Articles Posted in Arbitration agreement

Edgar M. Rivera, Esq.

Arbitration between employees and employers favors employers’ interests at employees’ expense. Ostensibly, arbitration merely requires that any employment claims be litigated in a private forum; in reality, it discourages employees from suing their employers because, as compared to litigation, employees are less likely to win and generally recover lower damages. As such, many employers require their employees to sign arbitration agreements.

Indeed, a report from the Economic Policy Institute has found that, since the early 2000s, the number of workers subject to mandatory arbitration has more than doubled, covering 60 million U.S. private-sector non-union workers. These agreements prevent 55 percent of U.S. workers from accessing the courts to protect their employment rights.  This figure increases to 65.1 percent among large companies—those with 1,000 or more employees.  Of the employers who require mandatory arbitration, 30.1 percent also include class action waivers in their procedures—meaning that about 25 million employees also lose the right to address widespread employment rights violations through class action.  For large companies, the number of employees subject to class action waivers increases to 41.1 percent. In total, 23.1 percent of private-sector non-union employees no longer have the right to bring or participate in a class action against their employers.

Edgar M. Rivera, Esq.

Arbitration agreements between employees and employers often strongly favor the employer’s interests at the employee’s expense. As a result, an unsuccessful opposition to a motion to compel arbitration can be disastrous to a plaintiff’s case. Although a commercial case, the Tenth Circuit’s recent decision in Ragab v. Howard is relevant for plaintiffs and may help defeat a motion to compel arbitration.

In Ragab, the Tenth Circuit affirmed the District Court of Colorado’s denial of Ultegra Financial, its CEO Muhammad Howard, and Clive Funding, Inc.’s motion to compel arbitration.  There were six agreements between plaintiff Sami Ragab and defendants Ultegra and Clive Funding relevant to Ragab’s claims. The agreements contained clear but conflicting arbitration provisions, including conflicts regarding the essential terms of any arbitration, like which rules would govern and how the parties would select the arbitrator. The Circuit Court found that these conflicts between essential terms demonstrated that the parties did not have a meeting of the minds and, therefore, there was no actual agreement to arbitrate.

By Owen Laird, Esq.

A recent decision by the Ninth Circuit Court of Appeals has cast into doubt the validity of a range of lawsuits against Uber by its drivers.  The decision held that the mandatory arbitration provision in Uber’s contracts with its drivers is enforceable; as a result, Uber drivers may be foreclosed from bringing vast majority of their claims against Uber in court.

The ongoing legal saga between Uber and their drivers is one of the most significant labor disputes in the United States today.  Uber – the multi-billion-dollar taxi app – and its Silicon Valley startup brethren seek profitability by transforming the way people interact, work, and live their lives.  In Uber’s case, a central aspect of that transformation is redesigning the traditional employee/employer relationship: Uber classifies its drivers as independent contractors, not employees.  This decision benefits Uber and disadvantages its drivers because independent contractors do not receive the same basic legal privileges ­– such as anti-discrimination protections, minimum wage, and overtime – that employees do.

On December 8, 2014, in Khazin v. TD Ameritrade Holding Corp., the United States Court of Appeals for the Third Circuit decided that the anti-arbitration provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) only applieds to the whistleblower-protection causes of action arising under the Security and Exchange Act (the “Exchange Act”) and not to those arising under the Sarbanes-Oxley Act (“SOX”).

A “whistleblower” is someone, usually an employee, who reports an employer who has broken the law to an outside agency. In Khazin, TD Ameritrade, Inc. (“TD”) terminated Boris Khazin, a financial services professional, after Khazin reported to his supervisor that the price of one of TD’s products did not comply with the relevant securities regulations. Khazin’s supervisor instructed Khazin not to correct the problem because remedying the violation would cost TD two million dollars ($2,000,000) in revenue. About one month later, TD terminated Mr. Khazin when it allegedly discovered a billing irregularity. According to Mr. Khazin, the alleged irregularity was outside of his duties and responsibilities at TD. Regardless, the result of TD’s investigation was that the irregularity did not exist at all. Nevertheless, TD bank told Mr. Khazin his termination was final because he could not be trusted.

Mr. Khazin filed a complaint in the District Court of New Jersey for TD’s unlawful termination of his employment in violation of the Dodd-Frank’s whistleblower provision amending the Exchange Act. TD moved to dismiss the complaint and to compel arbitration pursuant to an employment agreement Khazin signed.

On May 5, 2014, the New York State Assembly passed legislation forbidding the State from contracting with any business that requires employees to arbitrate claims arising from violations of Title VII of the Civil Rights Act. Should this bill win the support of the State Senate and be signed into law by Governor Cuomo, New York State would be taking a step in the right direction, towards fair employment conditions for workers and away from forced arbitration.

Forced employment arbitration clauses require American employees to sign away their fundamental right to a trial by jury; countless workers do so without even knowing what rights they are giving away. Many employers require employees to sign overarching employee handbooks, and within that handbook is a short clause stating that the employee has agreed to arbitrate any legal issues that may arise out of the course of his or her employment. Consequentially, when an employee is discriminated against, wrongfully terminated, or otherwise injured by their employer, the employee has lost the ability to take the employer to court, and instead must submit to arbitration.

The federal government began favoring arbitration in 1925, with the passage of the Federal Arbitration Act. At that time, arbitration was typically used to settle disputes between two parties of equal bargaining power. Over the last few decades, however, courts have expanded the application of the FAA to validate agreements between parties of vastly different bargaining power – such as employers and employees – entered into before any dispute exists. Typically, when faced with such an agreement, a worker has only two choices: agree to it, or find another job. Given those options, the worker really has no choice at all but to agree to sign away their rights.

On January 17, 2014, Administrative Law Judge Lisa D. Thompson issued her decision in the case of Keith Cunningham, (Charging Party), and Leslie’s Poolmart, Inc., (Respondent). In his Complaint, Mr. Cunningham alleges that the Respondent violated Section 8(a)(1) of the National Labor Relations Act (NLRA) by requiring that all employees enter into an arbitration agreement. The NLRA grants all American workers a broad right to act collectively vis-à-vis their employers. By entering into this agreement the Respondent’s employees did not explicitly waive their right to pursue class, collective, or representative actions; that is, the arbitration agreement “does not expressly prohibit employees from engaging in protected concerted activities.” Still, the Court found that the company intentionally used the agreement to force employees to arbitrate all claims against the employer individually, and that this requirement amounts to denying employees their right under the NLRA to pursue actions collectively.

In short, then, the Court found that the company’s arbitration agreement was unlawful, although not expressly prohibiting employees from engaging in protected collective activity, because it nevertheless has the intended effect of making employees unable to engage in such activity. What was the basis of the Court’s determination that the Respondent’s policy of requiring employees to sign the agreement was unlawful? The answer to this question lies not in the agreement itself, but how the company had sought to use it.

In February of 2013, Cunningham, on behalf of himself and others similarly situated, commenced a wage-and-hour legal case in the Supreme Court of Los Angeles County against his employer, Leslie’s Poolmart, Inc. In their complaint the plaintiffs alleged that their employer had incorrectly and unlawfully calculated and paid overtime to them since 2009. The company’s response to the filing of this lawsuit was to file a Motion to Compel Arbitration, which would have required Mr. Cunningham to arbitrate his claims against the company individually, along with a corresponding Motion to Dismiss his class/collective action.

Class and collective actions against employers have significantly increased over the past decade. Because these type of lawsuits allow plaintiffs to claim damages for all current and former employees so long as they have worked for a company over a three-year period or longer, companies not complying with labor laws face a high risk of liability for costly damages. To mitigate these risks, many companies have begun to include arbitration agreements in their employment contracts with clauses establishing that the employee waives his or her right to initiate a class action against the employer. These waiver clauses often state that employees agree to submit any dispute that may arise with their employer to arbitration and that their arbitration claims shall be submitted individually.

In 2011, a 5-4 majority of the Supreme Court upheld the validity of class-action waivers to prevent consumer class actions against corporate fraud, in AT&T Mobility v. Concepcion. Class-action waivers tend to be hidden in the fine print of service contracts, such as with cellphone plans, credit card agreements, or job applications. These waiver clauses, if enforced by the courts, have the effect of protecting corporate entities by depriving citizens of a means to seek legal redress collectively for any harm they may have suffered.

On December 3, 2013, the Fifth Circuit Court of Appeals extended the Supreme Court’s consumer class-action ruling to the rights of workers, in D.R. Horton, Inc. v. National Labor Relations Board. D.R. Horton undermined the National Labor Relations Act (NLRA) and the Norris LaGuardia Act, which have provided the foundation of national labor policy for over seventy-five years and were enacted specifically to ensure that workers had the right to engage in concerted activities to secure their aid and protection.

Among the excitement and publicity surrounding recent U.S. Supreme Court decisions, many have overlooked American Express Co. v. Italian Colors Restaurant, which has made in more difficult for plaintiffs to bring class action suits against corporate defendants. The Court held in a 5-3 decision supported by “freedom to contract” advocates that courts cannot invalidate arbitration agreements which waive class actions, unless there is an express congressional statement that class-action proceedings are so necessary to a federal claim as to preempt the Federal Arbitration Act (“FAA”).

The case hinged on whether Italian Colors and several other small restaurants could file a class-action suit against American Express for their allegedly excessive charges and hidden fees for allowing customers to use their American Express cards to pay for their meals. Each claim would have cost more to arbitrate individual than they worth, so this decision terminates any chance of holding American Express accountable. All of the restaurants had signed a contract specifically waiving their right to class-action arbitration.

Justice Elena Kagan, dissenting with Justices Ginsburng and Breyer, argued:

More frequently, Employment agreement prevent employee from filing lawsuits against employers. Employees are sometimes forced to sign agreements and at the signing few employees understand the implications of giving up their right to sue in court. If you sign away your right to file a lawsuit in courts, you give up many very important, including right to have your legal claims heard by a jury of your peers.

From August 2008 to June 2011, Ms. Adelheid Waumboldt worked for Marine Management Services as the personal and executive assistant to its owner, Gregory Callimanopulos.

Waumboldt’s federal lawsuit against her former employer alleges that Callimanopulos harassed her with “sexually suggestive language and requests for sex, compelled her to assist him in arranging sexual rendezvous with other women [and] touched her in an unwanted manner…” The lawsuit also alleges that she was terminated because she refused to reciprocate Callimanopulos’s unwanted advances.