Two different panels of the Second Circuit issued opinions about class arbitration on the same day last week.  One creates a circuit split over how specific parties must be to delegate the availability of class arbitration to arbitrators, and the second addresses when bankruptcy law can preempt the federal arbitration act.

In Wells Fargo Advisors, LLC v. Sappington, 2018 WL 1177230 (2d Cir. March 7, 2018), a putative class of former Wells Fargo employees brought suit for unpaid overtime (FLSA).  Wells Fargo moved to compel “bilateral” (individual) arbitration.  The district court denied the motion, finding that the arbitrator was authorized to decide whether class arbitration was available.   The Second Circuit affirmed.

As you may recall from this blog, at least four federal circuit courts have found that whether class arbitration is available is a gateway issue of arbitrability, meaning that it is presumptively for the courts to determine.  (The 8th, 6th, 4th, and 3d.)  And, while parties can delegate gateway issues to the arbitrator if they do so clearly and unmistakably, at least three of those circuits have held that a higher standard applies to the class arbitration issue.  (For example, the Eighth Circuit found that incorporating AAA rules was not sufficient to delegate class arbitrability, while it is sufficient to delegate other gateway issues.)

In the Wells Fargo matter, the Second Circuit “assume[d] without deciding” that the availability of class arbitration is a gateway question.  (Wimps.  Just decide.)  It then considered whether the delegation of that issue to an arbitrator was clear and unmistakable under Missouri law.  One set of plaintiffs had an agreement stating that “any controversy relating to your duty to arbitrate hereunder, or to the validity or enforceability of this arbitration clause, or to any defense to arbitration, shall also be arbitrated.”    The court found that was clear and unmistakable delegation of the class arbitration issue to an arbitrator.

More surprisingly, the court found that a second set of plaintiffs had also clearly and unmistakable delegated class arbitration to an arbitrator, even though their agreement only agreed to arbitrate “any dispute” and adopted either FINRA rules or alternatively 1993 Securities Arbitration Rules of the AAA.  In its analysis, the court noted that because some types of disputes were excluded from arbitration (unemployment), but class arbitration was not excluded, Missouri law would consider it included.  And the court found that more recent iterations of the AAA rules applied, which allow an arbitrator to determine whether a class can proceed.  This decision creates a circuit split on the issue of whether class arbitration is special enough to deserve its own rules for delegation.

As if creating a circuit split on class arbitrability wasn’t exciting enough, the Second Circuit also allowed another putative class action to go forward, despite an arbitration clause.  In In re Anderson, 2018 WL 1177227 (2d Cir. March 7, 2018), Mr. Anderson went through Chapter 7 bankruptcy and his debts were released.  One of those debts was to his credit card company.  However, Mr. Anderson alleged that the credit card company refused to update his credit reports after the bankruptcy.  So, he filed a putative class action.  The credit card moved to compel arbitration under the cardholder agreement, but the bankruptcy court found it was non-arbitrable because it “was a core bankruptcy proceeding that went to the heart of the ‘fresh start’ guaranteed to debtors.”  On appeal, the Second Circuit agreed.

In a recent opinion, the Fourth Circuit cited waiver as its basis to refuse to compel arbitration, but the result seems animated by a sense that the arbitration agreements were unenforceable.  Degidio v. Crazy Horse Saloon & Restaurant, Inc., __ F.3d __, 2018 WL 456905 (4th Cir. Jan. 18, 2018).

The case involved a putative collective and class action case by “exotic dancers” at a club in South Carolina, alleging they were wrongly classified as independent contractors and thereby denied minimum wages and other statutory protections.  The complaint was filed against the club in August of 2013.  [I can’t call it a saloon.  We aren’t in the wild west.]  At that point, it is undisputed that none of the potential plaintiffs had arbitration agreements with the club.

The club participated in discovery for a year.  In November and December 2014, the club obtained arbitration agreements with some of its dancers “as a condition of performing.”  In December of 2014, the club moved for summary judgment on the merits, arguing the dancers were properly classified as independent contractors.  Then in January of 2015, the club brought a motion to compel arbitration against plaintiffs who had signed arbitration agreements.  The district court denied the motion, raising concerns about the enforceability of the arbitration agreements.  The club brought a new summary judgment motion on the merits in October of 2015.  When that was denied, the club sought additional discovery on the merits, attempted to certify questions to the South Carolina Supreme Court, and then moved to compel arbitration against nine plaintiffs who had opted into the litigation after its last motion.  That motion was also denied.

The Fourth Circuit set the stage for its discussion by noting that litigants may waive their rights to arbitration by “substantially utilizing the litigation machinery.”  Without citing any further case law about waiver, the opinion proceeded to review the significant extent of the club’s use of “litigation machinery” (summarized above).  The court was particularly upset at the apparent gamesmanship:

The only possible purpose of the arbitration agreements, then, was to give [the club] an option to revisit the case in the event that the district court issued an unfavorable opinion [on summary judgment].  In other words, Crazy Horse did not seek to use arbitration as an efficient alternative to litigation; it instead used arbitration as an insurance policy in an attempt to give itself a second opportunity to evade liability.

In response to the club’s argument that it could not have moved to compel arbitration until the entertainers who had actually signed the agreements opted into the case, the court suggested that it should have informed the district court of its intentions so that the court did not waste judicial resources.  In addition, the court did not want to “give defendants a perverse incentive to wait as long as possible to compel arbitration.”

At the close of this waiver discussion, the court veers into what seems to be the heart of the matter: its conclusion that the arbitration agreements were “misleading” and “sham agreements.”  The arbitration agreements told the dancers that they only reason they could keep tips and set their own schedules was because they were independent contractors, and that would change if they joined the Degidio lawsuit.  The court noted that information was false.  Furthermore, the court was upset that the agreements were presented to plaintiffs “in a furtive manner,” evading the district court’s ability to supervise contact between the potential plaintiffs and counsel.  “The setting here was ripe for duress.”  However, the court does not undertake any analysis of unconscionability or other bases to find the agreements unenforceable under South Carolina law.  It just affirms the decision to deny the motion to compel arbitration.

I find this a puzzling case.  Normally, parties are allowed to agree to arbitrate a dispute that has already begun.  And litigation conduct before that agreement can’t count as a waiver.  Furthermore, parties don’t usually tell the judge about motions that they don’t yet have a basis to bring.  So, unless FLSA cases are really so different, this seems like a case that should have been analyzed on the validity of the arbitration agreements.  It is decidedly underhanded to convince people to sign arbitration agreements by misrepresenting the law.  Maybe South Carolina unconscionability doctrines are very difficult?

The Federal Arbitration Act has been in effect for nearly 100 years (92, to be precise).  Nevertheless, the First Circuit found two issues of first impression to address this month.  In Oliveira v. New Prime, Inc., 2017 WL 1963461 (1st Cir. May 12, 2017), the court refused to compel arbitration of a class action complaint, because it interpreted Section One of the FAA to exempt contracts for independent transportation contractors.

Mr. Oliveira brought a putative class action suit against the interstate trucking company for which he worked–Prime–for violating the Fair Labor Standards Act, Missouri minimum wage statute, and other labor laws.  Prime moved to compel arbitration under the FAA.  In response, Plaintiffs argued that the FAA had no application to their contracts because they are transportation workers. Prime argued that that issue–the applicability of the FAA–should be decided by an arbitrator.  Furthermore, it argued that the FAA does not exempt independent contractors and these workers had been classified as independent contractors.  The district court agreed it must decide the threshold question, but then ordered discovery on the question of whether the named plaintiff was an independent contractor.

On appeal, the First Circuit decided to tackle both the tough legal issues head on, and not wait to see if discovery mooted either of them.

First, it analyzed whether an arbitrator or a court should decide whether the FAA applies to a plaintiff’s contract.  It noted that the 8th Circuit had concluded an arbitrator should decide, while the 9th Circuit had concluded a court should decide.  Finding the 9th Circuit’s analysis more persuasive, it held that “the question of whether the [Section] 1 exemption applies is an antecedent determination that must be made by the district court before arbitration can be compelled under the FAA.”

Second, it interpreted the language in Section 1 in order to answer the question of whether the exemption “extends to transportation-worker agreements that establish or purport to establish independent-contractor relationships.”  (Recall that the truckers were arguing they were exempt from the FAA, whether they were independent contractors or not.)  The FAA says it does not apply to “contracts of …any other class of workers engaged in foreign or interstate commerce,” and the Supreme Court interpreted that language in 2001 to mean that “contracts of employment of transportation workers” are exempted from the FAA.  After noting that multiple courts have found the exemption does not extend to independent contractor relationships, the First Circuit brushed that aside with this gem: “Interpreting a federal statute is not simply a numbers game.”

Instead of playing a numbers game, the First Circuit played a “pull out the antique dictionary” game.  It looked at definitions of contracts of employment from 1925, when the FAA was enacted, and concluded the phrase means any agreement to perform work, and is broad enough to include independent contracting.  Therefore, because Prime had conceded Mr. Oliveira was a transportation worker, “the contract in this case is excluded from the FAA’s reach.”

However, the court inserted a footnote allowing that a state arbitration act may provide a basis to compel arbitration in a future scenario like this one. . . which raises interesting preemption issues.

The Ninth, Sixth, and Third Circuits all recently issued decisions about whether putative class or collective actions could proceed despite the existence of arbitration clauses.  In two of those decisions, the courts found the arbitration agreements did not allow for class arbitration and therefore dismissed the claims.  In the third, the court found the arbitration agreement was not applicable to the dispute.

In Opalinski v. Robert Half Int’l, 2017 WL 395968 (3d Cir. filed Jan. 30, 2017), the Third Circuit again tackled arbitrability issues in a case that has gotten the runaround for five years (district court, then arbitrator, then district court, then appellate court, back to district court, now back to appellate court).  The case involves a collective action complaint alleging violations of the Fair Labor Standards Act.  The arbitration clause between the employees and employer provides for AAA arbitration.  In its most recent decision, the district court dismissed the action, finding the arbitration clause did not allow class arbitration.  On appeal, the Third Circuit reiterated that courts (not arbitrators) should decide whether class arbitration is available.  It found that in this case the parties’ arbitration clause does not indicate they agreed to class arbitration.  In particular, the court found the absence of any explicit mention of class arbitration was dispositive, and outweighed the fact that the parties agreed to arbitrate disputes arising under statutes that allow class litigation.

In another employment dispute, Poublon v. C.H. Robinson Co., 2017 Wl 461099 (9th Cir. Feb. 3, 2017), a class of employees asserted that the employer had misclassified them as exempt from overtime pay and asserted a Private Attorneys General Act (PAGA) claim.  The arbitration agreement provided “neither You nor the Company may bring any Claim combined with or on behalf of any other person or entity, whether on a collective, representative, or class action basis.” It ended with a severability clause, so that if any part of the arbitration agreement was invalid, the rest of it would be enforced.  The employer moved to compel arbitration and dismiss class or representative claims.  The district court found the arbitration clause was unconscionable and denied the employer’s motion.  The Ninth Circuit reversed, finding only two aspects of the arbitration clause were unconscionable/unenforceable and those could be severed, allowing the rest of the arbitration clause to be enforced.  (The two stinkers: waiver of a representative PAGA claim (see Iskanian); and a provision allowing only the employer to go to court for injunctive or equitable relief.)

While the two classes of employees above were not able to continue prosecuting claims as a group (and had to go to arbitration), a class of consumers won the right to stay in court in Stevens-Bratton v. TruGreen, Inc., 2017 WL 108032 (6th Cir. Jan. 11, 2017).  In that case the class representative had hired a lawn care company for one year.   More than six months after the service contract had been terminated, the class representative received numerous telemarketing calls from the company, even though her number was on the Do-Not-Call Registry.  She then sued for violation of the TCPA.  In response, the lawn care company moved to compel arbitration, based on its service contract with the class representative, which “expressly waive[d] any ability to maintain any Class Action.”  The district court compelled arbitration, and the 6th Circuit reversed.  Although there is usually a presumption in favor of an arbitration agreement surviving the expiration of the rest of a contract, the court was not convinced that the dispute “had its real source in the contract.”  It found that the lawn care service contract was “irrelevant to this case,” since it had completely expired before the calls took place and the lawn services provided were not at issue in the TCPA claim.

The highest state court in West Virginia just found that a credit card company did not waive its right to arbitrate, despite initially choosing a court forum and waiting almost five years to raise its right to arbitrate.  That is a somewhat surprising decision from a court that has been repeatedly willing to buck SCOTUS precedent in order to let parties avoid arbitration.

It was the right decision under current precedent though. The parties in Citibank, N.A. v. Perry, __ S.E.2d __, 2016 WL 6677944 (W. Va. Nov. 10, 2016), had an arbitration provision that could be enforced at any time.  It said a party who starts a court proceeding “may elect arbitration with respect to any Claim advanced in that proceeding by any other party.”  It also stated that “[a]t any time you or we may ask an appropriate court to compel arbitration of Claims…unless a trial has begun or a final judgment has been entered.”  And finally, the arbitration provision had a class action waiver and said it could not be waived without a written agreement.

The case started in 2010 with Citibank filing a debt collection action against the credit cardholder. The consumer appeared to acknowledge the debt, and Citibank filed a motion for judgment on the pleadings.  But the trial court never ruled.  In December of 2014, Citibank served discovery and got a scheduling order in place.  In May of 2015, the consumer filed a class counterclaim.  In response, Citibank asked the court to compel individual arbitration of the claims.  The district court found Citibank had waived its right to arbitration.

On appeal, Citibank argued that under the plain terms of its arbitration agreement, it could compel arbitration at any time before trial or judgment, unless the opposing party could show actual prejudice. The court was not willing to base its decision on the language of the agreement, however, citing federal cases that refuse to allow “no waiver” clauses to alter the usual waiver analysis.  Instead, it focused on whether Citibank’s conduct demonstrated that it had intentionally relinquished its right to arbitrate. Critically, the court turned the tables and said that in a situation where the consumer waited 4.5 years to assert a counterclaim, “we will not attribute the lengthy duration of activity…solely to Citibank.”  The court noted that the counterclaim changed the character of the case, and after that happened, Citibank timely filed a motion to compel arbitration.

____

In the “Don’t get too cute” category… An exotic dancer just won her right to keep her wage-and-hour claims in court, despite an arbitration agreement in her contract. Why?  Because the club styled her contract as a landlord/tenant arrangement in which she leased the stage.  Because the arbitration clause applied only to disputes arising out of the agreement, and the agreement purported to be a lease, the court refused to find its scope broad enough to cover her FLSA claims. Herzfeld v. 1416 Chancellor, Inc., 2016 WL 6574075 (3d Cir. Nov. 7, 2016).

Of all the federal circuit courts, I was not expecting the 7th Circuit to venture out on a limb to support the NLRB’s interpretation of the National Labor Relations Act (NLRA) as precluding class arbitration waivers.  After all, the 7th Circuit gets affirmed more than other circuit courts by SCOTUS, earning it a reputation for being fairly conservative.  Yet, contrary to the five other circuits that have already disagreed with the NLRB interpretation, the 7th Circuit just became the first to step out in support of the Board’s precedent.

In Lewis v. Epic Systems Corp., 2016 WL 3029464 (7th Cir. May 26, 2016), the arbitration agreement between the employer and its employees called for individual arbitration of disputes and waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”   Nevertheless, a technical writer (of all the unlikely heroes…) sued the employer in federal court asserting violations of labor laws.  When the employer moved to compel individual arbitration, the employee responded that the arbitration agreement violated the NLRA.   The district court agreed with the employee, and the 7th Circuit affirmed.

Knowing that it was creating a circuit split, the unanimous panel supported its result with as much precedent and analysis as it could muster.  The opinion’s logic is this: Section 7 of the NLRA gives employees the right “to engage in other concerted activities,” and filing class actions constitutes “other concerted activities,” by virtue of federal precedent as well as the statute’s legislative history.  Furthermore, the Board’s interpretation of the NLRA is entitled to deference.  Therefore, the Court held, because the employer forced its employees to agree to a contract that stipulated away the employees’ right to class and collective action, it was unenforceable.

The panel then addressed whether the FAA “overrides” the interpretation of the labor laws.  Finding that the two statutes were not in conflict, the panel rejected any notion that the FAA altered the result.  In particular, the opinion notes that on the whole, the NLRA is very pro-arbitration and therefore does not conflict with the federal policy favoring arbitration.  It then attempts to deal with the pro-class-action-waiver language in Concepcion and Italian Colors by pointing out that: 1) it was dicta, dicta, dicta; and 2) the savings clause in Section Two recognizes that arbitration agreements may be made invalid by other laws.

Would this panel have been so bold if there were not an equally divided 8 justices on the Supreme Court?  I don’t know.  But, I do know that if this decision (and the NLRB precedent) wins the day, and if the recent CFPB proposed regulations are issued and upheld, it will represent a fundamental shift in the use and value of arbitration agreements for large companies that contract with hundreds (or thousands or millions) of employees and consumers at once.

Post script: The 7th Circuit did not persuade the 8th Circuit to change its mind on this issue.  Just a week after the Lewis decision, the 8th Circuit decided Cellular Sales of Missouri v. NLRB, 2016 WL 3093363 (8th Cir. June 2, 2016), in which it reaffirmed its 2013 ruling that the NLRB was simply wrong in concluding that class-action waivers violate the labor laws.  However, the 8th Circuit did affirm the Board’s finding that the company violated the NLRA by drafting an arbitration agreement that would lead a reasonable employee to believe it waived or limited their rights to file unfair labor practice charges with the NLRB.

 

What’s one way to derail a potentially large collective action about Fair Labor Standards Act violations?  To implement a new arbitration policy within days, thereby ensuring that your current employees cannot join the court case.  At least, that was the successful tactic used by a Chicago restaurant recently.

In Conners v. Gusano’s Chicago Style Pizzeria, __ F.3d __, 2015 WL 1003860 (8th Cir. Mar. 9, 2015), a former server alleged the restaurant where she had worked violated the FLSA.  She planned to represent other current and former servers at the restaurant.  However, a month later, the restaurant rolled out a new arbitration agreement for employees (but gave them the option of opting out as well, and explicitly explained that the agreement prevented the employee from joining the Conners action).  The plaintiffs (the original woman and other former servers who had already opted in), asked the court to enjoin the restaurant from using its new arbitration agreement to reduce the number of potential plaintiffs.  The district court granted the plaintiffs’ motion “to prevent a chilling effect on future collection actions under the [FLSA],” and enjoined the restaurant from enforcing the arbitration agreement against anyone who wanted to become a plaintiff in the action.

The Eighth Circuit reversed.  It found that the plaintiffs “lacked standing to challenge the current employees’ arbitration agreement,” which deprived the district court of jurisdiction to enjoin enforcement of the new arbitration agreement.  Critically, the court did not buy the argument that the new arbitration agreement caused plaintiffs to suffer a “concrete and particularized injury” in the form of an increased pro rata share of litigation expenses.  The court faulted plaintiffs for failing to provide any evidence that the current employees were going to join the lawsuit, even without an arbitration agreement.  It noted that at the time the motion was filed, no current employees had joined the collective action, and the plaintiffs’ counsel could offer nothing other than “a hopeful guess” that current employees would eventually join the cause.

In short, the court concluded that “one must resort to pure speculation to conclude the former employees’ portion of the litigation costs is any greater than it would have been absent the agreement.  This does not satisfy Article III.”

The problem with this decision is that it feels impractical to expect plaintiffs, whose lawsuit is just a few weeks old, to already have evidence available of what classes of employees will opt in to the collective action.  In short, if other circuits adopt this approach, this tactic could be an effective way to reduce the size of new class or collective actions whose representative is a former employee.

In the past year, if I wrote about “FLSA” and “arbitration” in the same post, it likely meant that another federal court had found employers can include class action waivers in their employment contracts without violating the Fair Labor Standards Act.  Today, however, is different.  The Eleventh Circuit last week found that it was the FLSA that gave the district court sufficient “managerial responsibility” over workers’ collective actions to override an employer’s coercive, post-lawsuit rollout of a new arbitration agreement.  Billingsley v. Citi Trends, Inc., 2014 1199501 (11th Cir. March 25, 2014).

The collective action is made up of store managers at a clothing retailer, who allege the retailer systematically failed to compensate them for overtime.    The putative class action was filed in February of 2012.  By June of 2012 there was a preliminary scheduling order.  Under Eleventh Circuit precedent, the plaintiff would start the process of notifying similarly-situated store managers 60 days after the scheduling order.  In response, the retailer asked for extensions and then presented the court with new arbitration agreements executed by “several dozen” store managers.  The store argued that these managers were now subject to arbitration and unable to join the court action.  The plaintiffs objected and requested “corrective actions” (i.e., sanctions).

After a two-day evidentiary hearing, the district court in Alabama made its findings and conclusions.  It found that after the scheduling order in the case came out, the retailer got busy instituting a new ADR policy.  The new policy called for binding arbitration that could only proceed on an individual basis.  And, instead of being handed out in a group setting like the retailer’s usual handbook changes, the new policy was delivered individually to store managers in small rooms at the back of the store, “the same places where the store interrogated or investigated its employees.”  H.R. representatives asked the store managers to sign the new arbitration agreement along with a fill-in-the-blank declaration about their job duties.  The store managers testified they understood they would be fired if they did not consent.

The district court found the timing of the rollout “was calculated to reduce or eliminate the number of collective action opt-in Plaintiffs in this case” and was designed to be “intimidating and coercive.”  Therefore, and in response to the retailer’s motion to compel arbitration against the managers who signed the new arbitration agreements, the district court concluded the arbitration agreements were unconscionable and unenforceable.  Furthermore, the district court exercised its managerial responsibility to oversee collective actions under the FLSA and refused to enforce the arbitration agreements for that second, independent basis.

The Eleventh Circuit affirmed.  Interestingly, it did not analyze whether the new arbitration agreements were unconscionable.  Instead, the opinion consists entirely of the appellate court applying the “abuse of discretion” standard to the district court’s use of its “managerial responsibility” under the FLSA.  The opinion described a district court’s responsibility for overseeing FLSA actions broadly — including governing the conduct of the counsel and parties in order to avoid confusion and unfairness (especially ex parte contact with potential class members), as well as ensuring an orderly process.  Given that expansive authority, the court concluded the district court did not abuse its discretion in determining the retailer’s conduct “undermined the court’s authority to manage the collective action” and therefore putative plaintiffs could join the lawsuit notwithstanding their signature on the new arbitration agreements.

Not many employers will attempt to rollout a new ADR policy in a “blitzkrieg fashion” like this retailer.  So, what’s the significance of this case?  It shows that in the current era of the strong federal policy in favor of arbitration, courts who believe arbitration agreements are unenforceable are searching for some basis other than the usual state law contract defenses.  That is because those contract defenses could be preempted by the Federal Arbitration Act and the allowable bases for “substantive unconscionability” narrow each year.  This case essentially re-frames the case from one about enforcing arbitration agreements to one about whether district courts have the ability to manage their cases and not get manipulated.  I believe the Eleventh Circuit saw that as less likely to be reviewed and reversed.

After three federal circuits had already refused to defer to the NLRB’s decision in D.R. Horton, it is not surprising that the Fifth Circuit yesterday overruled the NLRB’s critical holding: that precluding class arbitrations is a violation of federal labor law.  D.R. Horton, Inc. v. Nat’l Labor Relations Bd., __ F.3d __, 2013 WL 6231617 (5th Cir. Dec. 4, 2013).

D.R. Horton builds homes in many states.  Starting in 2006, its employees had to sign a Mutual Arbitration Agreement.  The MAA called for binding arbitration of disputes and provided that “the arbitrator [would] not have the authority to consolidate the claims of other employees” or “the authority to fashion a proceeding as a class or collective action.”  In 2008, a class of superintendents tried to bring a class arbitration related to allegations that the builder violated the Fair Labor Standards Act.  Horton insisted that the employees could only arbitrate on an individual basis.  In response, the lead plaintiff filed an unfair labor practice charge.

In 2012, the NLRB found that the MAA violated labor law by requiring employees to waive their right to joint, class or collective employment actions.  On a petition for review, the Fifth Circuit reversed that decision.  Because the NLRB is entitled to deference in its interpretation of the labor laws, the Fifth Circuit largely accepted the Board’s analysis that requiring employees to refrain from collective and class actions violates Sections 7 and 8(a)(1) of the NLRA, because it impedes employees ability to enage in concerted activity, i.e. class claims.  (Not without some digs, though.  Like this one: “no court decision prior to [this one] had held that the Section 7 right…prohibited class action waivers.”)  However, the court found the NLRB had not given sufficient weight to the FAA in its analysis and “[c]aselaw under the FAA points us in a different direction than the course taken by the Board.”

The court analyzed the two potential bases for finding an arbitration agreement is invalid under the FAA.  First, it looked at whether the savings clause in Section 2 of the FAA (arbitration agreements are enforceable “save upon such grounds as exist at law” for revocation) provides authority to invalidate the MAA based on the NLRA.  (Holy acronyms!)  The court concluded that the “Board’s rule does not fit within the FAA’s savings clause” under the same reasoning set forth in Concepcion.  In short, “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.”

Second, the court looked at whether Congress intended the NRLA to override the FAA.  Nothing explicit in the text of the NLRA shows that intent and the court found nothing in the legislative history showing that intent.  Therefore, it looked to whether there was an “inherent conflict between the FAA and the NLRA’s purpose.”  The court found no inherent conflict, largely because courts have allowed arbitration of NLRA claims generally, and courts have specifically found that arbitration agreements cannot be voided based on inequality in bargaining power.  In its final paragraph on this issue, the court said it is “loath to create a circuit split.  Every one of our sister circuits to consider the issue has either suggested or expressly stated that they would not defer to the NLRB’s rationale, and held arbitration agreements containing class waviers enforceable.”

On a different issue, however, the court upheld the NLRB’s decision.  It found that the MAA improperly gave the impression that an employee was waiving his or her administrative rights.  (The agreement included the employee’s waiver of “the right to file a lawsuit or other civil proceeding relating to Employee’s employment with [Horton].”)  Therefore, the court held the Board properly forced the builder to change that language in its MAA.

In January of this year, the Eighth Circuit was the first federal appellate court to refuse to adopt the National Labor Relations Board’s ruling on class action waivers in employment contracts.  (The previous year, in D.R. Horton, the NLRB declared it a violation of federal labor law for employers to require employees to waive their rights to class actions.)  Last month, the Second and Ninth Circuits joined the Eighth Circuit in that stance.

In Sutherland v. Ernst & Young, __ F.3d__, 2013 WL 4033844 (2d. Cir. Aug. 9, 2013), an employee brought a putative class action for violations of the Fair Labor Standards Act.  The employer, E&Y, moved to compel arbitration.  Because the lead plaintiff had a potential recovery of only $1,900, but her attorneys fees and expert costs would likely reach $200,000, the district court relied on the Second Circuit’s Amex III decision and denied the motion to compel arbitration.  Now that SCOTUS has reversed the Second Circuit in Amex III, however, the Second Circuit ruled that this case against E&Y must proceed in individual arbitrations.

While the Second Circuit did not address the NLRB ruling directly, it expressed its disagreement sub silentio.  It found that Congress did not preclude the waiver of collective action claims in the FLSA, and cited the Eighth Circuit’s decision in Owen v. Bristol Care repeatedly.  It also hinted that recent Supreme Court rulings make clear that the NLRB ruling is unsupported.

In contrast, the Ninth Circuit did directly address the NLRB ruling in Richards v. Ernst & Young, LLP, __ F.3d__, 2013 WL 4437601 (9th Cir. Aug. 21, 2013).  In Richards, three employees brought wage and hour claims against the employer (E&Y again).  After the Concepcion decision in 2011, the employer moved to compel arbitration, and the district court denied the motion, finding E&Y had waived its right to arbitrate.  Although there was “years of litigation” before E&Y moved to compel, the Ninth Circuit found that the employee had not proven any prejudice and therefore E&Y had not waived its right to arbitrate.  In particular, dismissal of some claims (without prejudice) was not prejudicial, nor was the expense of discovery.

Although the court did not need to address the NLRB ruling (because it found the employee had not proven prejudice and had not raised the NLRB argument at the district court level), it went out of its way to say that “the only court of appeals, and the overwhelming majority of the district courts, to have considered the issue have determined tha they should not defer to the NLRB’s decision in D.R. Horton because it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act.”  Therefore, the employee claims in Richards also had to proceed on an individual basis in arbitration.

What’s the opposite of a circuit split?  A circuit pile-on?  In any case, that’s what we’ve got so far on this issue.  The federal appellate courts are ganging up on the NLRB on the issue of contractually precluding class and collective waivers.