In the recent case Hatkoff v. Portland Adventist Medical Center, the Oregon Court of Appeals affirmed enforcement of a company arbitration provision in an employee handbook requiring that a former employee bring his employment discrimination claims in binding arbitration. The Court’s opinion offers a straight-forward application of the law regarding the enforceability of arbitration agreements, and the outcome is probably not surprising. Nevertheless, it contains a helpful and well-reasoned survey of the current state of Oregon law in this area, and provides another helpful case for Oregon employers interested in resolving employment disputes using arbitration or similar alternative dispute resolution (“ADR”) procedures.
Arbitration Agreements Are Upheld Where They Are Not “Unconscionable”
Arbitration is a form of private ADR in which the parties agree to waive the right to go to court and instead adjudicate disputes privately before an arbitrator. In the employment context, arbitration can be a cost-effective and quicker alternative to litigation. While the details of arbitration agreements can vary greatly, they may frequently be confidential (lawsuits are public proceedings), provide more limited procedures (especially with respect to discovery), require trial before a neutral arbitrator (not a jury), and provide a limited right to appeal. In general, Oregon courts, like most courts, uphold such employment arbitration agreements as long as they are not “unconscionable,” either procedurally (with respect to how the agreement was formed) or substantively (with respect to its terms).
The Oregon Court of Appeals applied this analysis to find Portland Adventist’s “Grievance and Arbitration Procedure” in an employee handbook was not unconscionable. It found the agreement was not substantively unconscionable, because while it did waive the right to a jury trial (like all arbitration agreements), it did not unreasonably limit the employee's rights or remedies that would be available in court. Interestingly, the Court specifically held that the fact the agreement required that employees file a complaint within 90 days of the complained-of employment action was not substantively unconscionable, even though the applicable statute of limitations was one year. The Court also went on to find the agreement was not procedurally unconscionable: the employee, a sales and marketing professional, signed multiple acknowledgments that he received the employee handbook containing the arbitration agreement and was aware of what he had signed.
Law On Arbitration Continues To Develop
Despite the fact that many cases come out similarly to Hatkoff and the law on arbitration agreements is generally favorable for employers, the enforceability of such agreements is routinely litigated in employment cases. For that reason, and also because the unconscionability analysis is very fact-specific and the outcome can be very different in each case, arbitration continues to be a “hot” and fluid area of employment law both in Oregon and around the country.
Sometimes that fluidity leads to conflicts in the law, such as between courts and legislatures. For example, since 2008 Oregon has had a statute, ORS 36.620(5), that prohibits employee arbitration agreements under certain circumstances where the agreement does not contain “magic words” provided in the statute, and where the employee does not have at least 72 hours advance written notice before starting work (the legislature lowered the advance notice requirement to 72 hours in 2011; it originally required 14 days). However, that Oregon statute itself may be unenforceable, because it may be preempted by a federal statute, the Federal Arbitration Act (“FAA”), that strongly endorses the use of arbitration and contains no such limitation. Several federal district courts in Oregon have found that ORS 36.620(5) is preempted by the FAA, and have enforced arbitration agreements that did not provide the advance notice required by that statute, although no Oregon state appellate court has yet considered the issue (the agreement in Hatkoff preceded the Oregon statute, so it was not a factor in the analysis in that case).
Other potential conflicts exist not between state and federal law, but between different parts of federal law. As we have blogged about previously , just such a conflict has been brewing between the U.S. Supreme Court and the National Labor Relations Board (“NLRB”) over whether arbitration agreements can include waivers of class action claims—the Supreme Court says they can; the NLRB says they violate federal labor laws allowing employees to engage in “concerted activity” relating to working conditions. We are waiting to see how the federal appellate courts resolve that conflict.
Ultimately, Hatkoff will likely stand, not as a departure from existing law, but instead as the latest in a series of federal and state cases over the past few years that are broadly supportive of employer efforts to utilize arbitration and ADR to resolve employment disputes. But, as we've said, this continues to be an evolving area of employment law, so employers will need to stay tuned to new developments.
In the meantime, here are a few things employers should keep in mind when crafting arbitration agreements to maximize the chance they will be enforceable:
- Make sure your arbitration agreement, whether a stand-alone agreement or part of a handbook, is clear, understandable, and well publicized. Include the "magic words" in ORS 36.620 to make it expressly clear to employees that arbitration involves waiving some legal rights, especially the right to a jury trial. Employees should sign acknowledgments that they have received and understand the agreement.
- If you have employees who don't speak English as a first language, have a translated version of the agreement to ensure it is understood.
- Give new employees the 72 hour advance written notice required by ORS 36.620 wherever possible. While some courts have found that statute is preempted and unenforceable, there's no guarantee every court will.
- Under ORS 36.620, current employees can only sign arbitration agreements at the time of "bona fide" promotion or advancement. Again, courts may find this requirement is also preempted and unenforceable, but if you can comply with it, all the better.
- Arbitrators are paid by the parties, unlike judges. While in theory the parties can split the cost, the agreement should not impose costs on employees unreasonably in excess of what they would pay to file a lawsuit in court. Many employers agree to pay a large portion, or even all, of the arbitration fees.
- Specify the rules and procedures that will apply. The American Arbitration Association's ("AAA") specific rules for employment arbitration are one option; other state or local arbitration forums are other (and sometimes cheaper) options.
Above all, work with your employment counsel in the crafting and implementation of the agreement. Many enforceability pitfalls can be easily avoided with careful planning, but the devil can be in the details. That is especially true for any state-specific rules or "gotchas," as arbitration agreements may be perfectly enforceable in some states but not in others.
In DR Horton, a decision issued on January 3 and applicable to most private sector employers, whether unionized or not, the National Labor Relations Board (NLRB) held that federal labor law prevents employers from requiring their employees, as a condition of employment, to agree to broad waivers that would deny their right to pursue employment-related class actions both in court and in arbitration, leaving them no forum for pursuing class or collective claims. As a result, an important tool for managing the risk of employment-related litigation has been taken away (for now).
The facts of the case are straightforward. DR Horton, like many employers, required its employees to sign an arbitration agreement as a condition of employment. The agreement required employees to arbitrate all claims arising out of their employment, and precluded arbitrators from issuing class or group relief. As a result, employees were prevented from bringing class or collective actions in any forum. Relying on this agreement, DR Horton refused to arbitrate a class action alleging that it had misclassified certain employees as exempt from the protections of the Fair Labor Standards Act (FLSA).
Not so fast, according to the NLRB. Tracing federal labor law back to its origins, the NLRB found that the filing of a class action “to redress workplace wrongs or improve working conditions” is activity at “the core” of what Congress intended to protect when it enacted the National Labor Relations Act in 1935. This intent, the NLRB reasoned, is reflected in Section 7 of the Act, which gives employees the right to engage in “concerted activities” for the purposes of “mutual aid or protection.” Relying on Section 7, the NLRB found that Employers cannot compel their employees, as a condition of employment, to entirely waive the right to bring class or collective actions.
The NLRB’s ruling in DR Horton clashes with the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion, which held that arbitration clauses that waive the right to bring class claims entirely (in the commercial contract context) may be lawful and enforceable. But unless and until the courts intervene to resolve this tension, requiring your employees to completely waive the right to bring employment-related class or collective actions - a common feature of arbitration agreements - is probably no longer permissible under federal labor law.
If You're Interested In Learning More, Sign Up For Our Webinar
Stoel Rives is hosting a webinar on January 11, 2012, to address employee arbitration agreements generally and the DR Horton decision in particular. Click here if you're interested in learning more or attending.
The first Monday in October traditionally marks the beginning of the United States Supreme Court's yearly term - and it provides an excellent opportunity to look at the cases the Court will be hearing this year. In an earlier post, the World of Work brought you detailed discussion of the Court's only Title VII case this term: Lewis v. City of Chicago. Here's a sampling of other labor and employment-related cases to watch for throughout the term:
This morning, in Mohawk Industries, Inc. v. Carpenter, the Court will consider whether an employer's attorney's investigation of an internal complaint is protected by the attorney-client privilege. The internal complaint alleged that the company was conspiring to hire individuals who were not authorized to work in the United States. The case involves a former employee's claim for witness tampering; a separate lawsuit involving the alleged conspiracy is proceeding on a separate track.
On October 7, the Court will hear a case involving the Railway Labor Act. The issue in Union Pacific Railroad Co. v. Brotherhood of Locomotive Engineers is whether the Seventh Circuit Court of Appeals had the power to overturn, on due process grounds, an arbitration award in the railroad's favor.
On October 14, in Perdue v. Kenny A., the Court will consider whether attorney fee awards under 42 USC 1988 can be enhanced when the lawyer does a particularly good job. Section 1988 is a common basis for fees in employment-related lawsuits.
On December 9, the Court will hear Stolt-Nielsen SA v. AnimalFeeds International. This case asks the Court to decide whether an employee bringing a claim under an arbitration agreement may sue, not only on his own behalf, but on behalf of a class of similarly situated employees. In this case, the arbitration agreement did not specifically allow class claims, but the arbitrators allowed those claims anyway.
Finally, on a date to be announced, the Court will hear Granite Rock Co. v. International Brotherhood of Teamsters. This case again involves questions about arbitration. Here, the issue is whether an arbitrator (not a court) may decide whether a valid collective bargaining agreement exists.
We expected many changes in federal labor and employment law in 2009 - for the first time in years, Democrats control the White House and both houses of Congress and have the political ability to make significant reforms. However, not much has happened in 2009: we have only significant labor and employment bill signed into law. To be fair, President Obama and the Congress have had other things to worry about: a war or two, a lousy economy, health care and selecting a new White House dog to name a few.
But, the 2009-2010 legislative session is still not over, and Congress may yet pass some of the many labor and employment-related bills still pending. Employers may want to take note, as some of these may become law before the end of the session in 2010. Click on "continue reading" for a complete list.
Click on the bill number to read the full text of each bill.
- S. 181: The Lilly Ledbetter Fair Pay Act. President Obama’s first (and so far only) signed employment legislation, this became law on January 29, 2009. It amends Title VII to state that the 180-day statute of limitations for filing an equal-pay lawsuit regarding pay discrimination resets with each new discriminatory paycheck.
Still Pending (as of September 23, 2009):
- H.R. 1409, S. 590: The Employee Free Choice Act. As initially proposed, would allow unions to form via card check, impose mandatory mediation/ arbitration of a first contract and increase penalties for unfair labor practices. Compromises in the works include quicker election periods, equal access to employees by unions, and vote-by-mail.
- H.R. 2819, S. 1244: The Breastfeeding Promotion Act. Would guarantee working mothers the right to breast-feed their children at their workplaces.
- H.R. 12, S. 182: The Paycheck Fairness Act. Would require employers to prove that any disparities in pay between male and female employees are job-related, and would prohibit retaliation against employees who inquire about, discuss, or disclose their own wage or that of another employee.
- H.R. 2151, S. 904: The Fair Pay Act. Would amend the FLSA to prohibit employers from paying employees “in a job that is dominated by employees of a particular sex, race or national origin” a lower rate than employees who work in jobs with equivalent “skills, effort, responsibility and working conditions.”
- H.R. 2808, S. 1227: The Truth in Employment Act. Would allow employers to fire union "salts."
- H.R. 2732, S. 1184: The Rewarding Achievement and Incentivizing Successful Employees (RAISE) Act. Collective-bargaining agreements would establish a "floor" for wages, a minimum standard that employees could then exceed for "those workers who go the extra mile."
- H.R. 1668: The Border Control and Accountability Act. Would suspend or debar contractors found to employ unauthorized aliens, and prohibit the Department of Homeland Security from contracting with companies that do not use E-Verify.
- H.R. 1020, S. 931: The Arbitration Fairness Act of 2009. Would amend the Federal Arbitration Act to prohibit mandatory, pre-dispute arbitration agreements in employment.
- H.R. 2570: The Working Adequate Gains for Employment In Services (WAGES) Act. Would amend the FLSA to gradually increase minimum wage for tipped employees up to $5.50/hour or 70% of minimum wage, not counting tip credits.
- H.R. 2564: The Paid Vacation Act of 2009. Would amend the FLSA to require employers with 100 or more employees to provide two weeks of paid vacation/year; employers with 50 or more to provide one week/year.
- H.R. 3017: The Employment Nondiscrimination Act. Would prohibit discrimination against employees on the basis of sexual orientation or gender identity.
- H.R. 3041: The Living American Wage (LAW) Act. Would index the minimum wage to 15 percent above the poverty line for a full-time worker, or about $8.20 per hour in wages, and would increase the minimum wage every four years to maintain a wage at least 15 percent above the poverty line.
- H.R. 3249, S. 1478: The Strengthen and Unite Communities with Civics Education and English Skills (SUCCESS) Act. Would provide subsides of $1000 per employee for businesses that provide English language courses to their employees, tax breaks for teachers who teach English to immigrants, and double funding for English language programs.
Executive Orders: President Obama has also issued four labor-related executive orders. Click on the title of each to read the order:
- Economy in Government Contracting. Denies federal contractors reimbursement for funds spent on activities designed to persuade employees to join or to not join a union.
- Notification of Employee Rights Under Federal Labor Laws. Requires federal contractors to post a notice informing employees that they have a right either to join or to not join a union.
- Nondisplacement of Qualified Workers Under Service Contracts. Requires federal contractors who assumes the contract from a previous contractor to retain that previous contractor's qualified employees.
- Allowance of PLAs. Allows the federal government to require project labor agreements on large-scale federal construction projects.
We have a favorite new website here at the Stoel Rives World of Employment: Card Checked: The Game (sorry, failblog.org). Card Checked is an online game where you can play a "young and talented tattoo artist living in America where the Employee Free Choice Act (EFCA) has become the law of the land." As a player, you can dodge union organizers, withstand intimidation from pro-union coworkers, and experience the anguish and horror when union thugs threaten your pet cat, Min Min. (Notably, the game includes links to documentation showing that all of these examples of union organizing tactics are real, even down to threatening pets.)
Card Checked is hosted by the Americans for Tax Reform, a conservative group, and its affiliate, the Alliance for Worker Freedom. While we're not endorsing the politics of these groups, their Card Checked site is creative and informative, and presents accurate information on how union organizing will likely be conducted if EFCA's card check and mandatory aribitration provisions become law. For more on EFCA, click here for the Stoel Rives World of Employment's EFCA coverage.
The U.S. Supreme Court opened its 2008-2009 term on October 6 with six labor and employment law cases on its docket. (For docket information and questions presented, click on the name of the case).
- Locke v. Karass: may a public employee union may charge nonmembers for representational costs for litigation expenses incurred by the international union on behalf of other bargaining units?
- Kennedy v. Plan Administrator for DuPont Savings & Investment Plan: is a qualified domestic relations order (QDRO) is the only valid way under ERISA for a divorcing spouse to waive his or her right to the other spouse's pension benefits?
- Crawford v. Metro. Gov't of Nashville & Davidson County: Is an employee who cooperates with an employer-initiated investigation into alleged unlawful discrimination protected by Title VII's anti-retaliation provisions?
- Ysursa v. Pocatello Education Ass'n: does an Idaho law that prohibits local government employers from allowing employee payroll deductions for political activities violate the First Amendment free speech rights of unions and their members?
- 14 Penn Plaza LLC v. Pyett: do employees covered by a collective bargaining agreement which providies that statutory employment discrimination claims must be pursued through the contractual grievance and arbitration procedures have a right for a court to decide their discrimination claims?
- AT&T Corp. v. Hulteen: must an employer give full service credit for purposes of calculating retirement benefits for pregnancy leaves taken before the Pregnancy Discrimination Act of 1978 if the plan gave full credit for other types of temporary disability leaves?
Some of these cases (such as the Penn Plaza and Crawford cases) have the potential to make significant changes in existing law. Stay tuned to the Stoel Rives World of Employment for developments as they occur!
Late last month, the Oregon Court of Appeals held that an arbitration agreement between an employer and an employee need not contain an express waiver of the employee's right to a jury trial to be enforceable. The opinion can be read here: Hays Group, Inc. v. Biege.
In Hays Group, a trial court denied an employer's motion to compel arbitration of an employee's wage and age discrimination claims on the basis that the arbitration agreement did not contain an express waiver of the right to a jury trial, just a statement that claims would be “settled by final and binding arbitration.” The Court of Appeals reasoned that the employee did knowingly waive his right to a jury trial, given that “[c]laims cannot be settled by ‘final’ and ‘binding’ arbitration except by a waiver of the right to a jury trial.”
This decision gives Oregon employers some added leeway in drafting arbitration agreements. The best practice remains to include an express waiver of the right to a jury trial - there is no harm in including one, and it helps cut off any employee's arguments that he or she did not understand the scope of the agreement.
Oregon employers should also be aware that, pursuant to a new statute effective January 1, 2008, all employee arbitration agreements must be presented in a "written employment offer" that must be "received" by the employee at least two weeks before the first day of the employee's employment. Arbitration agreements may be presented to current employees, but will not be enforced unless entered into at the time of a "bona fide advancement" (such as a promotion).
If you've followed the development of California law on the enforceability of arbitration agreements in the last few years, you know it's complex. And last week, it just got a little more so, although in a way that might be good for employers. In Pearson Dental v. Superior Court, the California Court of Appeal (Second District) enforced an arbitration agreement requiring the employee to bring any claims within one year, despite the "hybrid" two year statute of limitations in California's Fair Employment and Housing Act (FEHA).
The employee sued the employer for violation of FEHA alleging age discrimination and other claims. The employer successfully moved to compel arbitration, and the arbitrator granted the employer's motion for summary judgment on the grounds that arbitration was not requested within one year as required by the arbitration agreement. The trial court vacated the arbitration award, but the Court of Appeal reversed, holding that the one-year statute of limitations did not "unreasonably restrict plaintiff's ability to vindicate his rights under the FEHA." The court noted that the FEHA does not have a "true" two-year statute of limitations, but rather a "hybrid" period, in which the employee must file an administrative complaint within the first year. Thus, the arbitration agreement's one-year limitations period was comparable to the FEHA's one-year administrative complaint deadline.
Does this mean that California courts will be more likely to enforce arbitration agreements? Don't count on it. The court did not spend significant time analyzing the agreement for evidence of either substantive and procedural unconscionability - which are the bases on which many California courts have invalidated arbitration agreements. Nevertheless, the case does give employers some comfort in knowing that a shorter limitations period sometimes may be enforceable. If you want to read up on the complex history of employment arbitration agreements in California, here's what the Attorney General has to say on the topic.