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Class Action Waivers in Employment Arbitration Agreements: The Aftermath of AT&T Mobility LLC v. Concepcion & D.R. Horton PowerPoint PPT Presentation


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Presented by: Joel P. Kelly | Los Angeles David G. Hoiles | Los Angeles Jared L. Bryan | Orange County Jonathan A. Siegel | Orange County April 18, 2012. Class Action Waivers in Employment Arbitration Agreements: The Aftermath of AT&T Mobility LLC v. Concepcion & D.R. Horton.

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Class Action Waivers in Employment Arbitration Agreements: The Aftermath of AT&T Mobility LLC v. Concepcion & D.R. Horton

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Class action waivers in employment arbitration agreements the aftermath of at t mobility llc v concepcion d r horton

Presented by:

Joel P. Kelly | Los Angeles

David G. Hoiles | Los Angeles

Jared L. Bryan | Orange County

Jonathan A. Siegel | Orange County

April 18, 2012

Class Action Waivers in Employment Arbitration Agreements: The Aftermath of AT&T Mobility LLC v. Concepcion & D.R. Horton


Key decisions pre dating concepcion

Key Decisions Pre-Dating Concepcion


Discover bank v superior court boehr 2005 36 cal 4th 148

Discover Bank v. Superior Court (Boehr) (2005) 36 Cal.4th 148

  • Discover bank had a class action waiver in its arbitration agreements with credit card holders

  • Credit card holder filed suit challenging late payment penalty

  • Court of Appeal upheld the class action waiver, holding that California rule prohibiting class action waivers was preempted by the Federal Arbitration Act (the “FAA”)

  • California Supreme Court reversed, holding that when a class action waiver is found in a consumer contract of adhesion that becomes in practice an exculpatory clause; the agreement is unconscionable under California law

  • California Supreme Court also held that its decision was not preempted by the FAA


Gentry v superior court circuit city stores inc 2007 42 cal 4th 443

Gentry v. Superior Court (Circuit City Stores, Inc.) (2007) 42 Cal.4th 443

  • Circuit City had a class action waiver in its arbitration agreements with employees

  • Employee filed suit for violations of the California Labor Code

  • Court of Appeal upheld the class action waiver

  • California Supreme Court reversed, holding that at least in some cases, such class action waivers undermine the vindication of employees’ unwaivable statutory rights and pose obstacle to enforcement of overtime laws. Factors to consider:

    • Modest size of potential individual recovery;

    • Potential for retaliation against class members;

    • Fact that absent class members may be ill informed about their rights; and

    • Other real world obstacles to vindication of class members’ rights.

  • California Supreme Court noted that it had rejected FAA pre-emption in Discover Bank


Stolt nielsen s a v animalfeeds international corp 2010 130 s ct 1758

Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 130 S. Ct. 1758

  • Shipping companies entered into arbitration agreements with their customers

  • Customers filed antitrust claims, which were submitted to arbitration. Parties stipulated that arbitration clause was silent with respect to class arbitration

  • United States Supreme Court held that arbitration panel had exceeded its powers by concluding that arbitration clause allowed for class claims

  • Party cannot be compelled under the FAA to submit to class arbitration absent a contractual basis for concluding that the party had agreed to do so

  • Differences between bilateral and class arbitration were too great to allow arbitration panel to presume that parties’ silence on issue constituted consent to arbitrate class claims


At t mobility llc v concepcion 2011 u s

AT&T Mobility LLC v. Concepcion (2011) _____ U.S. _____


The facts

THE FACTS

Vincent and Liza Concepcion entered into a cell phone contract with AT&T which guaranteed them a “free phone”

But there was a catch: AT&T charged $30.22 sales tax on the phone’s retail value

The Concepcions filed a complaint consolidated with a class action alleging that AT&T was liable for false advertising and fraud


The contract s arbitration clause

The Contract’s Arbitration Clause

The arbitration clause required that all disputes be resolved through arbitration

The arbitration clause prohibited participation in class or representative actions – only individual cases allowed

AT&T made several amendments to the arbitration provisions, which the clause permitted


The arbitration clause seemed pro customer

The Arbitration Clause Seemed Pro-Customer

Easy to initiate proceedings by a one page form available on AT&T website

If there is no settlement within 30 days, the customer can invoke arbitration with “Demand for Arbitration” form

AT&T pays all arbitration costs for non-frivolous claims

Arbitration held in customer’s home county

For claims of less than $10,000, customer can elect to proceed by telephone, in person or by written submission


California s discover bank rule

California’s Discover Bank Rule

  • The U.S. Supreme Court had to address the California Supreme Court Discover Bank holding that class waivers in consumer arbitration agreements are not enforceable

    • The California Supreme Court’s concern: Arbitration agreements typically are contained in a boilerplate or “wrap around” contract

    • Since these disputes typically are modest claims, people like the Concepcions are placed in weaker bargaining position and are powerless to object to a provision, even if it is fraudulent

    • Such agreements are not enforceable because they are unconscionable


Unconscionability analysis

Unconscionability Analysis

  • In California, a contract cannot be both procedurally and substantively unconscionable

  • “Procedural unconscionability” focuses on whether there existed any oppression or surprise in the manner in which the contract was negotiated, and the circumstances of the parties at the time of negotiation

  • “Substantive unconscionability” focuses on whether the terms of the contract are so one-sided as to shock the conscience

  • Unconscionability determined on a sliding scale


The u s supreme court nixes discover bank

The U.S. Supreme Court Nixes Discover Bank

The Supreme Court held the FAA preempts the Discover Bank rule – the FAA mandates that arbitration agreements be enforced as they are written

The U.S. Supreme Court did not expressly overrule or even reference Gentry


Post concepcion cases in california

Post-Concepcion cases in California


Brown v ralphs grocery company july 12 2011 197 cal app 4th 489

Brown v. Ralphs Grocery Company (July 12, 2011) 197 Cal.App.4th 489

  • Ralphs had a class action waiver in its arbitration agreements with employees

  • Employee filed suit for violations of the California Labor Code and PAGA

  • California Court of Appeal distinguished Gentry from Discover Bank on the grounds that Discover Bank is a case about unconscionability and Gentry is concerned with the effect of a class action waiver on unwaivable statutory rights regardless of unconscionability


Brown v ralphs grocery company july 12 2011 197 cal app 4th 489 cont

Brown v. Ralphs Grocery Company(July 12, 2011) 197 Cal.App.4th 489 (cont.)

  • Because Plaintiff did not introduce any evidence to address the four factors in Gentry, the Court reversed trial court and found the class action waiver to be enforceable.

  • Accordingly, appellate court did not have to determine whether, under Concepcion, the Gentry rule is preempted by the FAA.

  • Appellate court also pointed out that a PAGA claim, which is a representative action to enforce state labor laws, is not preempted by the FAA and is subject to arbitration.

  • California Supreme Court denied certiorari; Petition for Certiorari currently pending before U.S. Supreme Court.


Sonic calabasas a inc v superior court moreno 2011 cal app 4th

Sonic-Calabasas A, Inc. v. Superior Court (Moreno) (2011) ___ Cal.App.4th ___

  • Sonic-Calabasas had a class action waiver in its arbitration agreements with employees

  • Employee filed suit for violations of the California Labor Code

  • Parties agreed that wage claim was within scope of arbitration agreement, but disagreed as to whether it contained a right to a Berman hearing before the DLSE prior to commencement of arbitration proceedings

  • Appellate court concluded that plaintiff waived his right to Berman hearing and enforcement of that waiver was not barred by Gentry


Sonic calabasas a inc v superior court moreno 2011 cal app 4th cont

Sonic-Calabasas A, Inc. v. Superior Court (Moreno) (2011) ___ Cal.App.4th ___ (cont.)

  • California Supreme Court reversed, holding that waiver of Berman hearing was against public policy and unenforceable, although the case would go to arbitration after such hearing took place

  • California Supreme Court also held that its decision was not pre-empted by the FAA

  • In October 2011, US Supreme Court granted Sonic-Calabasas’ petition for a writ of certiorari, vacated the judgment, and remanded the case to the California Supreme Court for further consideration in light of Concepcion

  • Viability of Gentry may be explored further in the upcoming opinion. Justice Moreno, who authored the opinion in Gentry, and Chief Justice George, who concurred with Justice Moreno, no longer sit on the California Supreme Court


Applying concepcion to the employment arena

Applying Concepcion to the Employment Arena

The U.S. Supreme Court has held the FAA applies to most employment contracts. EEOC v Waffle House (2000) 534 U.S. 279, 289, citing Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105

Concepcion and Waffle House stand for the proposition that the FAA likely preempts state laws prohibiting arbitration of employment claims


After concepcion are class action waivers a no brainer

After Concepcion, Are Class Action Waivers A “No-Brainer”?

Arbitration is purported to cost less than trials

Arbitration is supposed to cut through the administrative red tape of the court action

Arbitration is supposed to avoid “runaway” jurors

Arbitration is supposed to be more private than a trial

No more class actions?


But beware

But Beware:

  • Difficult to get dispositive motions granted in arbitration

  • “Runaway” arbitrators who make findings unsupported by the law as facts

  • Arbitration decisions are virtually impossible to appeal:

    • Even the incorrect application of the law and facts will not mandate that the decision be vacated

  • An avalanche of single plaintiff cases


Are we home free after concepcion

Are We Home-Free After Concepcion?

  • Courts are still wary of certain language in arbitration agreements:

    • Limiting the available remedies that would otherwise be available in courts

    • Costs and fees shifting that is contrary to applicable law (e.g., attorney’s fees are awarded to the prevailing party)

    • Shortening applicable limitations periods

    • Not including copy of arbitration rules


Are we home free after concepcion1

Are We Home-Free After Concepcion?

Clauses giving employer unilateral right to modify the agreement

Clauses giving the employer the unilateral right to get injunctive relief

Limits or restrictions on discovery (e.g., one deposition per party; no written discovery)


The arbitration agreement should contain

The Arbitration Agreement Should Contain:

Class action waiver (?)

Written award to be issued by an arbitrator

Choice of law and severability provisions

At-will employees: continued employment can provide consideration for an agreement to arbitrate

One solution: an opt-out clause in the arbitration provision


D r horton inc 357 nlrb no 184 2012

D.R. Horton, Inc., 357 NLRB No. 184 (2012)

  • NLRB ruled that the NLRA prohibits employment agreements which waive employees’ right to file joint, class, or collective claims

    • May affect the enforceability of any employment agreement by which employees waive their right to class or collective action

  • Likely does not prohibit waivers which merely limit such actions to either federal court or arbitration

  • Only agreements which waive the right to collective action completely, by waiving the right to collective action in all forms, are clearly prohibited by D.R. Horton


D r horton inc 357 nlrb no 184 20121

D.R. Horton, Inc., 357 NLRB No. 184 (2012)

  • Employees have the right “to engage in. . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157 (NLRA)

    • This includes joining together to bring employment claims on a class-wide or collective basis in court or arbitration

  • It is an unfair labor practice to “interfere with, restrain, or coerce employees” in the exercise of such rights. 29 U.S.C. § 158 (NLRA)

    • Arbitration agreements which prohibit employees from class or collective action entirely violate the NLRA by restraining concerted activities


D r horton inc 357 nlrb no 184 faa conflict

D.R. Horton, Inc., 357 NLRB No. 184FAA Conflict

  • Waiver of such rights by arbitration agreement also not protected by the FAA

  • The FAA requires enforcement of arbitration agreements, but does not validate agreements by which parties forgo substantive rights provided by statute, including the right to concerted activity under the NLRA

  • The FAA still permits invalidation of employment agreements on grounds recognized by contract law

  • Class/collective action waivers are thus invalid under the FAA because they violate public policy set by NLRA


D r horton inc what about voluntary agreements

D.R. Horton, Inc.,What About Voluntary Agreements?

Q. What if the employer does not "require" employees to enter into a class action waiver, but obtains a voluntary agreement waiving the right to participate in class actions via an opt-out programs (e.g., the employee is given some consideration)

A. D.R. Horton does not specifically address this issue. However the decision holds that the right to bring or join a class action is a right protected by Section 7 of the NLRA and that individual employees may not waive section 7 rights. The viability of this argument will have to be resolved through litigation


D r horton inc what is the potential issue if an employer maintains a class action waiver

D.R. Horton, Inc. – What Is The Potential Issue If An Employer Maintains A Class Action Waiver

If the Board finds that an agreement violates the NLRA, the remedies available to the Board include, but are not limited to:

(a) requiring the employer to rescind the agreement with such waiver;

(b) requiring the employer to reissue an agreement without the waiver; and

(c) posting a notice regarding the violation. There is a question whether the Board could or would attempt to void agreements containing a class action waiver in their entirety, especially where such agreements contain a severability clause. Whether the Board would pursue this remedy is unclear

Further, as the decision focused on mandatory arbitration agreements as a term and condition of employment, it also is unclear whether inclusion of a class/collective action waiver in a release is problematic


D r horton inc what is the potential issue if an employer maintains a class action waiver1

D.R. Horton, Inc. – What Is The Potential Issue If An Employer Maintains A Class Action Waiver

The NLRB could find that any unsuccessful attempt to compel arbitration or litigation of an individual claim is vexatious litigation filed for a retaliatory purpose (i.e., in retaliation for the employees exercising their protected concerted right to initiate or participate in class or collective claims)

A court may rule a contract that contains a waiver of class claims to be "unconscionable.“ If a court agrees with the Board's Section 7 arguments, the remedies available to the court include, but are not limited to: (a) declaring the class waiver invalid, but upholding the remaining portions of the contract (e.g., a release); (b) declaring the class waiver invalid and voiding the entire contract release; and (c) tolling the limitation period on all class and collective claims as the putative plaintiffs thought they could not pursue such claim


State of the law post d r horton inc

State of the Law, Post-D.R. Horton, Inc.

  • There is some district level authority in the wake of D.R. Horton which clarifies court positions on its ruling.

    • However, final authority on the issue must await a circuit or Supreme Court opinion

  • Herrington v. Waterstone Mortg. Corp., U.S. Dist. LEXIS 36220 (W.D. Wis. 2012): Agreed with D.R. Hortonand found rule also protects former employees.

    • “[a]n employer’s coercive action affects protected rights whenever it can have a deterrent on protected activity. This is true even if an employee has yet to exercise a right protected by the act.”


State of the law post d r horton inc1

State of the Law, Post-D.R. Horton, Inc.

  • Owen v. Bristol Care, Inc., 2012 U.S. Dist. LEXIS 33671 (W.D. Mo. 2012): The right to bring class/collective action is a substantive right and the FAA may not be used to enforce agreements which waive that right

    • “The [FAA] has a strong policy favoring arbitration. However, when a Plaintiff's statutory rights are not capable of vindication through arbitration, the federal substantive law of arbitrability, grounded in the FAA, allows federal courts to declare otherwise operative arbitration clauses unenforceable.”

    • Found Concepcion’s pro-arbitration ruling not applicable to employment agreements


State of the law post d r horton inc2

State of the Law, Post-D.R. Horton, Inc.

Other General Post-D.R. Horton Authority

  • Some courts have acknowledged D.R. Horton as a correct holding in its entirety. Palmer v. Convergys Corp.2012 U.S. Dist. LEXIS 16200 (M.D. Ga. 2012)

  • Other courts have declared more general disagreement with D.R. Horton

    • D.R. Horton shall not be read as a counter to Concepcion. LaVoice v. UBS Fin. Servs., 2012 U.S. Dist. LEXIS 5277 (S.D.N.Y. 2012)


Limits of d r horton inc

Limits of D.R. Horton, Inc.

  • Agreements which leave some forum open to class/collective action probably still enforceable

  • Agreements which are silent on arbitration of class/collective claims may be problematic

  • Rule only may invalidate agreements with “employees” as defined by NLRA

  • Does not protect “supervisors” or independent contractors as defined by the NLRA


Limits of d r horton inc1

Limits of D.R. Horton, Inc.

  • To be decided: May not apply to agreements by which employees gain consideration for not opting out of a class or collective action waiver

  • To be decided: May not apply to voluntary agreements to waive such claims at the termination of employment or during a settlement

  • To be decided: Probably will not invalidate agreements with severability clauses

  • Employers must await higher court authority to validate or invalidate the Board’s ruling


Thank you

Thank You!

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