation increasingly faces court challenges.
A novel approach mined from a Florida
court rule worked to defeat in a state
appeals court a trial court’s mediation order
for a pro se plaintiff—who nevertheless was
held in contempt for violating the
invalidated order..........................Page 156
DEPARTMENTS
CPR News..................................Page
Reprint Info ................................Page
Subscriptions..................Pages 146 &
ADR Brief ..................................Page
Cartoon by Cullum....................Page
146
146
158
156
157
VOL. 24 NO. 9 OCTOBER 2006
Employment Class Arbitration: An
Oxymoron? Or a Matter of Contract?
tion of whether an arbitration agreement
encompasses a representative proceeding—
there, in a non-employment consumer case
By now, employment practitioners should
brought as a class action—should be adrecognize as a bedrock principle that an
dressed by the arbitrator pursuant to appliemployer and employee can agree ahead of
cable state law. Green Tree Financial Corp. v.
time to arbitrate all disputes that arise out
Bazzle, 539 U.S. 444 (2003).
of the employment relationship, and that
This year, the Court built upon this
courts will enforce that agreement.
principle in deciding that puA few layers above this
tative class actions that chalbedrock is the somewhat lesslenge the legality of contracts
settled question of arbitracontaining an arbitration
tion’s availability to resolve
COMMENTARY
clause must be addressed to
class actions—or, in the case
the arbitrator, rather than to a
of federal age discrimination,
court. Buckeye Check Cashing
and wage and hour claims unInc. v. Cardegna, 126 S. Ct.
der the Federal Labor Stan1204 (2006).
dards Act, or FLSA, collective
Moreover, state and federal courts
proceedings. Although much of this “class”
faced with the issue of whether employarbitration debate has centered on conment disputes can be arbitrated on a represumer rights cases, the issue has begun to
sentative basis have deferred the question
surface in employment disputes. It should
to the arbitrator, a result that is consistent
not be surprising that, in the employment
with Bazzle. See, e.g., Flynn v. Labor Ready
context, the application of arbitration
Inc., 775 N.Y.S.2d 357 (N.Y. App. Div.
agreements turns largely on whether the
2004); Veliz v. Cintas Corp., 2005 WL
parties’ arbitration clause is silent on the is1048699, at *5 (N.D. Cal. May 4,
sue of representative proceedings or ex2005)(“the determination of whether the
pressly prohibits them.
arbitration agreements at issue allow for
In 2003, the U.S. Supreme Court deterclass arbitration or not is for the arbitrator,
mined, in a plurality decision, that the quesnot the Court, to decide”); Brennan v.
ACE INA Holdings Inc., 2002 WL
Waks is a litigation partner at Kaye Scholer LLP in
New York. He is chairman of the firm’s Employment
1804918 (E.D. Pa. Aug. 1, 2002).
& Labor Law practice. He also chairs Alternatives’
[An exception is that self-regulating sepublisher CPR’s Employment Disputes Committee,
curities industry arbitration rules may preand is a member of CPR’s Executive Committee.
clude arbitration of employment disputes
Kaye Scholer was co-counsel in the Ciago v.
where the employee asserts or is part of a
Ameriquest Mortgage Co. case discussed in this
article; Waks worked on the employer’s representaclass action. See, e.g., Chapman v. Lehman
tion in the matter. Poorten is a Kaye Scholer litigaBros. Inc., 279 F. Supp. 2d 1286, 1288
tion associate in New York in the Employment &
(S.D. Fla. 2003) (“[i]t is undisputed that
Labor Law group. The authors express their appreclass actions brought by employees against
ciation to Jordan Schwartz, a Kaye Scholer employtheir employer cannot be arbitrated under
ment litigator, and Larissa Eustice (Cornell Law
BY JAY W. WAKS & WILLIAM POORTEN
School, J.D. expected 2007), who provided
research for this article.
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
(continued on page 151)
VOL. 24 NO. 9 OCTOBER 2006
THE CONSEQUENCES
Buckeye’s most important consequence
concerns its effect on the scope and applicability of an arbitrator’s jurisdiction.
The strong reaffirmation of Prima
Paint’s severability principle supports the
independent vitality of arbitration clauses
necessary for the enforcement of parties’
agreements to arbitrate. Buckeye also maintains Prima Paint’s proposition that a contract’s overall validity should be decided by
an arbitrator, unless the challenge is to the
arbitration clause itself.
Under Buckeye, nothing short of particularized facts demonstrating that an arbitration provision was induced by fraud or it
was used to effectuate the scheme to defraud
would allow a court to intrude on the arbitrator’s jurisdiction. See Rubin v. Sona Int’l
Corp., 2006 WL 525658 at *2-3 (S.D.N.Y
March. 3, 2006)(rejecting sufficiency of a
general allegation that the arbitration clause
was part of an overall scheme to defraud). As
a result, the Court strengthens the principle
that generalized challenges to a contract’s validity cannot be used to sidestep arbitration.
Despite this fundamental agreement,
Buckeye is more than a simple reiteration of
Prima Paint. Buckeye expands an arbitrator’s jurisdiction by expanding Prima
Paint’s holding.
The Court was clear in its disagreement
with the Florida Supreme Court that both
voidable (Prima Paint) and void (Buckeye)
Class Arbitration
(continued from front page)
NYSE, NASD and AMEX rules”); Olde
Discount Corp. v. Hubbard, 172 F.3d 879
(10th Cir. 1999)(table only; unpublished
opinion); Coheleach v. Bear, Stearns & Co.,
Inc., 2006 WL 2067034, at *3 (S.D.N.Y.
July 26, 2006). This exception may not apply, however, when the employee is part of
a collective action under the FLSA. Chapman, 279 F. Supp. 2d at 1288; Coheleach,
2006 WL 2067034, at *2 (not necessary to
reach issue where no other potential
claimants opted into putative collective action under FLSA).]
An arbitrator faced with the threshold
question of whether a class arbitration is
contractually called for no doubt may find
guidance in those court decisions which,
ALTERNATIVES 151
contracts were within an arbitrator’s jurisdiction. Consequently, entire lines of cases
that rely upon this void/voidable distinction—most notably a line of Second Circuit decisions, see, e.g., Adams v. Suozzi,
433 F.3d 220 (2d Cir. 2005); Denney v.
BDO Seidman L.L.P., 412 F.3d 58 (2d Cir.
2005); Sphere Drake Ins. Ltd. v. Clarendon
Nat’l Ins. Co., 263 F.3d 26 (2d Cir.
2001)—are no longer good law. See, e.g.,
Rubin v. Sona Int’l Corp., supra (Buckeye
renders void-based argument “moot.”).
Nevertheless, in the wake of conclusively resolving one issue, Buckeye has intentionally left open another related jurisdictional issue—those relating to disputes
as to whether an agreement was ever concluded. In Buckeye’s first footnote, the
Court points out that the issue of a contract’s validity is different from the issue of
whether an agreement between the obligor
and obligee was actually concluded. The
Court made it clear that Buckeye does not
address the issue decided in the cases cited
by the Florida Supreme Court that held it
was for courts to decide issues of formation, such as the existence of obligor signatures, a signor’s authority to commit a principal or a signor’s mental capacity.
At least one court has interpreted
Buckeye to stand for the principle that
these signatory challenges are still within a
court’s jurisdiction and not an arbitrator’s.
See Fox Int’l Relations v. Fiserv Securities
Inc., 418 F.Supp. 2d 718 (E.D. Pa. 2006).
See also Rowe Enterprises LLC v. Int’l Systems & Electronics Corp., 2006 WL
1697633, 31 Fla. L. Weekly D1697 (Fl.
Dist Ct. App. June 22, 2006).
A further important consequence of
Buckeye involves the Court’s unequivocal
Prima Paint application to state courts. In
Buckeye, the Court is clear: Southland applied Prima Paint’s severability and validity
principles to state courts. By synthesizing
the two cases’ principal holdings, Buckeye
ensures that Prima Paint would not be understood as “establishing nothing more
than a federal-court rule of procedure.”
Thus, these arbitration principles are
substantive law which is applied regardless
of the existence of federal jurisdiction.
both pre- and post-Bazzle, have weighed in
on the matter.
Historically, most federal courts considering the issue have concluded that,
where the arbitration agreement does not
explicitly provide for a collective or representative procedure, plaintiffs may not
press forward with anything more than
their individualized claims in arbitration.
See, e.g., Champ v. Siegel Trading Co., 55
F.3d 269, 274-77 (7th Cir. 1995)(refusing
to certify an arbitral class when the arbitration agreement itself was silent on the issue, since Federal Arbitration Act Section 4
only authorizes courts to enforce arbitration agreements according to their terms,
with neither variation nor addition);
Howard v. Klynveld Peat Marwick Goerdeler, 977 F. Supp. 654, 665 n.7 (S.D.N.Y.
1997)(“the Court notes that a plaintiff
such as Howard, who has agreed to arbi-
trate all claims arising out of her employment may not avoid arbitration by pursuing class claims. Such claims must be pursued in non-class arbitration”), aff ’d 173
F.3d 844 (2d Cir. 1999); Bischoff v. DirecTV Inc., 180 F. Supp.2d 1097, 1108-09
(C.D. Cal. 2002)(stating “that a district
court cannot order arbitration to proceed
on a class-wide basis unless the arbitration
clause contains a provision for class-wide
resolution of claims”); Gamaro v. Thorp
Consumer Discount Co., 828 F. Supp. 673,
674 (D. Minn. 1993)(declining to allow
class-wide arbitration in a dispute where
the arbitration agreement did not expressly
provide for class-wide relief.). But see Cole
v. Long John Silver’s Restaurants Inc., 388 F.
Supp. 2d 644, 650 (D.S.C. 2005)(while
holding that it would not vacate an arbitrator’s post-Bazzle decision that employees
could arbitrate FLSA claims as a class, the
***
While seemingly a mere reiteration of Prima Paint’s holding, the Buckeye decision
both clarifies and expands an arbitrator’s
jurisdiction by adding potentially void
contracts to an arbitrator’s domain and by
unequivocally extending the severability
and validity principles into state court.
These modifications have already begun to
affect current arbitrations. Though Buckeye Check Cashing seems likely to produce
further litigation, the decision provides
guidance and resolution to many jurisdictional questions.
Q
DOI 10.1002/alt.20147
(For bulk reprints of this article,
please call (201) 748-8789.)
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
152 ALTERNATIVES
VOL. 24 NO. 9 OCTOBER 2006
district court, in dicta, agreed with the
premise that an arbitration agreement’s silence would not preclude class arbitration
as a matter of federal law).
The foundation—and logic—of these
decisions is well-entrenched in the caselaw
with respect to the consolidation of arbitrations. See American Centennial Ins. Co. v.
Nat’l Casualty Co., 951 F.2d 107, 108 (6th
Cir. 1991)(a “District court is without
power to consolidate arbitration proceedings, over the objection of a party to the arbitration agreement, when the agreement is
silent regarding consolidation.”); RollsRoyce Industrial Power Inc. v. Zurn EPC
Services Inc., 2001 WL 1397881, at *5
(N.D. Ill. Nov. 7, 2001)(in refusing to consolidate arbitrations, the court explained:
“Petitioner has cited to no case—and we
have found none—holding that the parties
impliedly consented to consolidated arbitration where there were two separate arbitration agreements with different parties
signing each agreement.”); Gov’t of United
Kingdom v. Boeing Co., 998 F.2d 68, 72-74
(2d Cir. 1993).
In fact, both the Champ (7th Cir.) and
Gammaro (D. Minn.) courts cite the rule
against consolidation of arbitrations absent
contractual provision for it as a reason for
applying a similar rule to representative
proceedings in general. See also Herrington
v. Union Planters Bank, 113 F. Supp.2d
1026, 1034 (S.D.Miss. 2000)(“After reviewing the arbitration provision and determining that it does not expressly provide
for consolidated arbitration, the Court
finds that the plaintiffs are not entitled to
arbitrate as a class.”).
In the context of FLSA or federal age
discrimination claims, courts—including
the Supreme Court in Gilmer in an oftenoverlooked passage—explicitly have rejected the argument advanced by some plaintiffs that the inability to proceed collectively impairs their substantive rights under
those statutes. Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 32 (1991) (“even
if the arbitration could not go forward as a
class action or class relief could not be
granted by the arbitrator, the fact that the
[ADEA] provides for the possibility of
bringing a collective action does not mean
that individual attempts at conciliation
were intended to be barred”) (alteration in
original, citation omitted); Veliz, 2005 WL
1048699, at *2 (“Precedent establishes that
even an inability to proceed on a class or
collective basis in arbitration has no impact
on a plaintiff ’s ability to vindicate his or
her substantive statutory rights.”).
Consequently, because no substantive
rights are at stake, employees may freely
waive the ability to pursue FLSA remedies
through a representative proceeding by
agreeing to arbitrate all employment disputes. See Carter v. Countrywide Credit Industries Inc., 362 F.3d 294, 298 (5th Cir.
2004); Adkins v. Labor Ready Inc., 303 F.3d
496, 503 (4th Cir. 2002). See also Lim v.
Offshore Specialty Fabricators Inc., 404 F.3d
898 (5th Cir. 2005)(Convention on
Recognition of Foreign Arbitral Awards required foreign employees of a Louisiana
Federal courts now
equate contractual
silence as a rejection
of class arbitration.
cently relied upon the distinction between
such substantive and procedural rights in
declining to apply a heightened “knowing
and voluntary” standard to the waiver of
the right to a jury trial attendant to an arbitration agreement. Caley v. Gulfstream
Aerospace Corp., 428 F.3d 1359, 1371
(11th Cir. 2005), cert. denied, 126 S. Ct.
2020 (2006). “As the Supreme Court has
recognized, a party agreeing to arbitration
does not waive any substantive statutory
rights; rather, the party simply agrees to
submit those rights to an arbitral forum.”
Id. See also Browning v. 24 Hour Fitness
Inc., 2006 WL 151933, at *2 (W.D. Wash.
Jan. 19, 2006)(holding that statutory prohibition on pre-dispute waivers of ADEA
claims does not apply to waiver of procedural right to jury trial and that “[t]he
anti-waiver provisions apply to substantive rights, or claims, and not to the
choice of forum”); Schappert v. Bedford,
Freeman & Worth Pub. Group, LLC, 2004
WL 1661073, at *10 (S.D.N.Y. July 23,
2004) (same).
In sum, federal courts considering the
question have accepted contractual silence
as a rejection of class or collective arbitrations. They also have determined that
class arbitration waivers—as well as a
waiver of a jury trial for statutory employment claims—do not impair any substantive rights.
ARBITRATION APPLICATION
corporation to arbitrate FLSA opt-in class
claims overseas pursuant to employment
agreement language); Lobo v. Celebrity
Cruises Inc., 426 F. Supp. 2d 1296, (S.D.
Fla. 2006)(Convention on Recognition of
Foreign Arbitral Awards required putative
class action for unpaid wages under Seamen’s Wage Act to be arbitrated pursuant
to collective bargaining agreement with the
employer, which was incorporated by reference into the plaintiff ’s individual employment contract). Of course, arbitration
agreements "will not preclude the EEOC
from bringing actions seeking class-wide
and equitable relief." Gilmer, 500 U.S. at
32; see also EEOC v. Waffle House Inc., 534
U.S. 279 (2002) (arbitration agreement
does not bar EEOC from pursuing victimspecific relief ).
In a closely analogous precedent, the
Eleventh U.S. Circuit Court of Appeals re-
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
In the first and only known arbitration decision on this point, the arbitrator applied
these principles in Ciago v. Ameriquest
Mortgage Co., AAA Case No. 11 160
00753 04 (November 22, 2004)(order and
decision not reported), in which an employee asserted in arbitration collective
claims under the FLSA. The arbitrator denied the motion to proceed collectively,
finding that nothing in the parties’ arbitration agreement addressed representative
proceedings and that “the collective process
remains a procedural aspect relating to the
way in which claims are pursued and enforced, rather than a substantive element of
the actual damages and remedies that may
be granted.”
[Although not aware of any other reported employment arbitration decisions
on this subject, the authors hope that readers of this article will alert them of the ex-
VOL. 24 NO. 9 OCTOBER 2006
istence of any class or collective action, or
other representative-type action, decisions
in arbitration with which they become familiar. Contact jwaks@kayescholer.com
and wpoorten@kayescholer.com.]
VALIDITY OF
CLASS ACTION WAIVERS
Unlike Ciago, however, some arbitration
agreements actually do explicitly address—
and prohibit—representative proceedings.
Several courts have enforced provisions
expressly waiving any class or collective
claims. See, e.g., Gipson v. Cross Country
Bank, 354 F. Supp. 2d 1278 (M.D. Ala.
2005)(upholding validity of arbitration
agreement’s class action waiver in consumer case); Forness v. Cross Country Bank
Inc., 2006 WL 726233 (S.D. Ill. Mar. 20,
2006)(same); Livingston v. Assocs. Fin. Inc.,
339 F.3d 553, 559 (7th Cir. 2003)(“The
Arbitration Agreement at issue here explicitly precludes the Livingstons from bringing class claims or pursuing ‘class action arbitration,’ so we are therefore obliged to
enforce the type of arbitration to which
these parties agreed, which does not include arbitration on a class basis”)(citation
omitted); Caley, 428 F.3d at 1378 (11th
Cir. 2005) (holding that arbitration agreement’s prohibition on class claims was not
unconscionable under Georgia law and enforcing class action waiver against FLSA,
ADEA, and ERISA plaintiffs); Levitan v.
Fanfare Media Works, Inc., 2003 WL
21028339, at *11 n.7 (Cal. App. 2d Dist.
2003)(compelling arbitration of employees’ unfair business practices and other class
claims, and holding that arbitration agreement was not unconscionable merely because it selected American Arbitration Association rules that did not contemplate
class action arbitration).
Despite the wealth of caselaw authority in support of contractual class action
waivers, those major national private arbitration services that rely on user acceptability have some difficulty in administering these waivers. The American Arbitration Association will allow for class
arbitration where the underlying arbitration agreement is silent regarding class
claims—but it “is not currently accepting
for administration demands for class arbitration where the underlying agreement
prohibits class claims, consolidation or
ALTERNATIVES 153
joinder, unless an order of a court directs
the parties to the underlying dispute to
submit any aspect of their dispute involving class claims, consolidation, joinder or
the enforceability of such provisions, to an
arbitrator or to the Association.” American
Arbitration Association Policy on Class
Arbitrations (July 14, 2005) (available at
www.adr.org/sp.asp?id=25967 (referred to
below as the AAA Policy).
Section 2.5 of the Model Employment
Dispute Arbitration Procedure promulgated by the CPR Institute, which publishes
this newsletter, provides that by agreeing to
resolve any employment disputes through
arbitration, both parties are waiving any
California’s top court
has found certain
class action
arbitration waivers
unenforceable.
right to participate “as a class member in a
class or collective action that would encompass any Dispute.” The procedure also
includes an optional provision, Section
2.7, that excludes class or collective actions
“to the fullest extent permitted by law.”
Curiously though, the CPR Institute comments that, in employment arbitrations it
administers, “[i]f the agreement to arbitrate
addresses the issue of class actions, the employee retains the right at his or her election to participate in such a proceeding in
a court of law.” See “Employment ADR:
Participation as an Administrator,” available at www.cpradr.org/CMS_disp.asp?
page=industry_employment&M=9.7.
While Irvine, Calif.-based provider
JAMS has no employment-specific rule, it
had announced a policy to allow class-wide
arbitration irrespective of any arbitration
agreement language to the contrary in November 2004. JAMS later abandoned this
policy after protests from its corporate
clientele, including a number of major
credit card companies. Myriam Gilles,
“Opting Out of Liability: The Forthcoming, Near-Total Demise of the Modern
Class Action,” 104 Mich. L. Rev. 373, 41112 (2005).
On the other hand, some courts—generally federal courts within the Ninth Circuit or California state courts—have determined that an explicit waiver of representative proceedings in arbitration is not
enforceable as a matter of state law. For example, in one of the many now infamous
Circuit City waiver cases in California, Ingle v. Circuit City Stores Inc., 328 F.3d
1165, 1176 (9th Cir. 2003), the court
held that a prohibition on class-wide arbitration of employment disputes was substantively unconscionable under California law, since such prohibition worked to
the employer’s sole and exclusive benefit:
“We cannot conceive of any circumstances
under which an employer would bring a
class proceeding against an employee.” See
also Castillo v. Dollar Fin. Group, 2004
WL 2191551 (Cal. App. 4th Dist.
2004)(attempted modification of arbitration agreement to exclude class claims exacerbated unconscionability of already
one-sided agreement and thus was not enforceable); Circuit City Stores Inc. v. Mantor, 335 F.3d 1101 (9th Cir. 2003)(citing
Ingle and holding class action waiver unenforceable as substantively unconscionable
under California law); Al-Safin v. Circuit
City Stores Inc., 394 F.3d 1254 (9th Cir.
2005)(prohibition on class actions in arbitration held unconscionable under Washington law).
Recently the California Supreme
Court weighed in on the issue and agreed,
in a consumer case, that certain class action arbitration waivers were unconscionable and thus unenforceable as a matter of state law. Discover Bank v. Superior
Ct., 30 Cal. Rptr. 3d 76 (2005). The Discover Bank decision, however, leaves the
door open for such waivers to be enforced
in the employment context when the requisites of California unconscionability
analysis are duly observed:
We do not hold that all class action
waivers are necessarily unconscionable.
But when the waiver is found in a con-
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
154 ALTERNATIVES
VOL. 24 NO. 9 OCTOBER 2006
sumer contract of adhesion in a setting
in which disputes between the contracting parties predictably involve small
amounts of damages, and when it is alleged that the party with the superior
bargaining power has carried out a
scheme to deliberately cheat large numbers of consumers out of individually
small sums of money, then, at least to
the extent the obligation at issue is governed by California law, . . . such
waivers are unconscionable under California law and should not be enforced.
Id. at 87.
Although not addressed in Discover
Bank, a question may be raised as to
whether consumer cases should be analyzed differently from employment cases
when evaluating the validity of a class or
collective action arbitration waiver, particularly under California’s tough standards.
Without getting bogged down in the details of state unconscionability law, there
may be a tendency for individuals in consumer cases to be deterred from litigating
meritorious claims against a company where
each individual’s expected recovery would
be too small to attract counsel or justify the
effort, and each consumer may decline to
press such claims on the assumption that
someone else would carry the banner. Under
this scenario, the preservation of class proceedings in arbitration may hold some logic,
lest all valid consumer claims fall victim to
such collective reluctance.
In the employment context, however,
different concerns are discernable. An
employee is more likely to pursue vigilantly a protected workplace right—such
as the right to not be discriminated
against for illegal reasons such as race or
gender, or the right to be fully paid for
overtime work—than an individual consumer may pursue the extra few dollars
that were abusively charged to one’s cellphone bill. See Lee v. AT&T Wireless
Servs. Inc., 2006 WL 1452936 (Cal.
App. 2d Dist. May 26, 2006)(noting the
“unlikelihood that an individual would
take the time and incur the cost to arbitrate a $15 claim”); Discover Bank, 30
Cal. Rptr. 3d at 168 (noting, in dicta,
that “the ADEA is an employment discrimination statute in which large individual awards are commonplace”).
To put it simply, where there is more
at stake for a worker, there is less of a
chance that meritorious claims will go
wholly unpursued merely because they
must be pursued alone. See, e.g., Bailey v.
Ameriquest Mortgage Co., 2002 WL
100391, at *7 (D. Minn. Jan. 23, 2002),
in which the district court allowed collective claims under the FLSA to proceed in
court rather than in arbitration, reasoning
that “the inability to proceed collectively
[in arbitration] has the effect of rendering
plaintiff ’s individual claims impractical to
pursue.” The Eighth Circuit reversed,
noting that the Supreme Court “has evidenced its confidence that arbitrators are
perfectly capable of protecting statutory
rights when the parties have conferred the
authority to decide statutory claims.” 346
Drafters must be
clear: Are class
actions allowed?
If yes, then what
rules apply?
tent with this employment-case distinction in Gentry v. Superior Ct., 37 Cal. Rptr. 3d 790 (2d Dist. 2006), review granted, 43 Cal. Rptr. 3d 748 (Cal. 2006). In
Gentry, a Circuit City Stores manager
filed a purported class action suit on behalf of himself and other managers alleging that the company improperly classified managers as overtime exempt.
Although mindful of the California
Supreme Court’s Discover Bank decision,
the court nevertheless held that the class
action waiver in the employment arbitration agreement between the plaintiff and
Circuit City was not substantively unconscionable. Thus, the waiver was enforceable because the arbitration agreement
was not a condition of employment; employees were given 30 days to opt out of
it, and, of considerable interest for this article, the statutory wage claims asserted by
the plaintiff could result in large individual damage awards—in contrast to the individually small dollar amounts out of
which consumers were allegedly cheated
in Discover Bank.
The California Supreme Court granted review of the intermediate appellate
court’s decision as to whether California
law should recognize the analytical distinction between enforcement of waivers
in putative representative employment vs.
consumer arbitration cases. At this writing, a decision had not yet been issued.
ARBITRABILITY:
COURT VS. ARBITRATOR
F.3d 821, 823 (2003). But see Sav-On
Drug Stores Inc. v. Superior Ct., 34 Cal.
4th 319, 340 (2004), approving class certification for wage claimants under California state overtime law and noting that
the class procedure “provides small
claimants with a method of obtaining redress for claims which would otherwise be
too small to warrant individual litigation.” (Citation omitted).
Moreover, virtually all important
statutory employment causes of actions
that would be the basis of a representative
arbitration claim carry provisions for
shifting of attorneys fees. See, e.g., 29
U.S.C. Section 216(b)(FLSA); 42 U.S.C.
2000e-5(k)(Title VII).
The California Court of Appeals recently decided a case in a manner consis-
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
On a related point, although the Supreme
Court’s 2006 Buckeye decision provides
for the arbitrator to hear challenges to the
legality of the underlying contract, the
Court’s opinion, written by Justice Antonin Scalia, preserves court review where
“the challenge is to the arbitration clause
itself,” rather than the contract as a whole.
Buckeye, 126 S. Ct. at 1209.
These days, however, many if not
most, pre-dispute provisions for employment arbitration are found not in employment contracts but in single-purpose
agreements that waive court processes in
favor of arbitration. Scalia’s Buckeye opinion, of course, leaves open for another day
a definitive answer to whether the court
or the arbitrator should decide, in the first
instance, the validity of that freestanding
VOL. 24 NO. 9 OCTOBER 2006
employment arbitration agreement.
WHAT RULES APPLY?
Assuming that representative proceedings
in arbitration are possible, it is not always
clear which set of opt-in or opt-out procedural rules would apply. In Long John Silver’s Restaurants Inc. v. Cole, 409 F. Supp.
2d 682, 685-87 (D.S.C. 2006), a court
refused to disturb an arbitrator’s determination to allow plaintiff-employees to represent an opt-out class of current and former employees with potential FLSA
claims, where the relevant arbitration
agreement incorporated the AAA’s Supplementary Rules for Class Actions.
The employer had argued that opt-in
procedures were required pursuant to the
FLSA under 29 U.S.C. Section 216(b), as
they would be required in federal court. In
evaluating the arbitrator’s decision, the
court held that the Section 16(b) opt-in
procedure did not necessarily apply to arbitration proceedings, and refused to overturn the arbitrator’s ruling that the “opt-in
procedures of [Section] 16(b) do not apply
in private arbitration proceedings when the
arbitration agreement and AAA rules provide for an opt-out-class.” Id. at 686.
[Although class-action grievances asserted by unions are beyond the focus of this
article, a labor arbitrator reached a conclusion similar to Long John Silver’s in applying
the FLSA’s opt-in procedure to the FLSA
arbitration claims on a representative basis
in In re U.S. Navy, Coastal Sys. Station,
Dahlgren Div., Panama City, 112 Lab. Arb.
(BNA) 289 (April 6, 1999)(Joe M. Harris,
Jr., Arb.)(failure to comply strictly with
FLSA opt-in procedures isn’t a basis for dismissing a claim); In re Dept. of the Interior,
Bureau of Reclamation and Int’l Fed. of Prof’l
and Tech. Engineers, Local 128, 103 LRP
50311 (Aug. 31, 2003)(M. David Vaughn,
Judge/Administrative Officer)(opt-in procedures of FLSA not applicable to group
grievance). See also In re Tendercare (Michigan) Inc., 111 Lab. Arb. (BNA) 1192 (July
15, 1998) (David T. Borland, Arb.)(where
collective bargaining agreement was silent
on matter, class action grievances by union
could be heard in arbitration); In re Sunkist
Growers Inc., Bay Area Group, 33 LAIS 368
(June 10, 2005)(arbitrator rejected union’s
attempt to assert grievance class action
where contract did not permit class action
ALTERNATIVES 155
complaints); In re South Bend Community
School Corp., FMCS Case No. 95-23027,
1996 WL 1125135 (March 19, 1996)(Alan
J. Cook, Arb.) (CBA did not prohibit filing
of class action grievance); In re Municipality of Anchorage, 101 Lab. Arb. (BNA) 1009
(Oct. 29, 1993)(Robert W. Landau,
Arb.)(same); In re FMC Corp., 92 Lab. Arb.
(BNA) 1246 (June 23, 1989)(Carl F.
Stoltenberg, Arb.)(same).]
In Ciago, supra, the arbitrator noted
that the AAA had administratively determined that the Supplementary Rules for
Class Actions did not apply to putative collective actions. With this interpretation in
mind, the Long John Silver’s district court
decision to apply the supplementary rules
Plaintiffs will
continue to assert
class arbitration
proceedings, and
challenge waivers.
in accordance with the parties’ agreement,
even though the supplementary rules don’t
contemplate typical FLSA-style opt-in collective proceedings, is somewhat puzzling.
Although the outcome in Long John
Silver’s could be seen as an application of
the Supreme Court’s holding in Volt Info.
Sciences v. Leland Stanford Jr. U., 489
U.S. 468, 478 (1989), that courts will enforce arbitration agreements “in accordance with their terms”—that is, that
parties are free to elect the rules that will
apply to their arbitration—the district
court cited neither Volt or its progeny,
nor expressly rendered its decision on
that basis. Instead, it simply held that the
arbitrator had not exceeded the scope of
his authority in applying the supplemen-
tary rules’ opt-out procedures. See Long
John Silver’s, 409 F. Supp. 2d at 687.
***
Given both the Long John Silver’s holding,
and the fact that the AAA states that it “will
administer demands for class arbitration
pursuant to its Supplementary Rules for
Class Arbitrations if (1) the underlying
agreement specifies that disputes arising
out of the parties’ agreement shall be resolved by arbitration in accordance with
any of the Association’s rules, and (2) the
agreement is silent with respect to class
claims, consolidation or joinder of claims,”
see AAA Policy, supra (emphasis added),
parties crafting arbitration agreements
should endeavor to be clear to specify
whether representative proceedings are
available in arbitration. And, if they are,
they should specify the rules that will apply
to such proceedings.
Of course, even under the AAA’s and
JAMS’ class arbitration rules, the arbitrator
must still make a threshold determination,
in accordance with Bazzle, of whether an
arbitration agreement that is silent regarding representative proceedings can proceed
as such, as did the Ciago arbitrator. See
Meredith W. Nissen, “Class Action Arbitrations: AAA vs. JAMS: Different approaches
to a new concept,” Dispute Resolution Magazine 20-21 (Summer 2005); Rule 3,
American Arbitration Association Supplementary Rules for Class Arbitration (effective Oct. 8, 2003)(“Upon appointment, the
arbitrator shall determine as a threshold
matter, in a reasoned, partial final award on
the construction of the arbitration clause,
whether the applicable arbitration clause
permits the arbitration to proceed on behalf
of or against a class”); Rule 2, JAMS Class
Action Procedures (Feb. 2005)(“Once appointed, the Arbitrator shall determine as a
threshold matter whether the applicable arbitration clause permits the arbitration to
proceed on behalf of or against a class”).
The CPR Institute has not issued comparable rules on this particular point.
In any case, the issues surrounding representative proceedings in employment arbitration will continue to be important as
arbitrators face attempts by plaintiffs to assert class or collective proceedings or challenges to express waivers of the same. Q
Published online in Wiley InterScience (www.interscience.wiley.com).
Alternatives DOI: 10.1002/alt
DOI 10.1002/alt.20144
(For bulk reprints of this article,
please call (201) 748-8789.)
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