Alerts

Employment Class Actions Newsletter—January 23, 2012

Alerts / January 23, 2012

Welcome to Baker Hostetler's Class Actions Newsletter. We hope you find the information it contains of value. The newsletter will be published periodically as developments in this dynamic area of the law warrant. Please contact any member of Baker Hostetler's Employment Class Action Team with questions.

In This Issue:

THE SUPREME COURT REAFFIRMS MANDATORY ARBITRATION IN COMPUCREDIT CORP. v. GREENWOOD: An Omen for Review of the NLRB's Decision in D.R. Horton

By John B. Lewis

The holding of the Supreme Court's January 10th decision in CompuCredit Corp. v. Greenwood can be succinctly stated and then dismissed as merely a logical extension of existing precedent strongly favoring arbitration. But is it more? CompuCredit considered whether the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679 et seq., foreclosed enforcement of an arbitration agreement in a class action filed in the Northern District of California alleging CROA violations stemming from alleged misrepresentations made by CompuCredit in marketing its Aspire Visa credit card.

The District Court denied CompuCredit's motion to compel arbitration, finding that claims under CROA were non-arbitrable based on its language. The Ninth Circuit affirmed and the Supreme Court reversed.

The Arbitration Provision

The arbitration provision in CompuCredit Corp. required individual arbitration of all claims. It provided:

Any claim, dispute or controversy (whether in contract, tort or otherwise) at any time arising from or relating to your Account...will be resolved by binding arbitration...

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In addition, you will not have the right to participate as a representative or member of any class of claimants relating to the claim subject to arbitration.

The CROA's Provisions

The CROA regulates the practices of credit repair organizations and provides a private cause of action for violations as well as federal and state administrative enforcement. The CROA also has disclosure and nonwaiver provisions, which were focused upon by the District Court and the Ninth Circuit. The required disclosure statement, stated in pertinent part: "You have a right to sue a credit repair organization that violates the Credit Repair Organization Act." (Emphasis added). The non-waiver provision declares:

Any waiver by any consumer of any protection provided by or any right of the consumer under their subchapter -- (1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person." (Emphasis added).

The FAA and Federal Statutory Claims

As a threshold matter, Justice Antonin Scalia, writing for the Court, examined the Federal Arbitration Act ("FAA") as background for resolution of the case. He found that the FAA's "liberal policy favoring arbitration agreements" applied to federal statutory claims "unless the FAA's mandate has been 'overridden by a contrary Congressional Command.'" With that understanding, Justice Scalia reviewed CROA's provision to determine if the Act contained such a Congressional command.

CROA's Provisions and the Duty to Arbitrate

The opinion found that the disclosure provision did not give consumers a right to bring an action in court. Instead, Justice Scalia concluded "[t]he only consumer right it creates is the right to receive the statement, which is meant to describe the consumer protections that the law elsewhere provides."

The opinion went on to note that it was common for statutes creating civil causes of action to detail the claims, and relief available in a judicial context. Yet the mere reference to a cause of action is insufficient to establish a "'contrary congressional command' overriding the FAA."

The opinion commented that in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991), an arbitration agreement was enforced as to an Age Discrimination in Employment Act of 1967 ("ADEA") claim, despite language that declared: "Any person aggrieved may bring a civil action in any court of competent jurisdiction for such legal or equitable relief as will effectuate the purpose of this chapter." Justice Scalia emphasized that the court had "repeatedly recognized that contractually required arbitration of claims satisfies the statutory prescription of civil liability in court."

The opinion reasoned that at the time of CROA's enactment in 1996, arbitration provisions in agreements were not unusual. So, if Congress intended to prohibit arbitration of CROA claims, it would have done so with greater clarity. This reasoning led Justice Scalia to conclude "[b]ecause the CROA is silent on whether claims under the Act can proceed in an arbitral form, the FAA requires the arbitration agreement to be enforced according to its terms. " (Emphasis added). In her concurring opinion, Justice Sotomayor attempted to place the majority opinion in the context of existing precedent. She wrote: "I do not understand the majority opinion to hold that Congress must speak so explicitly in order to convey its intent to preclude arbitration of statutory claims."

Future Impact?

Does CompuCredit Corp. signal an even more aggressive enforcement of arbitration procedures with class action waivers? Does the silence of the 1930's vintage National Labor Relations Act on the key "congressional command" needed to foreclose arbitration mean that D.R. Horton is destined to be overturned? Too soon to tell. Yet, the CompuCredit Corp. opinion plainly raises additional doubts about the future viability of D.R. Horton.

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NLRB HOLDS CLASS ACTION WAIVERS VIOLATE NATIONAL LABOR RELATIONS ACT: What's Next?

By Todd A. Dawson

In the much anticipated ruling in D.R. Horton, Inc., 357 N.L.R.B. No. 184, released Friday, January 6th, the National Labor Relations Board ("NLRB") held that the respondent employer violated Section 8(a)(1) of the National Labor Relations Act ("NLRA") by "requiring employees to waive their right to collectively pursue employment-related claims in all forums, arbitral and judicial." The decision, which will impact all employers (including those who are non-union), also concluded that recent United States Supreme Court rulings on the Federal Arbitration Act and class arbitration were not implicated. To many management observers, the ruling elevates a procedural device, a class or aggregate proceeding, to the status of an individual statutory right applicable to any employment claim.

The Company and the Arbitration Agreement

The Company, D.R. Horton, Inc., builds homes and operates in more than 20 states. Starting in 2006, the Company required employees to sign a Mutual Arbitration Agreement ("MAA"), in which the employees agreed to submit all employment-related disputes to binding, mandatory arbitration. In addition, the MAA prohibited consolidation of cases, as well as arbitration of claims, on a class or collective basis.

Charging Party Michael Cuda worked for the Company as a superintendent and signed the MAA. Cuda subsequently purported to give notice to the Company of his intention to arbitrate, on a class or collective basis, a claim that the Company was misclassifying its superintendents as "exempt" under the Fair Labor Standards Act. When the Company resisted, Cuda filed an unfair labor practice charge with the NLRB.

A Necessary Substantive Right?

Several groups that filed Amici Curiae briefs with the NLRB urged that employees' Section 7 rights were not impacted because they could jointly discuss their claims, pool their resources to hire a lawyer, seek litigation advice and support from a union, seek support from other employees and coordinate the filing of claims. The Board majority was unpersuaded, responding:

if the Act makes it unlawful for employers to require employees to waive their right to engage in one form of activity it is no defense that employees remain able to engage in other concerted activities.

The decision also categorically rejected arguments that the right to bring a class or collective action was "procedural" rather than substantive, noting that "Rule 23 may be a procedural rule but the Section 7 right to act concertedly by invoking Rule 23...or other legal procedures is not."

Supreme Court Precedent Not Implicated

The ruling also found that the U.S. Supreme Court's opinions in Stolt-Nielsen v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010) and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) were not implicated. The Board majority reasoned that "[n]either involved the waiver of rights protected by the NLRA or even employment agreements." AT&T Mobility (which arose in a consumer context) was further distinguished by the majority because it involved a conflict between the Federal Arbitration Act ("FAA") and state law, rather than the FAA and another federal statute, such as the NLRA. Accordingly, the Board concluded, while the FAA requires enforcement of employment agreements requiring arbitration of claims, the NLRA prohibits employers from using such agreements to foreclose employees from acting on a class or collective basis in pursuing such claims.

What Now?

Even aside from issues concerning the legitimacy of the Board's D.R. Horton decision (which seem likely to be raised and decided on appeal), this decision raises an almost endless host of questions simply in terms of its application. First, significant questions abound regarding the scope of the NLRB's decision. For example, would the NLRB view an arbitration agreement that is silent regarding class-based relief as an unfair labor practice? If not, does an employer subsequently commit an unfair labor practice by arguing, after a dispute arises, that Stolt-Nielsen prohibits an arbitrator from interpreting such an agreement to permit class proceedings?

Though certainly more attenuated, the potential interplay between the NLRB's reasoning and general rules of civil procedure may also present thorny issues. For example, while the NLRB agreed that class certification under Rule 23 of the Federal Rules of Civil Procedure is a procedural device, the Board nonetheless held that resort to this device is, essentially, a substantive right whenever invoked collectively by employees. Under that line of reasoning, an employer might theoretically commit an unfair labor practice by requesting costs or sanctions against a plaintiff in an employment case who files a frivolous motion for class certification.

It is also difficult, as a practical matter, to understand how, where and when this ruling might come into play. Of course applicants may file failure-to-hire Section 8(a)(1) charges with the NLRB if rejected for employment for refusing to sign arbitration agreements. Presumably, however, the question will arise most often in court cases after an employer files a motion to compel arbitration. At that point, the plaintiff might argue that the NLRB's D.R. Horton decision precludes enforcement of the agreement. While there certainly is nothing unusual about a court considering the lawfulness of an agreement prior to enforcing it, the NLRB is the only body with jurisdiction to decide alleged violations under the NLRA. Thus, a court of law (whether state or federal) would lack jurisdiction to find that a particular arbitration agreement violates Section 8(a)(1).

The manner in which courts resolve these questions will likely determine the ultimate impact of the Board's D.R. Horton ruling. Baker Hostetler will continue to monitor this rapidly changing area of the law and will update clients with important developments. In the meantime, those employers who have arbitration agreements with their employees should consider reviewing those agreements with counsel. Whether class action waivers should be modified or deleted will depend on the employer's risk tolerance, as well as an estimate of how quickly the courts will ultimately resolve the viability of class waivers.

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UPDATES FROM OUR EMPLOYMENT CLASS ACTION BLOG

Baker Hostetler's Employment Class Action Blog provides updates for employers, clients and other interested parties on developing issues impacting employment class actions, including those involving employment discrimination, wage and hour, civil rights and benefits issues. Please visit the blog to see what trends are shaping the current landscape of employment class actions in the wake of Dukes and Concepcion.

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New York Court Rejects D.R. Horton; Orders Arbitration Despite Class Action Waiver

A great deal of intellectual energy has been spent on the issue of whether various employment arbitration agreements are enforceable, but the debate pretty much comes down to two camps. Over 80 years ago, in response to judicial reluctance to enforce arbitration agreements, Congress passed the Federal Arbitration Act. Virtually every court on both sides of the debate cites this statute and parrots the language of the Act and the Supreme Court opinions requiring the enforcement of arbitration agreements and stating the strong public policy favoring their enforcement. Some courts, most notably the Supreme Court, believe this language. Others simply do not, and appear willing to find or create any argument why they should not be enforced, particularly where class actions are involved.

NLRB Holds Class Action Waivers Violate the National Labor Relations Act

In the much anticipated ruling in D.R. Horton, Inc. and Michael Cuda, released Friday, January 6, the National Labor Relations Board ("NLRB") held that the Company violated Section 8(a)(1) of the National Labor Relations Act ("NLRA") by "requiring employees to waive their right to collectively pursue employment-related claims in all forums, arbitral and judicial." The decision, which will have a far-reaching impact on all employers, also concluded that recent United States Supreme Court rulings on the Federal Arbitration Act and class arbitration were not implicated. To many management observers, the ruling elevates a procedural device, a class or aggregate proceeding, to the status of an individual statutory right applicable to any employment claim.

California Supreme Court's Harris Decision May Become a Helpful Tool in Defeating Class Certification—Or Maybe it Won't

After several years of waiting, last week the California Supreme Court handed down its long-anticipated decision in Harris v. Superior Court. Given the natural-born suspicion held by management-side lawyers toward anything that wanders its way out of the wilderness that is the California courts, it probably comes as no surprise that we're left a bit underwhelmed. In fact, we're left feeling much like a patient immediately following successful brain surgery; sure, we've obtained the best possible outcome for which we should probably be thankful, but it feels like we just had our collective skull drilled and cut open only to get a result that might eventually develop into normalcy.

Court Applies Kentucky's 15-Year Statute of Limitations for ERISA Class Action Claims To Recover Benefits Due Under Terms of Plan

At present, most employment class actions relate to wage and hour issues, but there are still many (and frequently hugely expensive) ERISA class actions challenging a host of benefits issues. A recent case underscores that the threat of ERISA class action litigation can be exacerbated by a very long statute of limitations.

ERISA does not contain a statute of limitations for claims to recover benefits due under the terms of a plan. Courts apply the most clearly analogous state statute of limitations to these claims. Breach of contract claims typically allow for a relatively longer statute of limitation period than for other causes of action.

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