Tag Archives: Supreme Court of the United States

String of Recent Decisions Confirm Employer’s Right to Enforce Class Action Waivers in Arbitration Agreements

Contributed by Suzanne Newcomb

In June, the Supreme Court upheld a contractual ban on class arbitration despite that the cost of individual arbitration so exceeded the potential recovery it made pursuing the claims impractical.  American Express v. Italian Colors.  AmEx was not an employment case but it begged the question:  might a bar to class or collective arbitration of FLSA claims also stand?  The Second Circuit answered with an unequivocal “yes” on Friday in Sutherland v. Ernst & Young and again Monday in Raniere v. Citigroup.

Sutherland earned a set salary for “low level clerical work.”  She sued for unpaid overtime “on behalf of herself and all others similarly situated.”  In addition to standard arbitration language, the agreement mandated that disputes “pertaining to different employees will be heard in separate proceedings.”  Sutherland sought $1,867 and claimed arbitration could cost $200,000.  She argued that the cost of individual arbitration so dwarfed the amount in controversy, it removed any incentive to enforce the statute.  The district court invalidated the arbitration agreement, finding the cost of individual arbitration prevented plaintiffs from “effectively vindicating” their rights.  Quoting AmEx, the Second Circuit reversed the holding, “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”   

So what are the practical implications?  We can confidently include class action waivers in arbitration agreements.  You can do it, does that mean you should?  The answer to that question, like the larger question of whether any arbitration agreement is right for your organization, is not as clear-cut.  Plaintiffs tend to file in court and fight for their right to litigate, thus adding a costly battle to the war.  Traditional arguments against enforcement remain, i.e. fraud, duress, unconscionability, etc.  Moreover, AmEx left the door open (though only slightly) for plaintiffs to argue an arbitration agreement is unenforceable when arbitration is unaffordable and thus prevents the plaintiff from pursuing her claims. 

Even when enforced, arbitration agreements are no panacea.  Arbitration is more private than traditional litigation and it can move more quickly, which can translate to lower attorney fees.  Arbitration removes the jury from the equation and with it the possibility of a “run away jury.”  However, the parties must pay the arbitrator.  Arbitrators tend to limit discovery, may not apply the rules of evidence as strictly and some shun summary judgment (a powerful tool for employers).  Furthermore, arbitrators are notorious for split decisions and there is very little room for appeal if you do not like the decision.  An effective class action waiver may mean fewer claims, but it could force an employer to fight a multitude of small claims.  Deciding whether an arbitration agreement is right for your organization and if so, whether that agreement should include a class action waiver, requires an individualized assessment and should not be taken lightly.

DOMA is Dead – Implementation of the Supreme Court Ruling in U.S. Immigration

By Jacqueline Lentini McCullough

On June 26, 2013, the Supreme Court unequivocally affirmed there is no legitimate reason for the federal government to discriminate against married couples based on sexual orientation. The Defense of Marriage Act (DOMA) of 1996 defined marriage as a legal union between a man and a woman. The implication of the Supreme Court’s historic decision in the immigration context is that the U.S. must treat married gay and lesbian couples the same way it treats married heterosexual couples.

While many details of how the immigration process will be implemented are still uncertain, U.S. Citizenship and Immigration Services (USCIS) published Frequently Asked Questions (see www.uscis.gov) regarding same-sex marriage on July 2, 2013. A same-sex marriage can now be the basis for an immigrant visa for a spouse married to a U.S. citizen. In evaluating the petition, USCIS will look to the law of the location that the marriage took place to determine if it is a valid marriage for immigration purposes. The law of the state of residence must also be taken into account. Further fact specific circumstances may develop as federal immigration benefits are applied.

U.S. Supreme Court Decision Creates Class Action Concerns When Enforcing Arbitration Agreements

Contributed by Michael Wong

On June 10, 2013, the U.S. Supreme Court created some concern for employers in enforcing arbitration agreements.  The Court held that an arbitrator has the power to interpret an arbitration agreement to permit class arbitration, even when the agreement does not expressly permit class-wide arbitration. 

In Oxford Health Plans LLC v. Sutter, after the complaint was filed the defendant moved to compel arbitration.  The defendant’s motion to compel arbitration was granted and the parties agreed that the arbitrator should decide whether the contract authorized class arbitration.  The arbitrator held that the intent of the parties was to allow class arbitration, despite the absence of express language permitting it.  The defendant then sought judicial review of the arbitrator’s decision.  Ultimately the issue was presented to the U.S. Supreme Court, which held that since the parties agreed the arbitrator should determine whether the parties intended the agreement to authorize class arbitration the Court was limited to only reviewing whether the arbitrator (even arguably) interpreted the parties’ contract, not whether the arbitrator got its meaning right or wrong or even committed a serious error of law or fact.  As the Supreme Court explained, a court may vacate an arbitrator’s decision only when the arbitrator “strayed from his delegated task of interpreting a contract, not when he performed that task poorly.”  In essence, since the defendant had chosen arbitration, it had to live with that choice. 

The Supreme Court recognized that had it been argued that the availability of class arbitration was a “question of arbitrability” it would have been an issue for the court to decide, which based on the Court’s comments likely would have led to a different result.  At first blush, this case appears to conflict with the U.S. Supreme Court’s previous decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., that a party may not be subjected to class arbitration unless there is language in the agreement expressly allowing class arbitration.  However, in reaching the decision in that case, the Supreme Court held the arbitrator had exceeded his authority when interpreting the agreement to allow class arbitration, absent express language, as unusually the parties had stipulated that they had never reached an agreement on class arbitration. 

Take-Away for Employers:  The recent U.S. Supreme Court decision impacts the language that should be included in mandatory arbitration agreements, as well as employers’ strategy in responding to claims by employees who are subject to mandatory arbitration agreements.  First and foremost, you should carefully review your arbitration agreement and consider the pros and cons of including a section that expressly prohibits class, collective, and representative arbitration, thereby avoiding the court or arbitrator attempting to divine the parties’ intent.  Secondly, if faced with a claim that involves potential class arbitration issues or an arbitration agreement that you could use to compel arbitration, you should carefully consider your options and should not stipulate that the issue of whether the parties agreed to class arbitration is for the arbitrator to decide.  Based on the U.S. Supreme Court’s clarification, if you allow an arbitrator to decide whether an arbitration agreement permits class arbitration, even if the arbitrator commits a serious error of law or fact, there is limited to no judicial review available to remedy the error.