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NLRB: Certain mandatory arbitration agreements violate federal labor law
January 06, 2012 by Ross Runkel at LawMemo

D. R. Horton, Inc. and Michael Cuda. Case 12–CA–25764 (01/03/2012)

The NLRB has ruled that it is a violation of federal labor law to require employees to sign arbitration agreements that prevent them from joining together to pursue employment-related legal claims in any forum, whether in arbitration or in court.

The Board said:

"In this case, we consider whether an employer violates Section 8(a)(1) of the National Labor Relations Act when it requires employees covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours or other working conditions against the employer in any forum, arbitral or judicial. For the reasons stated below, we find that such an agreement unlawfully restricts employees’ Section 7 right to engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable. In the circumstances presented here, there is no conflict between Federal labor law and policy, on the one hand, and the FAA and its policies, on the other."

The decision examined one such agreement used by nationwide homebuilder D.R. Horton, under which employees waived their right to a judicial forum and agreed to bring all claims to an arbitrator on an individual basis. The agreement prohibited the arbitrator from consolidating claims, fashioning a class or collective action, or awarding relief to a group or class of employees.

The Board found that the agreement unlawfully barred employees from engaging in “concerted activity” protected by the National Labor Relations Act. The Board emphasized that the ruling does not require class arbitration as long as the agreement leaves open a judicial forum for group claims.

Chairman Mark Gaston Pearce and Member Craig Becker joined in finding the agreement unlawful. Member Brian Hayes was recused from the case. The decision was finalized on Jan. 3, but was issued publicly by the agency Jan. 6.

The decision requires Horton to rescind the agreement or revise it to make clear to employees that they are not waiving their right to pursue a class or collective action in all forums.

It is noteworthy that this decision will apply to private sector employers whether or not they are unionized.



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NLRB seeks briefs on class action arbitration issue
June 21, 2011 by Ross Runkel at LawMemo

The NLRB is inviting briefs [link to Invitation] on the following issue:

Did the respondent violate Section 8(a)(1) of the [National Labor Relations Act] by maintaining and enforcing its Mutual Arbitration Agreement, under which employees are required, as a condition of employment, to agree to submit all employment disputes to individual arbitration, waiving all rights to a judicial forum, where the arbitration agreement further provides that arbitrators will have no authority to consolidate claims or to fashion a proceeding as a class or collective action?

Briefs are due July 20.

My view:

This is a case of extraordinary importance because -

(1) The US Supreme Court has held that an arbitration agreement containing a class action waiver is enforceable under the Federal Arbitration Act even if such a provision would be considered unconscionable under the laws of a particular state. AT&T Mobility LLC v. Concepcion (US Supreme Court 04/27/2011).

(2) If the NLRB holds that such an agreement violates the National Labor Relations Act, then employers who maintain such agreements will be subject to unfair labor practice charges. So, employers would not be able to implement such an agreement in spite of the Supreme Court decision.

(3) Any decision by the NLRB in this case will apply to both unionized and non-union employers in the private sector.




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Federal Arbitration Act preempts state law that made class action waiver unconscionable (5-4)
April 27, 2011 by Ross Runkel at LawMemo

Today's decision in AT&T Mobility v. Concepcion (US Supreme Ct 04/27/2011) will have a significant impact on employment arbitrations.

In Discover Bank v. Superior Court, 36 Cal4th 148, 113 P3d 1100 (2005), the California Supreme Court held that class action waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud.

The US Supreme Court (5-4) held that California's Discover Bank rule is preempted by the Federal Arbitration Act (FAA) because it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."

The cell phone contract between the Concepcions and AT&T provided for arbitration of all disputes, but required that claims be brought in the parties' "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding." The Concepcions sued AT&T for charging $30.22 in sales tax for a "free" phone. The trial court denied AT&T's motion to compel arbitration. Relying on Discover Bank, it found the arbitration provision unconscionable because it disallowed classwide proceedings. The 9th Circuit agreed, and held that the FAA, which makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract," did not preempt its ruling. The US Supreme Court (6-3) reversed.

The FAA's overarching purpose is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate informal, streamlined proceedings. Parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom they will arbitrate.

Class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, interferes with fundamental attributes of arbitration. The switch from bilateral to class arbitration sacrifices arbitration's informality and makes the process slower, more costly, and more likely to generate procedural morass than final judgment. And class arbitration greatly increases risks to defendants. The absence of multilayered review makes it more likely that errors will go uncorrected. That risk of error may become unacceptable when damages allegedly owed to thousands of claimants are aggregated and decided at once. Arbitration is poorly suited to these higher stakes. In litigation, a defendant may appeal a certification decision and a final judgment, but 9 USC. §10 limits the grounds on which courts can vacate arbitral awards.



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SOX ban on pre-dispute arbitration agreements is retroactive
March 01, 2011 by Ross Runkel at LawMemo

Pezza v. Investors Capital (D Mass 03/01/2011):

Pezza sued claiming retaliation in violation of the whistleblower provisions of the Sarbanes-Oxley Act. While the employer's motion to compel arbitration was under advisement, Congress enacted the Dodd-Frank Act which enacted a bar to pre-dispute arbitration agreements for whistleblower claims brought under the Sarbanes-Oxley Act.

The US District Court for Massachusetts held that the Dodd-Frank ban on pre-dispute arbitration agreements is retroactive, and denied the employer's motion to compel arbitration.

Although the Act says nothing about retroactive application, leaving the question "far from clear," the court reasoned that the ban was in the nature of a procedural provision rather than one dealing with substantive rights.



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SCOTUS: Arbitrator, not court, decides whether arbitration agreement is unconscionable (5-4)
June 21, 2010 by Ross Runkel at LawMemo

The US Supreme Court decided Rent-A-Center West v. Jackson (US Supreme Ct 06/21/2010) this morning.

When he was hired, Jackson signed an agreement to arbitrate all future disputes. That agreement provided: "The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable."

Jackson sued under 42 USC Section 1981, claiming race discrimination and retaliation. The trial court granted the employer's motion to dismiss and to compel arbitration. The 9th Circuit (2-1) reversed.

Jackson argued that the arbitration agreement was unconscionable, and that the issue of unconscionability must be decided by a court rather than an arbitrator.

The US Supreme Court held (5-4) that under the Federal Arbitration Act, where an agreement to arbitrate includes an agreement that the arbitrator will determine the enforceability of the agreement, if a party challenges specifically the enforceability of that particular agreement, the district court considers the challenge, but if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator.

The agreement contained two arbitration provisions, one to arbitrate employment disputes, and a second to give the arbitrator exclusive authority to resolve the "gateway" question of whether the agreement is enforceable. The employer sought enforcement of the second provision, which is severable from the rest of the contract. Jackson did not challenge this second provision specifically, so the Court treated his challenge as a challenge to the whole contract. It is well settled that a challenge to the whole contract is an issue to be resolved by the arbitrator rather than the court.

The DISSENT argued that the majority improperly applied the rule of severability. Jackson did challenge the validity of the arbitration agreement and should not have to object to "the particular line in the agreement" that purports to assign the validity issue to the arbitrator.



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No mandatory arbitration for DOD contractors
May 19, 2010 by Ross Runkel at LawMemo

Department of Defense published its interim rule today, implementing Section 8116 of the Defense Appropriations Act for Fiscal Year 2010.

Section 8116 forbids contractors (over $1 million) from using or enforcing mandatory arbitration agreements for claims under title VII of the Civil Rights Act of 1964, or tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

The interim rule is effective immediately.

[Rule]



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Does arbitrator decide whether arbitration agreement is unconscionable?
January 18, 2010 by Ross Runkel at LawMemo

The US Supreme Court has agreed to hear another employment arbitration case. The issue is whether it is for the court, or an arbitrator, to decide whether agreement to arbitrate is unconscionable.

Jackson sued under 42 USC Section 1981, claiming race discrimination and retaliation. The trial court granted the employer's motion to dismiss and to compel arbitration. The 9th Circuit (2-1) reversed. 

When he was hired, Jackson signed an agreement to arbitrate all future disputes. That agreement provided: 

"The Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable." 

Jackson argued that the arbitration agreement was unconscionable, and that the issue of unconscionability must be decided by a court rather than an arbitrator. 

The 9th Circuit held that "where, as here, a party challenges an arbitration agreement as unconscionable, and thus asserts that he could not meaningfully assent to the agreement, the threshold question of unconscionability is for the court." 

Case below: Jackson v. Rent-A-Center West (9th Cir 09/09/2009)

Official docket sheet 

Certiorari granted January 15, 2010.

Oral argument:  Not yet scheduled. 


Question presented:   

Is the district court required in all cases to determine claims that an arbitration agreement subject to the Federal Arbitration Act ("FAA") is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this "gateway" issue to the arbitrator for decision?

Certiorari Documents:


Counsel:



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Mandatory arbitration is out for major defense contractors
December 24, 2009 by Ross Runkel at LawMemo

Section 8116 of the Defense Appropriations Act signed by the President on December 21 requires major defense contractors and subcontractors to agree not to enter into or enforce agreements with employees or subcontractors that require arbitration of:

"any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention."

[H.R. 3326 text]



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Appointees to Federal Service Impasses Panel
September 15, 2009 by Ross Runkel at LawMemo

The President has named seven highly-qualified individuals to the Federal Service Impasses Panel – Federal Labor Relations Authority:

Mary Jacksteit, Chair, Federal Service Impasses Panel – Federal Labor Relations Authority
Mary Jacksteit has over 20 years of experience in mediation, facilitation and negotiation working for non-profit organizations, government agencies and community organizations. Jacksteit previously served on the Federal Service Impasses Panel for seven years during the Clinton Administration. She began her legal career as a labor attorney for the American Federation of Government Employees, AFL-CIO, where she later served as Deputy General Counsel. In the late 1980’s she began practicing as a labor arbitrator in the public and private sectors, serving on panels of the American Arbitration Association, Federal Mediation and Conciliation Service, and U.S. Postal Service. For 10 years, she worked at Search for Common Ground - a conflict resolution organization. Since 2007 she has been associated with the Public Conversations Project in Watertown, Massachusetts and has maintained a private practice focused on community, public policy, organizational planning, and conflict management. Jacksteit has a law degree from Georgetown Law School, an M.S. from George Mason University’s Institute for Conflict Analysis and Resolution, and a B.A. from the University of Pittsburgh.

Martin H. Malin, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Martin H. Malin is a Professor of Law and the Director of the Institute for Law and the Workplace at Chicago-Kent College of Law, Illinois Institute of Technology. He teaches courses in labor law, collective bargaining, arbitration, public sector labor law, employment law, contracts and jurisprudence. Malin has published five books, including Public Sector Employment: Cases and Materials (West 2004), the leading law school casebook on public sector labor law; and more than 60 articles on labor law and dispute resolution. An active arbitrator and mediator since 1984, Malin just completed a three-year term on the Board of Governors of the National Academy of Arbitrators and is a fellow of the College of Labor and Employment Lawyers. He also serves on the Executive Committee of The Labor Law Group and is a past chair of the Association of American Law Schools Section on Labor Relations and Employment Law. From 2004 - 2008, Malin served as Reporter for the Association of Labor Relations Agencies’ Neutrality Project. He was the principal drafter of ALRA’s Neutrality Report, a mini-treatise on labor board and mediation agency impartiality. During the mid 1980s, he served as a consultant to Illinois’ public employment labor boards and drafted the regulations implementing Illinois’ newly-enacted public sector labor relations acts. Malin joined the Chicago-Kent faculty in 1980, after teaching at Ohio State University and serving as Law Clerk to U.S. District Judge Robert DeMascio in Detroit. He holds a J.D. from George Washington University and a B.A. from Michigan State University.

Barbara B. Franklin, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Barbara B. Franklin is an arbitrator and mediator in Washington, D.C. She serves on arbitration rosters administered by the Federal Mediation and Conciliation Service, the American Arbitration Association and the Financial Industry Regulatory Authority. She is a mediator for the U.S. Court of Appeals and District Court for the District of Columbia. Since 1999, she has served as a Public Member of the D.C. Police and Firefighters Retirement Board, a position that is appointed by the Mayor of D.C. Prior to her retirement from the Federal Government in 1997, Ms. Franklin was Chief Counsel to Members Pamela Talkin and Donald S. Wasserman of the Federal Labor Relations Authority. From 1977 to 1989, she served as a staff attorney and then supervisory attorney for the National Labor Relations Board in the Office of General Counsel (Division of Advice). Franklin received her J.D. from The Catholic University of America’s Columbus School of Law, where she was Associate Editor of the Law Review, and her B.A. from Northwestern University.

Marvin E. Johnson, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Marvin E. Johnson is a nationally recognized mediator and arbitrator of public and private disputes. Johnson serves on the rosters of the JAMS Resolution Experts, the International Institute for Conflict Prevention and Resolution, the American Arbitration Association, and Accormend Associates. He served 16 years as Assistant and Associate Professor of Labor Relations, Business Law and Conflict Management at Bowie State University where he founded the Center for Alternative Dispute Resolution. Johnson’s previous appointment to the Federal Service Impasses Panel by a Democratic President and his appointment to the Foreign Service Grievance Board by a Republican Secretary of State are testaments to his impartiality and his dispute resolution expertise. In addition, he was appointed by the Governor of Maryland to serve on the Maryland State Labor Relations Board and by the Chief Judge of the Maryland Court of Appeals to serve on the Maryland Alternative Dispute Resolution Commission. Johnson is a member of the International Academy of Mediators, the ABA Section of Dispute Resolution, the Association for Conflict Resolution, the American College of Civil Trial Mediators, the Society of Labor and Employee Relations Professionals and Mediators Beyond Borders. He received his J.D. degree from Catholic University, his M.S. degree in Industrial Relations from the University of Wisconsin, and his B.B.A. degree from Kent State University.

Thomas E. Angelo, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Thomas Angelo began his career as an attorney with the Solicitor’s Office at the U.S. Department of Labor, in Washington D.C. He joined the National Treasury Employees Union in 1972, serving as Associate General Counsel in Washington D.C. and San Francisco. In 1981, he was named Regional Attorney for the San Francisco Region of the Federal Labor Relations Authority. Angelo became a full time arbitrator in 1983 and is a member of the National Academy of Arbitrators. He serves as a panel arbitrator for many private and public sector parties. Angelo is a graduate of Willamette University and Willamette University College of Law.

Edward F. Hartfield, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Edward F. Hartfield is the Executive Director of the National Center for Dispute Settlement (NCDS). He has devoted his entire 36-year career to serving as an impartial party as mediator, arbitrator, facilitator, election administrator, trainer, neutral convener, and ombudsman. Hartfield has served as Commissioner with the Federal Mediation and Conciliation Service and State Mediator for the New Jersey Office of Dispute Settlement. He was previously appointed by President Clinton to the Federal Service Impasses Panel, a seven-person panel established to resolve disputes in the Federal Government. Hartfield has also served as the International President of the Society of Professionals in Dispute Resolution (SPIDR) and currently is Vice President of the Detroit Chapter of the Labor and Employment Research Association (LERA). Hartfield serves on the Michigan State Court Administrative Office Task Force on Mediation Confidentiality and previously served on the Michigan Supreme Court Task Force on Mediation. He received a Masters in International Relations from the University of Detroit and B.A. from Oberlin College.

Don Wasserman, Member, Federal Service Impasses Panel – Federal Labor Relations Authority
Don Wasserman has been a labor relations professional his entire career. Since 2001, he has been an arbitrator/mediator, specializing in all levels of the public sector. He is a Member of the D.C. Public Employee Relations Board (DC PERB) and the Metropolitan Washington Airports Authority Employee Relations Council (MWAA-ERC). Wasserman is also on the labor rosters of the American Arbitration Association, Federal Mediation and Conciliation Service and National Mediation Board. In December 1995, he was appointed by former President Clinton as a Member and then as Chairman of the Federal Labor Relations Authority (FLRA), where he served until 2001. Wasserman began his career at the Communications Workers of America and then the International Association of Machinists. From 1967 until his appointment to FLRA, Wasserman held various top positions at the American Federation of State, County and Municipal Employees where he served as Director of the Department of Collective Bargaining and Assistant to the President. His major responsibilities included serving as chief negotiator in establishing initial collective bargaining agreements with several state governments and large local governments. He frequently testified before legislative bodies on key collective bargaining issues such as bargaining unit structure and impasse resolution procedures, as well as matters including government reinvention/redesign and civil service reform. Wasserman received an M.B.A from the University of Pennsylvania and a B.S. from Temple University.



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MA - Arbitration agreement did not cover state statutory discrimination claims (6-1)
July 29, 2009 by Ross Runkel at LawMemo

From today's Employment Law Memo:

Warfield v. Beth Israel Deaconess Med Cntr (Massachusetts 07/27/2009)

Warfield sued her employers claiming gender-based discrimination and retaliation in violation of state statute. The trial court denied the employers' motion to compel arbitration; the Massachusetts Supreme Judicial Court affirmed.

Warfield had been employed as an anesthesiologist for 20 years before being appointed anesthesiologist-in-chief. At that time she signed an arbitration agreement which in part provided, "Any claim, controversy or dispute arising out of or in connection with this Agreement or its negotiations shall be settled by arbitration." Nothing in the agreement referred to employment discrimination statutes or claims.

The court found that such claims are subject to arbitration but that this agreement did not cover them. In doing so, the court announced a state law rule of interpretation:

"Our interpretive rule states only that as a matter of the Commonwealth's general law of contract, a private agreement that purports to waive or limit - whether in an arbitration clause or on some other contract provision - the employee's otherwise available right to seek redress for employment discrimination through the remedial paths set out in c. 151B, must reflect that intent in unambiguous terms."

The DISSENT argued that the matter was arbitrable because the contract language is "free of ambiguity."



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Cert granted on Section 301 suit: tortious interference and duty to arbitrate
June 30, 2009 by Ross Runkel at LawMemo

The US Supreme Court has granted certiorari in an LMRA Section 301 case that raises issues on (1) whether an employer can state a claim of tortious interference against a union that was not a signatory to a collective bargaining agreement, and (2) the scope of the duty to arbitrate. This case will be argued in the fall.

Granite Rock v. Teamsters (Certiorari granted 06/29/2009)

The employer sued a local union and an international union under Labor Management Relations Act Section 301(a) claiming that (1) the international union tortiously interfered with a collective bargaining agreement (CBA) between the employer and the local union, and (2) the local union breached the CBA by going on strike.

The employer and the local union had reached a tentative new CBA which contained a broad arbitration clause and a no-strike clause. The employer alleged that the local union had ratified the CBA and then engaged in a strike which was in part led by a high official of the international union.

(1) The 9th Circuit held that the employer failed to state a claim against the international union because the tortious interference claim did not "arise under" the CBA between the employer and the local. The court reasoned that because the international "has no rights or duties under the agreement … [the employer’s] tortious interference claim … does not meet the requirements of section 301(a)."

(2) As to the contract claim, the parties disagreed on the date of ratification. The district court held that issues of breach and damages had to be arbitrated, but that the issue of contract ratification was for the court to decide. The 9th Circuit held that the entire dispute should go to arbitration under the contract's arbitration clause, which covered "all disputes arising under this agreement." The court held that both parties consented to arbitration; the employer by suing under the contract, and the union by moving to compel arbitration.

The US Supreme Court granted certiorari to review the 9th Circuit's judgment.



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Agreement waiving class-wide arbitration was unconscionable
March 11, 2009 by Ross Runkel at LawMemo

Today's Employment Law Memo reports on yesterday's decision in Franco v. Athens Disposal (California Ct App 03/10/2009)

Franco sued the employer in a class action, asserting claims for violation of several provisions of state wage-and-hour laws. The employer petitioned to compel arbitration, which was granted by the trial court. The California Court of Appeal reversed.

The employer’s arbitration agreement contained a provision waiving class-wide arbitration and precluding employees from acting in “a private attorney general capacity.”

The court concluded that the arbitration provision was “unconscionable with respect to the alleged violations of the meal and rest period laws given ‘the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.’”

The court further concluded, “because the arbitration agreement prevents plaintiff from acting as private attorney general, it conflicts with the Labor Code Private Attorneys General Act of 2004...” With respect to the first conclusion, the court relied primarily upon application of the analysis set forth in Gentry v. Superior Court (2007) 42 Cal.4th 443.



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Due process a ground to vacate arbitration award?
February 23, 2009 by Ross Runkel at LawMemo

Five employees of the Union Pacific Railroad filed claims through their Union (the Brotherhood of Locomotive Engineers and Trainmen) contesting a discharge or discipline imposed by the Railroad. Rather than resolving the dispute over the propriety of the discipline, the National Railroad Adjustment Board concluded that the Union had failed to submit conclusive evidence that the parties had held a conference to attempt to resolve the dispute - a procedural prerequisite to arbitration - and thus the Board determined that it was required to dismiss the claim for lack of jurisdiction. The district court agreed. The 7th Circuit reversed.

Brotherhood of Locomotive Engineers and Trainmen General Committee of Adjustment, Central Region v. Union Pacific Railroad Company (7th Cir 04/09/2008).
Rehearing denied, Brotherhood of Locomotive Engineers and Trainmen General Committee of Adjustment, Central Region v. Union Pacific Railroad Company (7th Cir 08/11/2008)

Although the 7th Circuit agreed with the district court that it has always been clear that the parties must conference, and that they must submit evidence of that fact, it heretofore has not been clear when and how that evidence must be presented. The court found that the Board denied the Union due process by requiring evidence of conferencing to be presented in the on-property record, a requirement not clearly enunciated in the statutes, regulations, or the collective bargaining agreement of the parties. Consequently, the 7th Circuit reversed.

The US Supreme Court granted certiorari on February 23, 2009 to review the 7th Circuit judgment.

Details, including briefs



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Arbitrator, not Labor Commissioner, decides issues
February 20, 2008 by Ross Runkel at LawMemo

Preston v Ferrer (US Supreme Court, February 20, 2008).

8 to 1, US Supreme Court today holds that issues are to be decided by an arbitrator, not by the California Labor Commissioner. No surprises here.

The official syllabus:

A contract between respondent Ferrer, who appears on television as “Judge Alex,” and petitioner Preston, an entertainment industry attorney, requires arbitration of “any dispute … relating to the [contract’s] terms … or the breach, validity, or legality thereof … in accordance with [American Arbitration Association (AAA)] rules.” Preston invoked this provision to gain fees allegedly due under the contract. Ferrer thereupon petitioned the California Labor Commissioner (Labor Commissioner) for a determination that the contract was invalid and unenforceable under California’s Talent Agencies Act (TAA) because Preston had acted as a talent agent without the required license. After the Labor Commissioner’s hearing officer denied Ferrer’s motion to stay the arbitration, Ferrer filed suit in state court seeking to enjoin arbitration, and Preston moved to compel arbitration. The court denied Preston’s motion and enjoined him from proceeding before the arbitrator unless and until the Labor Commissioner determined she lacked jurisdiction over the dispute. While Preston’s appeal was pending, this Court held, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440 , that challenges to the validity of a contract requiring arbitration of disputes ordinarily “should … be considered by an arbitrator, not a court.” Affirming the judgment below, the California Court of Appeal held that the TAA vested the Labor Commissioner with exclusive original jurisdiction over the dispute, and that Buckeye was inapposite because it did not involve an administrative agency with exclusive jurisdiction over a disputed issue.

Held: When parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq., supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative. Pp. 4–16.

(a) The issue is not whether the FAA preempts the TAA wholesale. Instead, the question is simply who decides—the arbitrator or the Labor Commissioner—whether Preston acted as an unlicensed talent agent in violation of the TAA, as Ferrer claims, or as a personal manager not governed by the TAA, as Preston contends. P. 4.

(b) FAA §2 “declare[s] a national policy favoring arbitration” when the parties contract for that mode of dispute resolution. Southland Corp. v. Keating, 465 U. S. 1 , 10. That national policy “appli[es] in state as well as federal courts” and “foreclose[s] state legislative attempts to undercut the enforceability of arbitration agreements.” Id., at 16. The FAA’s displacement of conflicting state law has been repeatedly reaffirmed. See, e.g., Buckeye, 546 U. S., at 445–446; Allied-Bruce Terminix Cos. v. Dobson, 513 U. S. 265 . A recurring question under §2 is who should decide whether “grounds … exist at law or in equity” to invalidate an arbitration agreement. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 , which originated in federal court, this Court held that attacks on an entire contract’s validity, as distinct from attacks on the arbitration clause alone, are within the arbitrator’s ken. Buckeye held that the same rule applies in state court. See 546 U. S., at 446.

Buckeye largely, if not entirely, resolves the present dispute. The contract at issue clearly “evidenc[ed] a transaction involving commerce” under §2, and Ferrer has never disputed that the contract’s written arbitration provision falls within §2’s purview. Ferrer sought invalidation of the contract as a whole. He made no discrete challenge to the validity of the arbitration clause, and thus sought to override that clause on a ground Buckeye requires the arbitrator to decide in the first instance. Pp. 5–6.

(c) Ferrer attempts to distinguish Buckeye, urging that the TAA merely requires exhaustion of administrative remedies before the parties proceed to arbitration. This argument is unconvincing. Pp. 6–12.

(1) Procedural prescriptions of the TAA conflict with the FAA’s dispute resolution regime in two basic respects: (1) One TAA provision grants the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate, see Buckeye, 546 U. S., at 446; (2) another imposes prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally, see Doctor’s Associates, Inc. v. Casarotto, 517 U. S. 681 . Pp. 7–8.

(2) Ferrer contends that the TAA is compatible with the FAA because the TAA provision vesting exclusive jurisdiction in the Labor Commissioner merely postpones arbitration. That position is contrary to the one Ferrer took in the California courts and does not withstand examination. Arbitration, if it ever occurred following the Labor Commissioner’s decision, would likely be long delayed, in contravention of Congress’ intent “to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1 . Pp. 8–10.

(3) Ferrer contends that the conflict between the arbitration clause and the TAA should be overlooked because Labor Commissioner proceedings are administrative rather than judicial. The Court rejected a similar argument in Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20 . Pp. 10–12.

(d) Ferrer’s reliance on Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468 , is misplaced for two reasons. First, arbitration was stayed in Volt to accommodate litigation involving third parties who were strangers to the arbitration agreement. Because the contract at issue in Volt did not address the order of proceedings and included a choice-of-law clause adopting California law, the Volt Court recognized as the gap filler a California statute authorizing the state court to stay either third-party court proceedings or arbitration proceedings to avoid the possibility of conflicting rulings on a common issue. Here, in contrast, the arbitration clause speaks to the matter in controversy; both parties are bound by the arbitration agreement; the question of Preston’s status as a talent agent relates to the validity or legality of the contract; there is no risk that related litigation will yield conflicting rulings on common issues; and there is no other procedural void for the choice-of-law clause to fill. Second, the Court is guided by its decision in Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U. S. 52 . Although the Volt contract provided for arbitration in accordance with AAA rules, 489 U. S., at 470, n. 1, Volt never argued that incorporation of those rules by reference trumped the contract’s choice-of-law clause, so this Court never addressed the import of such incorporation. In Mastrobuono, the Court reached that open question, declaring that the “best way to harmonize” a New York choice-of-law clause and a clause providing for arbitration in accordance with privately promulgated arbitration rules was to read the choice-of-law clause “to encompass substantive principles that New York courts would apply, but not to include [New York’s] special rules limiting [arbitrators’] authority.” 514 U. S., at 63–64. Similarly here, the “best way to harmonize” the Ferrer-Preston contract’s adoption of the AAA rules and its selection of California law is to read the latter to encompass prescriptions governing the parties’ substantive rights and obligations, but not the State’s “special rules limiting [arbitrators’] authority.” Ibid. Pp. 12–15.

145 Cal. App. 4th 440, 51 Cal. Rptr. 3d 628, reversed and remanded.

GINSBURG, J., delivered the opinion of the Court, in which ROBERTS, C. J., and STEVENS, SCALIA, KENNEDY, SOUTER, BREYER, and ALITO, JJ., joined. THOMAS, J., filed a dissenting opinion.




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Three new Supreme Court cases
February 19, 2008 by Ross Runkel at LawMemo

US Supreme Court will hear case on union's waiver of court forum for statutory claim.

14 Penn Plaza LLC v. Pyett (Certiorari granted February 19, 2008) [Details, briefs]

When employees sued claiming age discrimination, the employer filed a motion to compel them to take the case to arbitration. The employees were covered by a collective bargaining agreement which prohibited age discrimination and also said "All such claims shall be subject to the grievance and arbitration procedure [in the collective bargaining agreement] as the sole and exclusive remedy for violations." The trial court denied the motion to compel arbitration, and the 2nd Circuit affirmed. The 2nd Circuit held that "arbitration provisions contained in a [collective bargaining agreement], which purport to waive employees' rights to a federal forum with respect to statutory claims, are unenforceable."

See discussion of this case at Daily Developments in EEO Law and at ADR Prof Blog: Supreme Court hears third arbitration case this term: 14 Penn Plaza v. Pyett and at Workplace Prof Blog: Supreme Court Certs

US Supreme Court will hear case on union's use of agency fees for out-of-unit litigation.

Locke v. Karass (Certiorari granted February 19, 2008) [Details, briefs]

The Maine State Employees Association (MSEA) is the exclusive bargaining agent for certain state workers, and collects compulsory "agency fees" from non-members who are in the bargaining unit. Some of these fees are transferred to Service Employees International Union (SEIU), MSEA's national affiliate. MSEA included in its calculation of chargeable expenditures those costs of litigation (by both itself and SEIU) that was germane to collective bargaining. This meant that nonmembers contributed, through their service fees, to some litigation that was not undertaken specifically for their own bargaining unit, but rather was conducted by or on behalf of other units or the national affiliate, sometimes in other states. Included within this general category of expenditures were the salaries of SEIU's lawyers, and other costs of providing legal services to bargaining units throughout the country. Costs of litigation that was not related to collective bargaining, however, were not included in the service fees assessed to MSEA's nonmembers. The 1st Circuit held that MSEA may lawfully charge non-members for this "extra-unit litigation" so long as it is germane to the union's collective bargaining duties.

US Supreme Court will hear case on ERISA anti-alienation.

Kennedy v. Plan Administrator for Dupont Savings and Investment Plan (Certiorari granted February 19, 2008)
Decision below: 5th Cir 08/15/2007

William Kennedy's ERISA plan contained a no-alienation provision. William designated his wife Liv as the sole beneficiary. Upon their divorce, Liv agreed to be divested of all her rights. However, there was no Qualified Domestic Relations Order (QDRO). The 5th Circuit held that an ERISA Qualified Domestic Relations Order is the only valid way a divorcing spouse can waive her right to receive her ex-husband's pension benefits under ERISA.



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Gentry arbitration commentary
August 30, 2007 by Ross Runkel at LawMemo

Lots of commentary on Gentry v. Superior Court (Circuit City):

Gentry - New attack on class action waivers.

Gentry - Opt-out clause is not a safe harbor for unconscionability.

Gentry: Class Action Arbitration Bans Not Always Enforceable in Wage Cases.

Gentry Court: Mostly No class-action waivers in employment contracts.

Gentry v. Superior Court (Circuit City) Opinion.



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Cal Ag interest arbitration is constitutional
July 05, 2006 by Ross Runkel at LawMemo

When a California agricultural employer and a union fail to agree on a collective bargaining agreement, they are required to engage in interest arbitration to write a contract.

After an arbitrator [actually improperly called a mediator] wrote a contract for The Hess Collection Winery and United Food and Commercial Workers, the employer tried to get out of it. A petition to the California Agricultural Labor Relations Board (resulting in a decision in favor of the union) was followed by a court challenge.

The California Court of Appeal ruled for the union. It was 2-1. Hess Collection Winery v. California Agricultural Labor Relations Board (California Ct App 07/05/2006).

The court said:

"Hess [the employer] seeks an order setting aside the Board’s decision. Hess contends the statutory scheme (§ 1164 et seq.) violates principles of due process in that it unreasonably interferes with the right of contract, denies the right of judicial review, and is aimed at protectionism. Hess also contends that the scheme violates equal protection, invalidly delegates legislative authority, and is vague and overbroad."
"We shall conclude Hess’s contentions are without merit."

The dissent argued that the statute delegated legislative power unconstitutionally, and violated the equal protection guarantees of both the state and federal constitutions.



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NLRB takes aim at arbitration clause
June 19, 2006 by Ross Runkel at LawMemo

Did you think the NLRB would hold that a mandatory arbitration policy adopted by a non-union employer violated the National Labor Relations Act?

That's what they did in U-Haul Company of California (NLRB 06/08/2006) (2-1).

Primary reasoning: "because the employees would reasonably construe the broad language to prohibit the filing of unfair labor practice charges with the Board."

The case is important because the Board held the arbitration policy on its face was an unfair labor practice, even though there was no proof that anybody had ever been deterred from utilizing the NLRB's processes.

The employer made agreement to an arbitration policy a condition of employment or continued employment. The policy states that it:

. . . applies to all ... employees, regardless of length of service or status and covers all disputes relating to or arising out of an employee’s employment with [the employer] or the termination of that employment. Examples of the type of disputes or claims covered by the [Arbitration Policy] include, but are not limited to, claims for wrongful termination of employment, breach of contract, fraud, employment discrimination, harassment or retaliation under the Americans With Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and its amendment, the California Fair Employment and Housing Act or any other state or local anti-discrimination laws, tort claims, wage or overtime claims or other claims under the Labor Code, or any other legal or equitable claims and causes of action recognized by local, state or federal law or regulations. [Emphasis added.]

The NLRB put its focus on the bold language.

The majority said:

We recognize that the language in the arbitration policy does not explicitly restrict employees from resorting to the Board’s remedial procedures. However, the breadth of the policy language, referencing the policy’s applicability to causes of action recognized by “federal law or regulations,” would reasonably be read by employees to prohibit the filing of unfair labor practice charges with the Board. Plainly, the employees would reasonably construe the remedies for violations of the National Labor Relations Act as included among the legal claims recognized by Federal law that are covered by the policy. Thus, we find that the language of the policy is reasonably read to require employees to resort to the Respondent’s arbitration procedures instead of filing charges with the Board.

The decision was 2-1, with Member Wilma B. Liebman and Member Peter C. Schaumber in the majority, and Chairman Robert J. Battista dissenting.



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Argument audio: Who decides unconscionability?
September 29, 2005 by Ross Runkel at LawMemo

Listen to the oral argument of the 9th Circuit (en banc) in Nagrampa v. MailCoups, Inc.

The 9th Circuit reheard en banc (11 judges!) on 09/27/2005 the issue of whether it was for an arbitrator, rather than a court, to decide whether a contact is unconscionable. Nagrampa v. MailCoups, Inc (9th Cir 03/21/2005) was the original 3-judge panel decision holding that the arbitrator decides this question.

In Nagrampa there was a francise agreement which contained an arbitration agreement within it. Nagrampa claimed that both the arbitration agreement and the whole agreement were unconscionable. The 9th Circuit panel applied Prima Paint v. Flood & Conklin, 388 US 395 (1967), and made its own decision on the unconsionability of the arbitration agreement, but held that it was for the arbitrator to decide whether the contract as a whole was unconscionable.

That decision was withdrawn pending decision of the en banc court.



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Arbitration Blog? Try it.
August 18, 2005 by Ross Runkel at LawMemo

This is a shamelessly self-promoting post to entice you to take a look at Arbitration Blog, which discusses developments in employment arbitration and labor arbitration. Some recent entries:



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EEOC-McDonald's mediation agreement
August 17, 2005 by Ross Runkel at LawMemo

EEOC and McDonald's USA, LLC today signed a "Regional Universal Agreement to Mediate" to informally resolve workplace disputes through Alternative Dispute Resolution (ADR) prior to an EEOC investigation or potential litigation when a charge of discrimination is filed with the federal agency in McDonald’s Atlanta Region. Illinois-based McDonald’s owns and operates a number of restaurants in Alabama, Georgia, and South Carolina, which will be covered by the agreement. [EEOC Press Release]

One of the advantages of this agreement appears to be that the EEOC web site now contains the following language:

McDonald's USA, LLC is the leading foodservice provider in the United States serving a variety of wholesome foods made from quality ingredients to millions of customers every day. More than 80 percent of McDonald's 13,700 U.S. restaurants are independently owned and operated by local franchisees. For more information about McDonald's visit www.mcdonalds.com.

And now you can read about wholesome foods at Ross' Employment Law Blog.



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Arbitration Law Memo
August 14, 2005 by Ross Runkel at LawMemo

Arbitration Law Memo is a free monthly service summarizing employment arbitration and labor arbitration court cases that appeared earlier in Employment Law Memo. Not really a blog, although we use blog software.




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Anti-class-action clause was unconscionable
June 27, 2005 by Ross Runkel at LawMemo

It's not clear what effect Discover Bank v. Superior Court (California 06/27/2005) will have on anti-class-action clauses in employment arbitration agreements.

For consumer-cardholders suing banks for $29 each, such clauses are unconscionable under California law.

But the decision was quite limited:

We do not hold that all class action waivers are necessarily unconscionable. But when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party “from responsibility for [its] own fraud, or willful injury to the person or property of another.” (Civ. Code, § 1668.) Under these circumstances, such waivers are unconscionable under California law and should not be enforced.

For more details, see Arbitration Blog.



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NASD rules preempt state ethics rules for arbitrators
May 23, 2005 by Ross Runkel at LawMemo

The California Supreme Court says the National Association of Securities Dealers (NASD) rules preempt California's "Ethics Standards For Neutral Arbitrators in Contractual Arbitration," and all of the California ethics rules are preempted. Jevne v. Superior Court (California 05/23/2005).

This case was between a brokerage and a customer, and will have an impact on employee-employer arbitrations conducted by the NASD.

California and the NASD both have rules requiring disclosures by neutral arbitrators, and California's are more extensive and complex. Both California and the NASD have rules under which arbitrators can be disqualified.

The NASD rules were specifically approved by the Securities Exchange Commission, which gave them the force of federal law and ultimately the power of the federal government to preempt state law.

The court identified four types of possible preemption: (1) where the federal statute expressly preempts (not here), (2) where the federal statute occupies a whole field of law (not here), (3) where it is actually impossible to comply with both federal and state law requirements (not here), and (4) where the state law could prevent or impair accomplishment of the purposes and objectives of the federal law (Bingo, that's it).

The logic: NASD is regulated by the Securities Exchange Commission (SEC), which is created by the Securities Exchange Act (SEA). SEA's objectives: fair dealing and investor protection. All NASD rules are reviewed and approved by the SEC, so they have the force of law. SEC's opinion is that California's rules have three negative effects on NASD arbitrations: (1) increased administrative costs, (2) reduction of the number of available arbitrators (because many are unwilling to comply), and (3) reduction of nationwide uniformity of NASD arbitrations.

Other California ethics rules could not be severed, said the court, so the whole works was preempted.

My view: We got the same result from the 9th Circuit in Credit Suisse v. Grunwald (9th Cir 03/01/2005), although the reasoning was a little different. [See blog]

Now the question is whether there is any possibility that the outcome will be different for employment arbitrations conducted by NASD. It seems the outcome would be the same.



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An arbitration system goes down in flames
March 13, 2005 by Ross Runkel at LawMemo

The 6th Circuit used some interesting logic in refusing to enforce an arbitration agreement under which Employment Dispute Services, Inc. (EDSI) would be the sole source of arbitrators. Ryan's Family Steak House required job applicants to agree that their employment claims would be arbitrated by EDSI. Employees wanted to go to court instead, arguing that the arbitration system was fatally flawed.

Most of the flaws found by the court are discussed in the Arbitration Blog.

The court ruled that the plaintiffs' agreements were unenforceable under the Federal Arbitration Act (FAA) "because they do not allow for effective vindication" of their federal statutory (FLSA) claims. Walker v. Ryan's (6th Cir 03/09/2005)

This finding was based on the conclusion that EDSI's arbitral forum is not neutral. Why? Here's the interesting logic: EDSI is a for-profit company. Ryan's provided 42 percent of EDSI's gross income in 2002. This resulted in a "symbiotic relationship." "Ryan's effectively determines the ... pools of arbitrators."

There was no evidence cited by the court that indicated that Ryan's had every exerted any actual influence in the selection of arbitrators, or that any of the individual arbitrators in EDSI's pool was actually biased, or that any arbitration conducted under the EDSI system had ever been overturned on the ground of arbitrator bias.

In short, the court didn't like the system, and didn't want to wait and see whether a neutral panel of arbitrators would be selected.

My view: I would expect to see conclusions like these supported by some evidence of actual bias rather than the fear of it.

Oh, well. The court also found the agreements unenforceable as a matter of Tennesee contract law.



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