U.S. Supreme Court to Review Enforceability of Class and Collective Action Waivers in Employment Arbitration Agreements

On January 13, 2017, the United States Supreme Court granted review in three cases presenting the issue of whether class and collective action waivers in mandatory arbitration agreements are enforceable or whether they violate the National Labor Relations Act.

By way of background, mandatory pre-employment arbitration provisions have been a hot issue for some time. Early enforceability challenges focused on unconscionability and, in particular, unfairness and surprise to the employee. Class and collective action waivers took center stage around 2012, when the National Labor Relations Board (NLRB) ordered D.R. Horton to remove such a waiver from its arbitration agreements, contending the provision chilled employee rights to engage in concerted activity under the National Labor Relations Act (NLRA). See February 2012 FEB.  On appeal, the Fifth Circuit Court of Appeal reversed that order, finding the class and collective action waiver and arbitration agreement enforceable. See December 2013 FEB.

Five years later, the NLRB has steadfastly maintained and enforced its position, leading to numerous appeals and a split among the federal appeal courts regarding the enforceability of class and collective action waivers. The Second, Fifth, and Eighth Circuit Courts of Appeal have upheld such waivers under the Federal Arbitration Act. The Fifth Circuit recently reaffirmed its position, reversing a NLRB decision that required an employer to remove class action waivers from its arbitration agreements. See Citigroup Technology, Inc. v. NLRB. In its briefing, even the NLRB conceded that, under earlier Fifth Circuit precedent, the at-issue provision was enforceable.  In contrast, earlier this year the Ninth Circuit joined the Seventh Circuit in finding such waivers to violate the NLRA. See August 31, 2016 Employment Alert.  

Given the appellate court divide, the issue was ripe for the Court’s guidance and its decision to intervene is not surprising. What remains to be seen is how the new administration may impact the ultimate outcome here. Will Trump’s eventual Supreme Court nominee be confirmed in time to participate in the review and, if so, possibly be the deciding vote for an otherwise split Court? Will the reconstituted NLRB, with anticipated Trump appointees filling open vacancies, reverse course and cede its position on the issue? Stay tuned.

Appellate Briefing Expedited on DOL Overtime Rule Injunction, District Court Lawsuit to Proceed

As reported in our November 28, 2016 Employment Alert, a Texas federal district court preliminarily enjoined enforcement of certain aspects of the Department of Labor’s Final Overtime Rule that would have increased the federal minimum salary for exempt executives, administrators and professionals. The Department of Labor (DOL) appealed the district court’s ruling to the Fifth Circuit Court of Appeals and secured an expedited briefing schedule that will complete by the end of January. Further, the district court declined the DOL’s request to stay the lawsuit pending resolution of its appeal, finding the DOL did not show a “substantial case on the merits” that the injunction was improper.

With all this activity, little progress toward final resolution has been made, and it is unclear whether this matter will ultimately be resolved in court. The federal district court could issue a final ruling on the merits at any time, which could result in a fresh appeal. The Trump administration, set to take office in late January, could order the DOL to stand down on the matter. Or, Congress could obviate everything by legislative action. We will continue to monitor this matter and report on significant developments.

California Supreme Court Rejects On-Duty and On-Call Rest Breaks, Reinstates $90M Award

California “law prohibits on-duty and on-call rest periods.” During mandated rest periods, “employers must relieve their [non-exempt] employees of all duties and relinquish any control over how employees spend their break time,” according to the California Supreme Court’s recent decision in Augustus v. ABM Security Services, Inc.

Augustus and other security guards sued ABM, alleging, among other claims, that the employer failed to provide required rest periods. While ABM permitted guards to take 10-minute rest periods, it required guards to be on call, keeping pagers and radios on and being vigilant and responsive to calls as needs arose. The guards sought and obtained summary adjudication that ABM’s policy and practice violated California’s rest period requirement, and the trial court awarded the guards about $90 million in statutory damages, interest, and penalties.

After the appellate court reversed, the California Supreme Court reinstated the trial court’s order and award. Citing the California Labor Code, the wage orders (which address minimum wages, maximum hours, and working conditions), and the plain meaning of the word “rest,” the supreme court concluded that employers must provide non-exempt employees off-duty rest periods, free from all work-related duties and employer control, including being on call. According to the court, “[i]n the context of a 10-minute break that employers must provide during the work period, a broad and intrusive degree of control exists when an employer requires employees to remain on call and respond during breaks.” The court observed that, if the circumstances of a particular job prevent such rest breaks, employers may apply for an exemption from the state—something ABM had done in two prior years. Alternatively, for occasional interruptions, employers could reasonably reschedule the rest break or pay affected employees a rest period premium.

Employer Rounding and Grace Period Compensation Practices Upheld, Claims Dismissed where Practices Implemented Neutrally

In Silva v. See’s Candy Shops, Inc., former employee Pamela Silva brought individual, class and Private Attorneys General Act (PAGA) claims challenging, among other things, See’s policies regarding calculation of hours worked. Specifically, See’s maintained (a) a rounding policy, by which timeclock punches were rounded to the nearest tenth of an hour, and (b) a grace-period policy, which permitted employees to clock in ten minutes prior to, or out ten minutes after, their scheduled shift, but used scheduled start and stop times to calculate hours worked. Silva claimed application of these policies deprived employees of owed compensation. Silva unsuccessfully sought a ruling that the rounding policy was unlawful (November 2012 FEB). Thereafter, See’s secured dismissal of Silva’s claims.

On appeal, the court upheld dismissal of all claims pertaining to the rounding and grace-period policies, as See’s presented uncontroverted evidence that they were neutral on their face and, in application, did not deprive employees of compensation. See’s provided declarations from a labor economist and statistician, who conducted extensive review and analysis of See’s time records and concluded that the rounding rule was “both mathematically and empirically unbiased.” He further testified that “the rounding policy did not negatively impact employee overtime compensation: it was ‘virtually a wash—neither the employees nor See’s benefited from this rounding practice.’” See’s also provided evidence that the grace period only applied to those shifts that were pre-programmed into its timekeeping system, its policies prohibited employees from working during the grace periods and required employees to report and be paid for any time worked, and its employees complied with the policies, using the grace period for personal pursuits, including running errands, using the restroom and playing mobile games. Silva, in contrast, argued that employees were under See’s control during the grace period but offered insufficient evidence for the proposition.

For procedural reasons, the court reinstated Silva’s individual claims, which had not been subject to See’s motions.

Arbitration Provision Buried in Handbook that Disclaimed Contract Status Not Enforceable

The California Court of Appeals for the Second Appellate District held in Esparza v. Sand & Sea, Inc. that an arbitration agreement, contained in a handbook that disclaimed it was a contract, was not enforceable.  Even though the handbook acknowledgment form signed by the employee referenced the arbitration provision, it did not state the employee agreed to such arbitration. To be clear, the court did not create a blanket rule that arbitration provisions in handbooks are unenforceable; rather, this case underscores the importance that the arbitration provision and the employee’s agreement to it be clear and unmistakable. Many companies achieve this by using stand-alone arbitration agreements or including the arbitration provision in an offer letter. Employers relying on a handbook arbitration provision should consult counsel to avoid missteps that could undermine the provision’s enforceability.

No Aspect of PAGA Claim, Including Whether Employee is Aggrieved, Subject to Arbitration

A California appellate court recently rejected an employer’s efforts to compel its former employee, as a precondition of pursuing a PAGA claim in court, to arbitrate the issue of whether she was an aggrieved employee under state law. In Hernandez v. Ross Stores, Inc., former warehouse employee Martina Hernandez filed a single PAGA claim against Ross in state court, alleging Ross failed to properly pay all wages owed, itemize hours worked and paid, and pay overtime. As a condition of employment, she had agreed to arbitrate any disputes relating to her employment on an individual basis. Ross moved to compel arbitration, asserting that, as a precondition to pursuing a PAGA action, she had to prove she had suffered an injury under the California Labor Code, which comprised a “dispute” between Hernandez and Ross that was subject to arbitration. Both the district and appellate court rejected Ross’s argument. The appellate court explained that Hernandez’s action was not a dispute between employer and employee, but a representative active where Hernandez was acting on the state’s behalf, and thus not subject to arbitration in any respect.

NLRB Continues Scrutiny of Allegedly Overbroad Social Media Policies

The NLRB’s evaluation of workplace policies in its Chipotle Services LLC d/b/a Chipotle Mexican Grill decision demonstrates the continued scrutiny imposed on social media policies and provides helpful insight to employers in drafting or revising such policies.

James Kennedy was an hourly employee at a Chipotle restaurant in Pennsylvania in 2014 and 2015. In early 2015, Kennedy posted several messages on his personal Twitter account about working conditions at Chipotle.  Management at Chipotle saw the tweets and asked Kennedy to delete them, and reviewed the company’s social media policy with him. The policy informed employees that their social media activities were outside the scope of their employment, and employees “may not make disparaging, false, misleading, harassing or discriminatory statements about or relating to Chipotle, our employees, suppliers, customers, competition, or investors.” It also said, “If you aren’t careful and don’t use your head, your online activity can also damage Chipotle or spread incomplete, confidential, or inaccurate information.”  Chipotle’s employee handbook contained other provisions prohibiting the use of Chipotle’s name or trademark (i.e., its corporate logo) in social media.

The NLRB held that Chipotle’s policies had a chilling effect on the employees’ exercise of their rights under Section 7 of the NLRA and ordered it to revise and redistribute its policies. According to the NLRB:

  • an employer may not prohibit postings that are merely false or misleading—they must be shown to be malicious to be prohibited.
  • Chipotle’s reference to “confidential” information was vague and misleading, “which could easily lead employees to construe it as restricting their Section 7 rights.”
  • an employer also may not prohibit “disparaging” remarks, although it can prohibit harassing or discriminatory statements.
  • inclusion of a statement that the policy would not restrict any activity protected by the NLRA would not cure the policy’s defects.
  • prohibiting the use of Chipotle’s name or logo also violated the NLRA.

Employers should be mindful of the NLRB’s arguably strained positions on workplace policies. Because the NLRB’s decisions do not have the force of law until reviewed and accepted by a court, employers should also consult counsel to assess risk and set strategy when implementing or revising workplace policies.​​​​​