Class actions in the wake of Concepcion

The following contribution to our arbitration symposium is by Michael Rubin, a partner at Altshuler Berzon LLP in San Francisco. Mr. Rubin has practiced labor, employment, and appellate law since clerking for Justice William J. Brennan Jr. in the October 1980 Term.  Mr. Rubin argued for the plaintiffs in Circuit City v. Adams before the U.S. Supreme Court and Gentry v. Superior Court before the California Supreme Court, and frequently represents plaintiff workers and labor union amici in mandatory arbitration cases.

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Let’s say an employer announces a new nationwide policy, having nothing to do with arbitration:  “All class and collective employment actions are now prohibited.  If you show up for work tomorrow, you are agreeing not to file or participate in any future employment class or collective action against our company, in court or any other forum, arising under any federal or state law.”

If that employer later violates Title VII, or the Fair Labor Standards Act, or state discrimination law, and a group of workers files a lawsuit seeking classwide remedies, can the employer successfully strike the class action allegations by arguing that the workers had entered into a binding contract, voluntarily waiving their right to pursue to classwide remedies and procedures in exchange for the “consideration” of being allowed to keep their jobs?

No court has ever held that such an exculpatory contract clause would be enforceable.  And it shouldn’t be enforceable, because such a sweeping prohibition against all class actions would necessarily preclude many workers from enforcing fundamental, non-waivable public policy rights guaranteed by state and federal law.

Imposing such a workplace rule prohibiting employment class actions might seem like an obvious interference with protected statutory rights.  Yet the Supreme Court’s decision last Term in AT&T Mobility v. Concepcion suggests that an employer might be able to accomplish the same result through a two-step process.  Instead of announcing a freestanding policy that prohibits all class and collective actions in court, an employer hoping to take advantage of the Court’s new “implied preemption” FAA analysis might first adopt a mandatory arbitration agreement and then insert a class action prohibition into that agreement, dictating that its workers may only pursue claims on an individual basis.

Would such a gambit succeed?  Not according to the California Supreme Court.  But that conclusion is now in play after AT&T Mobility, which created a new approach to “implied preemption” analysis under the FAA by holding that state laws of general applicability may be invalidated, even if they satisfy the express terms of the FAA’s section 2 savings clause, if their application in the arbitration context would “unduly” interfere with the FAA’s implicit goals of encouraging “consensual” arbitration under “efficient” and “streamlined” procedures.

AT&T Mobility was, of course, a consumer case rather than an employment case, alleging common law fraud and false advertising rather than denial of fundamental workplace rights.  And, the five-four majority went to great lengths to emphasize the unique provisions of AT&T’s consumer arbitration agreement that supposedly eased the economic burden on claimants challenging the company’s consumer practices.  The critical question left undecided by AT&T Mobility — which is of vital importance to  workers faced with the choice between giving up their jobs (with unemployment holding steady at 9.1%) or giving up their right to pursue class action remedies for employment law claims that may arise in the future — is whether the Court’s “implied preemption” analysis will be extended to the growing number of employment cases in which the workers’ ability to effectively vindicate non-waivable public policy rights requires class or collective action procedures.

Two types of employment law cases may test the contours of the Court’s new approach to FAA implied preemption.  Both reflect Congress’s long-held recognition, dating back to the nineteen-twenties and -thirties, that employees in the non-unionized workplace are effectively powerless to negotiate most terms of their employment.  (Congress acknowledged this economic disparity in the 1925 FAA itself, whose section 1 coverage provision expressly excluded the only category of workers whom Congress had jurisdiction to regulate under the then-narrowly construed Commerce Clause.  That same disparity was also at the core of the 1932 Norris-LaGuardia Act, which acknowledges that “the individual unorganized worker is commonly helpless to exercise actual liberty of contract and to protect his freedom of labor” and is therefore entitled to be free from employer interference with his choice of representatives and concerted activities, and which provide that any “undertaking or agreement” in violation of these policies is “not . . enforceable in any court.”

The first class of cases are those alleging that a class action prohibition violates core employment law rights – either in direct violation of a statutory command or by imposing undue burdens on the exercise of those rights.  The Supreme Court has often paid lip service to the notion that mandatory arbitration agreements are enforceable only to the extent they do not unduly interfere with a party’s ability to vindicate protected rights.  Although state courts and lower federal courts, taking the Supreme Court at its word, have often struck down arbitration agreements and provisions that encroach on fundamental public policies, the Supreme Court itself has not yet found a case in which such an “inherent conflict” exists.  In AT&T Mobility, for example, the Question Presented assumed that classwide remedies were not “necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims,” and the majority never addressed whether it would reach a different result if the record evidence established (as the underlying California case law specifically required) that defendant’s challenged provision would have actual exculpatory effect.

Challenges to mandatory arbitration class action prohibitions are now being litigated under a variety of statutes that expressly preserve workers’ right to sue on a class or collective action basis, such as the FLSA, the Age Discrimination in Employment Act, and California’s Fair Employment and Housing Act.  Other pending cases rest on evidence showing that particular non-waivable rights require class or collective treatment to be effectively vindicated because, for example, of the need for classwide injunctive relief, the nature of the particular claim (e.g., a pattern-and-practice discrimination claim as in Chen-Oster v. Goldman Sachs Group (S.D.N.Y. 2011) or a private attorney general claim as in Brown v. Ralph’s Grocery Co. (Cal. App. 2011), the low amount at stake for each individual employee (as in many wage-and-hour claims like Sutherland v. Ernst & Young (S.D.N.Y. 2011)), the perceived threat of retribution against workers who file individual claims, the difficulty of finding qualified counsel, or the lack of notice to workers unaware of their statutory rights.

The Supreme Court is about to consider one version of such rights-preservation language in a federal consumer credit case, CompuCredit Corp. v. Greenwood, No. 10-948, in which the governing statute has explicit “right to sue” and no-waiver language.  But Greenwood is not an employment case, and because its disputed statutory language concerns the meaning of “right to sue” rather than the more explicit right to classwide relief that exists under several employment statutes, the issues raised by these other cases may not be reached in Greenwood.

The second category of cases whose employment law setting will likely limit the further extension of AT&T Mobility involves the growing number of claims filed under Sections 7 and 8(a)(1) of the National Labor Relations Act.  The NLRA makes it an unfair labor practice – which can be remedied through a NLRB-ordered and court-enforced cease-and-desist order – for an employer to “interfere with, restrain, or coerce” any workers in the exercise of their right to engage in “concerted activities” for the workers’ “mutual aid and protection.”  The NLRB has long held that class actions, like all other forms of claims filing activity designed to protect group rights in the workplace, constitute “concerted activit[y] for the purpose of . . . mutual aid and protection.”  The question in these pending NLRB cases is whether an employer’s workplace policy prohibiting such concerted class action activity “interferes with, restrains, or coerces” the employees in the exercise of Section 7 rights, and is thus actionable as a violation of Section 8(a)(1).

The NLRB recently took under submission the case of D.R. Horton, No. 12-CA-24764, which involved a workplace policy prohibiting all class, collective, and joint employment law claims.  More than a dozen amicus briefs were filed in D.R. Horton by civil rights groups, employers, labor unions, and the Department of Labor and EEOC (whose jointly submitted brief concluded, in part, that “[w]hen an employee has a statutory right to pursue . . . a claim and a class action waiver would prevent an employee from doing so, courts should deem the class action waiver unenforceable.”).  A decision may issue by the end of the year – before the Board loses its third member, and its quorum.

Several other cases raising this same issue have also been filed in regional NLRB offices throughout the country, including two in which the Board’s Division of Advice is presently considering whether to file a formal Complaint, 24 Hour Fitness, Case No. 20-CA-35419; and J.P. Morgan Chase, No. 12-CA-26917.  If the Complaint issues in those cases, the General Counsel would have the opportunity to seek enforcement of the NLRA, not only through the Act’s usual administrative processes, but also through Section 10(j) injunctive relief (which normally requires approval by the full Board itself, but not if the Board is about to drop back down to two members and has delegated Section 10(j) injunction-seeking authority to its General Counsel.

The analysis advanced by plaintiffs in these pending cases rests on the practical reality that many of our most cherished employment law rights can best – or only – be protected through the concerted efforts of similarly situated workers.  That is, of course, why Congress enshrined the right to engage in concerted protected activity at the heart of federal labor law protections.  While there may be considerable uncertainty about how AT&T Mobility will be applied going forward, the end result is likely to be more protective of workers’ rights and less deferential to the implied policies of the FAA if the next case is one involving a class action prohibition that directly interferes with statutory workplace rights – because in those circumstances, arbitration is not “just another forum.”