Tag Archives: class action

Can an Arbitration Agreement Waive the Right to Bring a Class Action?

For at least two decades, employers nationwide have been requiring employees to sign arbitration agreements. In a typical arbitration agreement, the employee gives up the right to sue over employment-related claims, instead agreeing to have such disputes heard in an arbitration proceeding. (Twenty years ago, the U.S. Supreme Court decided Gilmer v. Interstate/Johnson Lane, in which it made clear that employees could be required to arbitrate claims protected by statute, such as discrimination claims. Many employers and their lawyers interpreted this case as a green light to impose arbitration agreements on employees.)

Advocates for employees have brought piles of cases challenging arbitration agreements, arguing that the rules by which these agreements are judged should be different when one party has all or most of the bargaining power, as is the case in the employment relationship — particularly when the employee is required to sign the agreement as a condition of employment. (Generally, employees would prefer to proceed publicly, before a jury of their peers, with all of the protections offered by the judicial system, rather than privately, before a professional arbitrator whose decision is largely unappealable and who has a much freer hand in deciding which evidence to admit, how long the proceeding will last, and so on.) For the most part, however, these cases have failed, and arbitration agreements have been upheld. Progressive members of Congress have introduced various versions of legislation (here’s a recent example) that would prohibit the enforcement of pre-dispute arbitration agreements in consumer, civil rights, and employment cases, but have had no success to date.

But the legal landscape is different in California, where state law is more protective of employees, consumers, and others who often find themselves at the mercy of more powerful adversaries. The California Supreme Court and Courts of Appeal have continually refused to enforce arbitration agreements that overreach in favor of the employer. In the case of Armendariz v. Foundation Health Psychcare Services, the California Supreme Court held that arbitration agreements may be enforced as to statutory claims (such as discrimination) only if they comply with five rules intended to ensure that the employee’s claims receive a fair hearing. These rules, called the Armendariz factors, are:

  1. The agreement can’t limit the damages and other remedies available to employees. If, for example, an employee would be entitled to ask for punitive damages in court, such damages must also be available in arbitration.
  2. The employee must be allowed to conduct sufficient discovery — the opportunity to seek documents and information regarding the dispute. The Court noted that employers typically hold most of the relevant information in an employment dispute, and limiting the employee’s ability to collect that evidence could unfairly affect the outcome of the case.
  3. The arbitrator must issue a written decision that includes the essential findings and conclusions on which the award is based. The intent of this rule is to give employees sufficient information to appeal the decision, even though appeals of arbitration awards are quite limited.
  4. The employer must pay all costs and fees that are unique to arbitration. In other words, an employer can’t make it more expensive for an employee to arbitrate than it would have cost to bring a claim in court.
  5. The agreement must provide for neutral arbitrators.

Also unique to California is the state’s protection of an employee’s right to bring a class or collective action: a dispute brought on behalf of a group of similarly situated employees who have the same claim against the employer (for example, that the employer improperly failed to provide rest breaks or pay overtime). Many arbitration agreements preclude not only class actions in court, but also class or collective arbitration proceedings. Instead, employees agree to bring their disputes only on their own behalf as individuals.

In the case of Gentry v. Superior Court, the California Supreme Court laid out some more factors for courts to consider in deciding whether to enforce this type of agreement, including the size of the potential damages, the potential for retaliation against employees, the likelihood that employees who aren’t part of the proceedings may be ignorant of their rights, and other real-world facts that might pose an obstacle to employees seeking to vindicate their statutory rights through individual arbitration proceedings. Despite the language of an arbitration agreement, a court can order class arbitration of claims that cannot be waived under California law (such as the right to overtime) if it decides that a group proceeding would be significantly more effective at vindicating and enforcing employee rights.

California courts have continued to apply the Gentry case despite the U.S. Supreme Court’s finding, in AT&T v. Concepcion, that California courts may no longer prohibit the enforcement of class action waivers in arbitration agreements entered into by consumers. And last week, the National Labor Relations Board gave the state some support: The NLRB ruled that arbitration agreements prohibiting group actions violate the National Labor Relations Act (NLRA), even at companies where employees are not represented by a union. The NLRA protects the rights of all employees to engage in concerted activity to try to improve the terms and conditions of their employment, whether through a union or otherwise. The NLRB found that prohibiting group proceedings in arbitration violates this right.


Wal-Mart 2.0: California Employees Sue for Sex Discrimination

Remember that gigantic class action the Supreme Court threw out against Wal-Mart? In that case, three named plaintiffs sought to sue the giant retailer for sex discrimination in pay and promotions, on behalf of more than a million female employees nationwide. As I noted in an earlier post, the Supreme Court tossed the case, finding that there was no commonality among the proposed class. The court pointed out that the pay and promotion decisions the women complained of were made by different managers nationwide, among other things. Although the women claimed that they had the common experience of facing discrimination because Wal-Mart gave its managers unfettered discretion to make pay and promotion decisions with a corporate culture that relied heavily on gender-based stereotypes, the Court didn’t buy it.

Yesterday, the employees’ lawyers rebooted, with what they’ve called “Wal-Mart 2.0.” They filed a class action lawsuit on behalf of California employees only — an estimated 90,000 of them — once again alleging sex discrimination in pay and promotions. According to the plaintiffs’ press release, the revised complaint relies on new statistical evidence showing pay disparities between male and female employees in comparable positions, even though the women tend to have more seniority and better performance evaluations. The complaint also alleges biased statements by decision makers and statistical evidence of bias in promotions, among other things. (You can check out the press release and the complaint; the plaintiffs’ website┬áprovides lots more information on the case.)

The lawyers for the employees have promised that this is the first in an “armada” of state and regional lawsuits to be filed against Wal-Mart in the coming months, designed specifically to meet the Supreme Court’s objections that the original nationwide class had experiences that were too diverse to join in a single lawsuit.

California Employees, Take Your Seats

The big news in California class actions these days? It’s all about the bottom line, in more ways than one: Two large employers (Home Depot and 99 Cent Only Stores) have been sued for failing to provide suitable seating for their employees. According to two California appellate courts, this violates California’s wage order for mercantile employees and the state Labor Code. It also gives rise to civil penalties under California’s Private Attorney General Act (PAGA), which provides a separate penalty for each aggrieved employee, for each pay period in which the violation took place. Although a winning plaintiff has to share these penalties with the state’s labor department, they could still add up to a nice chunk of change. When you factor in that PAGA also provides for attorney fees and costs, these start to look like fairly lucrative cases.

The wage order in question (7-2001) says the following:

(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of
(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing,
an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted
to use such seats when it does not interfere with the performance of their duties.

This wage order applies only to mercantile employees, but identical language appears in the wage orders that apply to different industries, including manufacturing, personal services, and professional and technical services.

I’m fairly certain reactions to this development are going to divide pretty neatly, on either side of the bright line labeled “retail experience.” My job history working in bookstores (remember them?) puts me firmly in the “pull up a chair” camp. Every store I worked in had a limited number of stools; although we could mostly agree on when we took breaks, what music to listen to, who had to throw out the shoplifter, and where everyone could smoke (it was a long time ago), we fought over those stools like nobody’s business. With more of these lawsuits springing up every week in almost every industry, it’s time for California employers to provide some rest for the weary.


Wal-Mart Wins Class Action Case in Supreme Court

Yesterday, the Supreme Court gave employers a huge win in the case of Wal-Mart Stores v. Dukes. The case was a class action lawsuit that alleged the giant retailer discriminated against female employees when making decisions on pay and promotions. There were three named plaintiff-employees, who sought to bring the lawsuit on behalf of more than a million female employees nationwide.

The Supreme Court wasn’t asked to rule on whether any employees had been discriminated against. Instead, the Court looked only at the class action issue: whether it was appropriate for the employees to bring these claims as a group. The Court concluded that it was not — and the ruling will likely result in fewer class actions over all kinds of issues, from civil rights cases to product liability claims.

The employees claimed that Wal-Mart engaged in a pattern and practice of discrimination against women by allowing its (mostly male) managers to exercise nearly unfettered discretion in making pay and promotion decisions, within a corporate culture that relied on gender-based stereotypes. The effect of this combination, the plaintiffs claimed, were significant disparities in pay and promotions to management between women and men. The employees presented anecdotal evidence from employees and statistical evidence of the disparities, in their effort to get a class action certified.

In a class action, a representative group brings a lawsuit on behalf of everyone who’s in the same position. The class action framework is intended to promote efficiency and fairness by allowing everyone’s claims to be decided at the same time, according to the same standards, rather than through a number of separate lawsuits that could result in contradictory outcomes. But to bring a class action, the plaintiffs have to meet certain requirements, intended to make sure that it’s fair both to other class members — whose rights will be determined by the lawsuit, even if they don’t participate — and to the defendant, who will have to defend against time-consuming and costly large-scale allegations.

The Supreme Court decided that the case couldn’t proceed as a class action because the plaintiffs hadn’t met one of these threshold requirements: that there be at least one common issue of law or fact among the class members (“commonality”). Because the women worked at stores across the 50 states, reporting to different managers, and bringing their own skills, performance history, and other attributes into play, the Court found that they didn’t have commonality. The Court was especially dismissive of the plaintiffs’ claim that allowing managers to make subjective, discretionary decisions could provide the necessary common ground for the class action.

Four Justices dissented from this part of the ruling. Justice Ginsburg, writing for the minority, identified the key common question for the class as “whether Wal-Mart’s discretionary pay and promotion policies are discriminatory.” In addition to reviewing the plaintiffs’ statistical and anecdotal evidence, she pointed to other facets of Wal-Mart’s nationwide practice, such as requiring that all employees promoted to management be willing to relocate and allowing managers to set pay within a two dollar range, which left room for the operation of gender bias.

The majority’s opinion in the Wal-Mart case is likely to have a significant impact on future class actions because it sets a stricter standard for getting these cases off the ground. As Justice Ginsburg points out, the commonality standard had previously been interpreted more leniently. The key question wasn’t whether there were dissimilarities among the class members, but whether there was at least one crucial similarity, a question that could be answered for the entire group. We’ll have to see what the ultimate effect of this case will be, as lower federal courts apply it going forward. For now, though, advocates for business groups and employees alike agree that it will limit the number and size of class actions in the future.