Year in Review: Notable 2019 Decisions Impacting Arbitration Agreements

Labor & Employment Workforce Watch
January 2020

2019 saw courts issue several significant decisions that have implications for employers nationwide who rely on arbitration agreements with their workforce.

The nation’s highest court decided a trio of cases in the first quarter involving the Federal Arbitration Act (FAA). In the case of Henry Schein, Inc., et al. v. Archer & White Sales, Inc., the Court rejected the “wholly groundless” exception used by some courts to refuse to send cases to arbitration, and held that when the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision. As we discussed in our July edition of Labor & Employment Workforce Watch, the Supreme Court expanded the transportation workers’ exemption under the FAA to include independent contractors providing interstate transport in the case of New Prime Inc. v. Oliveira. As a result of this decision, employers relying on arbitration agreements with transportation workers, whether independent contractors or employees, will need to determine the enforceability of those agreements under applicable state law. Lastly, the Court built on its 2018 decision in Epic Systems Corporation v. Lewis, which validated the use of class action waivers under the FAA, in the case of Lamps Plus, Inc. v. Varela. In Lamps Plus, the Court was confronted with the issue of how explicit an arbitration agreement must be to permit class arbitration. In Lamps Plus, the lower courts found the arbitration agreement at issue to be ambiguous as to whether class arbitration was permitted, and, as a result, held that the parties could institute class arbitration proceedings. In reversing the lower courts’ decisions, the Supreme Court held that ambiguity is not enough to allow for class arbitration: “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”

In the case of In re JPMorgan Chase & Co., the Fifth Circuit Court of Appeals weighed in on an important issue that has divided courts across the country– if an individual signed a valid arbitration agreement, should they still receive notice of a Fair Labor Standards Act (FLSA) collective action even though they are required to pursue any claims they may have in arbitration? The Fifth Circuit resoundingly answered “No” to this question, holding it was error for the court to send notice to individuals with valid arbitration agreements that are precluded from participating in the case filed in district court. Though this issue is now settled in the Fifth Circuit, courts continue to grapple with and reach conflicting conclusions on this issue. The only other appellate-level court to take up the issue is the Seventh Circuit Court of Appeals, which is set to provide further appellate guidance in the pending case of Susie Bigger v. Facebook, Inc.

In the wake of the #MeToo movement, some states enacted laws prohibiting mandatory arbitration of sexual harassment claims. The case of Latif v. Morgan Stanley & Co. LLC, et al., addressed the validity of a New York state law that aimed to prohibit the use of mandatory arbitration agreements in sexual harassment cases. The Latif Court held that New York’s law was inconsistent with and preempted by the FAA, and the parties’ agreement to arbitrate was enforceable pursuant to the FAA. The plaintiff in the Latif case has sought en banc review by the Second Circuit Court of Appeals. The Latif decision may provide a preview for how other courts will address the interplay between the FAA and state statutes aimed at limiting employers’ ability to require arbitration of certain disputes. One such decision is currently brewing in California. On December 30, 2019, U.S. District Judge Kimberly Mueller granted a temporary restraining order delaying the enactment of Assembly Bill 51, which was set to take effect January 1, 2020, and would prohibit mandatory arbitration of claims under the California Fair Employment and Housing Act and other statutes governing employment.

As we previously reported, the National Labor Relations Board was also busy dealing with arbitration issues in 2019. In Prime Healthcare Paradise Valley LLC, the Board ruled that an arbitration agreement that did not explicitly limit an employee’s ability to file charges with the Board violated the National Labor Relations Act (the NLRA). In Cordúa Restaurants, Inc., the Board held that an employer’s implementation of arbitration agreements that included collective action waivers in response to an FLSA collective action, as well as warning employees that they would be discharged if they did not accept such an agreement, was not a violation of the NLRA.

As these decisions make clear, employers should take great care and involve counsel in deciding whether to implement arbitration agreements, what to include within the scope of those agreements, and the specific language to be utilized in the agreements.