Arbitration Agreements

Following up on a recent post about the intricacies of mandatory arbitration agreements in the workplace, the New Jersey Appellate Division recently held that an arbitration clause that employees did not explicitly agree to was unenforceable.  The arbitration clause was presented in a training module that was sent to employees, which the employees were then required to acknowledge.

The key fact for the Appellate Division in finding the arbitration agreement unenforceable was that the employees were not required to explicitly and affirmatively assent to the arbitration policy when they acknowledged the training module.  In other words, while the employees acknowledged the existence of the arbitration agreement when acknowledging the training module, the court held that the employees did not accept the terms contained within it because there was not an explicit waiver of rights.

Notably, Judge Sabatino stated that the arbitration agreement would likely have been enforceable if the employer had made a few minor changes, such as framing the presentation as an “agreement” and “waiver” of rights rather than as a “training.”  He also suggested that adding the words “agree” or “agreement” to the box that the employees clicked would have strengthened the enforceability of the agreement.

As recent blog posts highlight, employers need to be wary of the various pitfalls they face when attempting to bind employees to mandatory arbitration.  It is important to follow individual state laws, and ensure that arbitration agreements are expressly agreed to by employees, rather than merely acknowledged.  The Hogan Lovells employment team has extensive experience crafting employment policies, including arbitration agreements.  If your employment policies need to be reviewed in light of the proliferation of new laws and court decisions across the country, we are ready and able to assist.

The case is Amy Skuse v. Pfizer Inc. et al., case number A-3027-17T4, in the Superior Court of New Jersey Appellate Division.

 

New Jersey employers seeking to compel arbitration secured a big win earlier this month when a federal judge ruled that former employees agreed to an arbitration agreement by clicking on a hyperlink sent to them by their employer.  The judge decided in favor of the employer even though the employer could not prove that the employees read or understood the terms of the agreement.

“Plaintiffs’ argument that clicking on the hyperlink does not prove they read or fully understood the terms of the Arbitration Agreement is irrelevant,” Judge Martinotti said in his written opinion.  “A party is ‘bound by the hyperlinked agreement, even if that party did not review the terms and conditions of the hyperlinked agreement before assenting to them.'”

Notably, the arbitration agreement required employees who did not consent to the Arbitration Agreement to affirmatively opt out of the arbitration process by a certain deadline.  The employees failed to do so, and are now required to arbitrate their employment-related claims.

This decision is consistent with rulings in other jurisdictions that an “opt out” process is sufficient to prove consent in certain scenarios.

The case is Horowitz et al. v. AT&T Inc. et al, case number 3:17-cv-04827, in the U.S. District Court for the District of New Jersey.

Congrats to Hogan Lovells’ appellate team for securing one of the most important employer-friendly SCOTUS decisions in decades regarding the enforceability of class action waivers in arbitration agreements.  Please read about it at http://www.hoganlovells.com/en/news/hogan-lovells-scores-major-win-for-employers-in-us-supreme-court-case-epic-systems-corp-v-lewis.

Employers in California received an important reminder this past month as to why it is necessary to be specific when identifying the claims that are subject to arbitration in an employee arbitration agreement. The case Cortez v. Doty Bros[1] examined the strict manner in which employment-related arbitration agreements are interpreted under California law.  The plaintiff in Cortez sued his former employer on behalf of himself and a putative class of other employees, alleging that the employer failed to comply with the California Labor Code provisions governing overtime pay, meal periods, rest breaks and the timely payments of wages due on termination of employment.  The plaintiff also asserted claims under Industrial Welfare Commission Wage Order (“Wage Order 16”) and the Labor Code for the employer’s failure to comply with certain recordkeeping requirements.  A Collective Bargaining Agreement (CBA) that governed the employment relationship provided for arbitration of any dispute or grievance which “arose under” Wage Order 16, but unfortunately, the arbitration provision in the CBA did not specifically incorporate claims under the California Labor Code itself.  Because the plaintiff in Cortez asserted both claims under Wage Order 16 and under the Labor Code for the failure to timely pay wages upon separation and unfair competition (which claims are not based on Wage Order 16), the employer could not force the employees to arbitrate the timely pay and unfair competition claims, even though the remaining claims (overtime pay, meal periods, rest breaks) were subject to mandatory arbitration.

Cortez stands as a reminder of courts’ insistence that arbitration is a matter of contract and while contractual matters under a CBA are presumed arbitrable, this presumption does not apply to statutory violations, i.e. the Labor Code.  Therefore, for statutory claims to be arbitrable, they must be explicitly incorporated into the parties’ arbitration agreement.  The decision notes “the United States Supreme Court has made clear that waiver of the right to prosecute a statutory violation in a judicial forum is only effective if it is explicit, ‘clear and unmistakable.’”[2]  And according to the Cortez court, the failure to cite the statute at issue in the arbitration provision itself is fatal to any claim that the waiver of the right to enforce the statute in court is clear and explicit.

Employers with California-based employees should examine their arbitration agreements to ensure that the arbitration clause clearly and unmistakably include the most-commonly asserted statutory violations within the scope of arbitration, as well as a “catch all” for all “statutory claims” that may be asserted by an employee. The arbitration clause should also give the arbitrator, and not a court, the power to determine which claims are subject to arbitration, except (as noted below) with respect to the question of class claims.  If not, employers risk the rejection of their arbitration agreements, and like the employer in Cortez, may have to litigate statutory disputes in a public judicial forum.

The Cortez court separately addressed the issue of whether an arbitration agreement that is silent about the arbitration of class claims can be interpreted to permit class wide arbitration.  The court restated the rule established in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 684-685 (2010), that absent express language in the arbitration provision or extrinsic evidence establishing the parties’ intent to arbitrate class claims, only individual claims may be arbitrated, and silence on the issue may not be construed as agreement to class arbitration.  A well-drafted arbitration agreement should reserve for the court, and not the arbitrator, the power to determine the arbitrability of group, collective or class claims.

In this portion of the decision, the Cortez court noted the current split amongst federal circuit courts over whether explicit class action waivers violate the National Labor Relations Act.  The Cortez court declined to address this split, instead holding that it was bound by the California Supreme Court’s rejection of the same NLRA violation argument in Iskanian.[3]  In any event, the circuit split likely will be resolved soon when the U.S. Supreme Court decides Lewis v. Epic Systems Corp. When that important decision is handed down, employers once again will need to review, and if necessary, modify their arbitration agreements to achieve their desired goals.

 

[1] Cortez v. Doty Bros. Equip. Co., 15 Cal. App. 5th 1 (2017).

[2] Id. at 14. (emphasis added)

[3] See Iskanian v. CLS Transportation, LLC Los Angeles, 59 Cal.4th 348, 375-376 (2014) (“the NLRA’s general protection of concerted activity, which makes no reference to class actions,” does not bar parties to a CBA from excluding class claims from the agreement to arbitrate).