By Ben James
Law360, New York (September 17, 2015, 4:17 PM ET) — Getting slapped with an employment class action can have dire consequences for businesses, but questions about the viability of mandatory arbitration agreements with class waivers and the proper standards for certifying a class in a wage or bias suit may make the rules of the game less than crystal-clear. Here, experts offer insight on four key open questions in the employment class action space.
What’s the Future of Arbitration Agreements With Class Waivers?
Federal courts have shown a willingness to enforce arbitration agreements in which workers give up any right to pursue class or collective claims, but according to Sanford Heisler Kimpel LLP partner Jeremy Heisler, whether that trend will continue is a key question that may eventually be answered in the negative.
Allowing class waivers under the “fig leaf” of an arbitration agreement to bar class claims thwarts the goals of both wage laws and discrimination statutes, according to Heisler.
“It’s pretty clear that class waivers are really exculpatory clauses,” Heisler said. “The Federal Arbitration Act, enacted nearly 100 years ago to allow businesspeople to arbitrate claims, is metastasizing into an anti-employee, anti-consumer weapon of mass destruction where employees cannot achieve their statutory rights, consumers are defrauded, and laws are not obeyed by employers. It should be offensive to anyone who’s got a sense of justice.”
Management-side lawyers say that federal courts — including the U.S. Supreme Court — has voiced full-throated support for resolving workplace disputes through arbitration and not the courts, and there’s no uncertainty as to whether arbitration agreements that bar class proceedings are enforceable.
But Heisler said recent moves to limit arbitration in the employment context has given hope to the plaintiffs bar, pointing to the Fair Pay and Safe Workplaces executive order signed by President Barack Obama last summer as an example. Among other things, that executive order bans predispute agreements to arbitrate claims under Title VII, as well as sexual assault or harassment-related torts.
That sort of restriction of arbitration agreements undermines the argument that there’s a strong federal policy favoring arbitration, at least in the employment context, according to Heisler.
“I think we may be starting to see some bits of light at the end of the tunnel, some chinks in the armor,” he said.
And worker advocates who dislike the use of class waivers have an ally in the National Labor Relations Board. In its January 2012 D.R. Horton ruling, the labor board deemed unlawful mandatory arbitration agreements requiring workers to sign away their right to pursue class or collective action claims.
That decision, and the NLRB’s unwillingness to change its position, are among the most controversial moves the labor board has made under the Obama administration.
D.R. Horton appealed, and the Fifth Circuit ended up rejecting the NLRB’s core holding with respect to class waivers. But the labor board has stuck to its guns, doubling down on D.R. Horton in its October 2014 Murphy Oil decision and reiterating that requiring workers to forgo class claims is at odds with the National Labor Relations Act.
Murphy Oil’s appeal, also to the Fifth Circuit, is pending. The overwhelming majority of district courts to address the issue have sided with employers seeking to enforce arbitration pacts with class waivers.
“Obviously, the board is in disagreement with the courts. Some people might say the board is clearly going to lose, but it’s not over yet,” said Wilma Liebman, a former NLRB chairman and longtime board member.
Employers have argued to NLRB judges that the board’s D.R. Horton ruling was wrong and should not be enforced, but the agency’s judges are bound by board precedent unless it’s reversed by the U.S. Supreme Court.
And that may happen, lawyers say, with the NLRB showing no signs of changing course, and many employers believing that they can get arbitration agreements with class waivers enforced by federal courts.
“Eventually, I think that’s going to have to get to the Supreme Court unless we have unanimity among the circuits,” Hunton & Williams LLP’s Ronald Meisburg
, a former NLRB member, said.
The tension between the NLRB and federal courts on the enforceability of arbitration agreements with class waivers makes it an area that’s ripe for intervention by the nation’s highest court or Congress, according to Littler Mendelson PC shareholder Michael Lotito, who added that many employers use such agreements.
“I think clarity on the arbitration agreements would be a really good thing,” Lotito said.
In the absence of definitive guidance from lawmakers or the high court, employers considering making individual arbitration the sole avenue for employees to resolve workplace disputes have to assess how much risk they’re willing to take and realize they could be in for a fight with the NLRB, according to Lotito.
For an employer that does business in a circuit that has found arbitration pacts with class waivers lawful, it’s a fairly simple call, Lotito said, but the proposition gets more complicated for businesses with operations in multiple circuits or in one circuit that has yet to weigh in on the issue.
However, individual arbitration agreements can lower the cost of employment practices liability insurance, reduce the number of worker complaints an employer faces and eliminate the negative publicity that can come with employment litigation, Lotito pointed out.
“I think that for many employers, it’s probably worth the risk,” he said.
What Exactly Does It Take to Get an Employment Class Certified?
Assuming workers can get an employment class action off the ground, precisely what standards they have to live up to in order to march forward on a class basis is a subject of debate. Exactly what is required for a properly certifiable class under Title VII is a question that’s generated ongoing controversy, said University of Virginia Law School professor Rip Verkerke.
“It’s an area where the court has intervened repeatedly in recent years, but lower courts still struggle to produce consistent decisions about certification. Moreover, the stakes are very high for both plaintiffs and defendants when claims are aggregated,” Verkerke said.
The U.S. Supreme Court’s landmark June 2011 Dukes decision — nixing a class of roughly 1.5 million women in a Title VII gender bias suit against Wal-Mart — looms large for class employment plaintiffs, though courts have grappled with exactly how the high court’s guidance should be applied.
But in June, the nation’s highest court gave itself a chance to weigh in on employment class actions again when it granted a petition for review from Tyson Foods Inc. in a case that some observers are comparing to the blockbuster Dukes case.
Tyson is challenging a $5.8 million loss in a donning and doffing case brought on behalf of workers at an Iowa plant. The company says that a trial court allowed dubious statistical sampling and ended up approving a class that included scores of workers who didn’t actually suffer any harm.
While Dukes essentially put a stop to sweeping, nationwide class cases and made plaintiffs rein in the scope of their claims and focus on smaller groups like workers in a particular state or company department, the Tyson case could lead to an even more refined standard for Rule 23 class actions, Thompson Hine partner Tim McDonald said.
“It’s possible it could be the next Dukes,” McDonald said of the Tyson suit.
Wigdor LLP partner Lawrence Pearson, who represents employees, said he doesn’t expect the Supreme Court’s ruling in the Tyson case to gut Rule 23 class actions but that the court might provide a sharper understanding of what differences could exist among class members. Regardless, the high court’s opinion isn’t likely to put an end to plaintiffs and employers sparring over what constitutes a proper class, he added.
“It will lend some efficiency but won’t get rid of those issues altogether,” he said.
According to Pearson, employment class actions are still viable, but courts have already been overreaching when bringing the Dukes ruling to bear.
“Dukes has certainly emboldened management in challenging the viability of a class action even at a statewide level,” Pearson said. “Its application has gone too far, and defendants and some courts have adopted the idea that you have to have complete uniformity.”
What Will the High Court Say About Collective Actions?
The Tyson case could be a game-changer not just for Title VII and state employment law claims governed by Rule 23 but for Fair Labor Standards Act collective actions as well.
According to Tyson, the case tees up the two questions: first, whether a class or collective action can be certified — and differences among class members can be ignored — where liability and damages will be determined using statistical techniques that presume all members of the class are identical to the average observed in a sample. The second question is whether a class or collective action can be certified and maintained when the class includes hundreds of people who weren’t injured.
The Tyson case could end up imposing a stricter standard on FLSA collective actions and Rule 23 classes if the high court concludes that Rule 23’s requirements represent a constitutional minimum for due process, according to McDonald.
“If the court decides that the Rules 23 standards are what’s required, and the FLSA’s standards have been lower than the constitutional floor, you have to apply some framework similar to Rule 23 that’s more restrictive, or it’s unconstitutional,” McDonald said.
Bryan Cave partner Daniel O’Keefe said he hopes that the high court’s eventual ruling in the Tyson case would result in Dukes-type instructions for litigating FLSA collective claims.
“My class action employment practice, for the past several years, has been dominated by the FLSA cases, and to me, the biggest issue in the near term is how the Supreme Court handles the Tyson case next term and whether or not we can get some kind of meaningful guidance about how to handle multiplaintiff claims under the FLSA,” O’Keefe said.
There’s no question that federal courts will use a two-step process — involving a lenient standard for notice-stage certification and a chance for the employer to decertify the collective later in the case — but “the ambiguity is in the application of that process,” O’Keefe said.
What Limitations Period Applies in EEOC ‘Pattern or Practice’ Cases?
The U.S. Equal Employment Opportunity Commission has raised eyebrows by arguing that Title VII’s 300-day time limit for filing a bias charge doesn’t restrict its ability to seek relief in pattern or practice cases.
“The EEOC’s position in the courts has been that it is subject to no limitations period when its lawsuit seeks a recovery for a class and asserts that the defendant has engaged in a pattern or practice of discrimination,” said Akin Gump partner and former EEOC general counsel Donald Livingston.
The issue came up in the EEOC’s closely watched background check bias case against Freeman, in which a district court recently awarded the company more than $900,000 in attorneys’ fees.
The Fourth Circuit upheld the decision to throw out the suit on Feb. 20 in a blistering decision that declined to wade into whether the lower court wrongly limited the time period for which the EEOC could seek relief. That issue didn’t matter, the Fourth Circuit said, because of the “pervasive errors and utterly unreliable analysis” offered by an EEOC expert.
Back in September 2014, the EEOC told the Fourth Circuit that a 300-day limit shouldn’t have been applied to its pattern or practice claims.
A requirement laid out in Section 706 of Title VII that workers take action within 300 days of an allegedly unlawful employment practice doesn’t apply when the EEOC sues over an alleged pattern or practice of discrimination pursuant to Section 707 of the anti-bias statute, the agency said.
Section 707 doesn’t contain a limitations period, and “the very nature of a pattern or practice of discrimination means that the discrimination did not occur on any particular day, negating the application of the 300-day limitation,” it said.
And even when an employer is accused of a pattern or practice of discrimination under Section 706, the “continuing violation doctrine” makes the 300-day limit inapplicable, the agency said in a Sept. 3, 2014, letter to the appeals court.
Freeing the EEOC from the 300-day limitations period can augment the scope of a case and the size of the accompanying legal headache for the employer-defendant, lawyers say.
“The biggest thing is that you’ve got a liability period that’s just without limit, and that makes everything exponentially more costly,” Steptoe & Johnson LLP partner and former EEOC general counsel Ron Cooper said.
In addition to a potentially larger class and bigger damages tab, facing claims that stretch back beyond the 300-day window poses nettlesome discovery problems for employers, who may be ill-equipped to pluck out records created years ago.
“It would be an unusual employer that’s operated on the same data retention system for the last 40 years,” Cooper said.
An EEOC spokeswoman said Thursday that the agency’s position “is that the limitations period extends to the beginning of the pattern or practice of discrimination.”
Did you miss the other installments of our four-part series on unresolved questions in labor and employment law? Catch up on part one about discrimination questions, part two about wage-and-hour issues and part three about labor concerns.