The U.S. Supreme Court ruled today in Epic Systems Corp. v. Lewis, that employment arbitration agreements that bar class actions are enforceable.  The vote was 5 to 4 in upholding the use of arbitration agreements in the workplace.

The plaintiff in the case argued that employees could not waive their rights in an agreement to be a part of a class action to pursue employment claims because this waiver violated the National Labor Relations Act (“NLRA”) because these types of claims are “concerted activities” protected by § 7 of the NLRA.  This section guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . ., and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

The Court disagreed with plaintiff’s reading of § 7, and held: “The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum. This Court has never read a right to class actions into the NLRA – and for three quarters of a century neither did the National Labor Relations Board.”

In 2011, the Supreme Court issued a decision in AT&T Mobility v. Concepcion, upholding the enforceability of class action waivers in the consumer context, such as with cell phone providers, cable providers or services provided by internet companies.  The plaintiff in Epic Systems argued that the employment context was different because of the rights guaranteed to employees under the NLRA.  While many employers were using arbitration agreements with class action waivers, the ruling in Epic Systems confirms the enforceability of these agreements between employees and employers.

This decision resolves a split in authority between the Ninth Circuit Court of Appeals (Ernst & Young v. Morris), the Fifth Circuit Court of Appeals (National Labor Relations Board v. Murphy Oil USA, Inc.), and the Seventh Circuit Court of Appeals (Epic Systems Corp. v. Lewis).

See my prior post for additional background on the case and impact on California employers.

Recently, the NStanley Moskinth Circuit Court of Appeals issued an opinion in Morris v. Ernst & Young holding that class action waiver in an arbitration agreement were unenforceable because the class action waiver was contrary to the rights provided to employees under the National Labor Relations Act.  The ruling is contrary to the holdings in the Second, Fifth, and Eight Circuits that concluded that the NLRA does not invalidate collective action waivers in arbitration agreements, creating a split in the circuits.  Given this split in the circuits, the case may potentially be reviewed by the United States Supreme Court.  For now, however, what should California employers take away from the case?  This Friday’s Five answers five issues California employers should understand about this changing area of the law:

1. What is an arbitration agreement?

Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements.

2.  Why would an employer want to implement an arbitration agreement?

There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process.  For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.

While there are many benefits of arbitration agreements, they do not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. However, if the company values the confidentiality and speed of process provided in arbitration, this extra cost may well be worth it.

3.  Are class action waivers enforceable in arbitration agreements?

That is the key issue raised in the Morris v. Ernst & Young case.  Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.

However, the Ninth Circuit’s ruling in the Morris case creates some uncertainty about whether arbitration agreements that contain class action waivers can be enforced.  The arbitration agreements in the Morris case were mandatory, and they contained a “concerted action waiver” clause preventing employees from bringing a class action.  Plaintiffs claimed that the “separate proceedings” clause contravenes the National Labor Relations Act (“NLRA”), 29 U.S.C. §§ 151 et. seq.  The Ninth Circuit held:

This case turns on a well-established principle: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly, the concerted action waiver violates the NLRA and cannot be enforced.

As mentioned above, this holding is contrary to the holdings in the Second, Fifth, and Eight Circuits that have concluded that the NLRA does not invalidate collective action waivers in arbitration agreements.  For California employers, the Morris holding creates a strange current state of the law where arbitration agreements with class action waivers may be enforceable in state courts under the Iskanian ruling, but may not enforceable in federal court under the Morris v. Ernst & Young ruling.

4.  Should every employer implement arbitration agreements with its employees?

No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements.

5.  Are arbitration agreements enforceable in California?

Generally speaking, if the agreement is drafted and implemented properly, it is enforceable.  The holding in Morris v. Ernst & Young does not change the enforceability of arbitration agreements, but rather focuses on the issue of whether a class action waiver contained in an arbitration agreement is enforceable.  In addition, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies.  In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.  This flaws in the arbitration agreement were fatal to the enforceability of the agreement.  Therefore, as a good lawyer always says, it is critical that employers considering implementing arbitration agreements review the pros and cons of the decision, and receive assistance in drafting the arbitration agreement.

Jillian Sanzone worked for Three D, LLD, d/b/a Triple Play Sports Bar and Grille, as a waitress and bartender and Vincent Spinella worked as a cook.  The employees realized that they owed more money in State income taxes than expected and complained to the employer.  Sanzone, Spinella, and another former employee, Jamie LaFrance, began posting about the situation on Facebook.  LaFrance’s initial status update stated, “Maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money…Wtf!!!!”  Sanzone added to the comment in stating “I owe too. Such an asshole.”  Spinella then “liked” LaFrances initial status update.  The employer terminated Sanzone and Spinella based on the posts, and that Spinella “liked” the post.  The NLRB held that the employee’s engaged in protected concerted activity and the employer violated their rights under the Act in terminating them.  On October 21, 2015, the United States Court of Appeals for the Second Circuit upheld the NLRB’s ruling in Three D, LLC v. National Labor Relations Board.  Here are five lessons employers should learn from this case:

1.     The NLRB can enforce compliance issues even for non-union employers

Section 7 of the 1935 National Labor Relations Act (the “Act”) guarantees that “[e]mployees shall have the right to self‐organization, to form, join, or assist labor organizations . . . and to engage in other concerted activities for the purpose of . . . mutual aid or protection . . . .” 29 U.S.C. § 157. Section 8(a)(1) of the Act protects employees’ Section 7 rights by prohibiting an employer from “interfer[ing] with, restrain[ing], or coerc[ing] employees in the exercise of the rights guaranteed in [Section 7] . . . .” 29 U.S.C. § 158(a)(1).  This applies to unionized and non-unionized employers alike.  For example, the employer in the instant case was not unionized.

2.     Employees may engage in “protected concerted activity”

The NLRB defines “protected concerted activity” as follows:

The law we enforce gives employees the right to act together to try to improve their pay and working conditions, with or without a union. If employees are fired, suspended, or otherwise penalized for taking part in protected group activity, the National Labor Relations Board will fight to restore what was unlawfully taken away.

Because the Facebook comments were found to be protected concerted activity, the employer’s decision to terminate the employees based on these comments and Facebook “like” of the comments was held to be in violation of the Act.

3.     Employee’s Facebook like of the comments can be a protected activity

Neither party in this case contended that the act of “Liking” a Facebook post could not be a protected activity.  Indeed, the NLRB, and the Second Circuit Court hearing the appeal recognized that in today’s workplace, social media comments and discussions are typically where protected concerted activity occurs.  The NLRB held that the comments in this case posted on Facebook were protected comments because it involved current employees and was “part of an ongoing sequence of discussions that began in the workplace about [the employer’s] calculation of employees’ tax withholding.”

4.     Not all activity is protected

While employees have the right to comment and discuss work related complaints on social media, this right is not unlimited.  An employee’s communications with the public may lose the protection of the act if they are sufficiently disloyal or defamatory.

The NLRB held that the posts in this case did not lose this protection because the comments “did not even mention [the employer’s] products or services, much less disparage them” and that the employee’s claims of insufficient tax withholdings were “maliciously untrue.”  And Sanzone’s characterization of her employer as an “asshole” in connection with the asserted tax-withholding errors “cannot reasonably be read as a statement of fact; rather, Sanzone was merely (profanely) voicing a negative personal opinion of [her employer].”

5.     Employers need to take care in drafting their internet/blogging policies to ensure it does not run afoul of the NLRB or state law. 

The NLRB also found that the company’s social media policy violated the law.  The company’s policy stated the following:

The Company supports the free exchange of information and supports camaraderie among its employees. However, when internet blogging, chat room discussions, e-mail, text messages, or other forms of communication extend to employees revealing confidential and proprietary information about the Company, or engaging in inappropriate discussions about the company, management, and/or co-workers, the employee may be violating the law and is subject to disciplinary action, up to and including termination of employment. Please keep in mind that if you communicate regarding any aspect of the Company, you must include a disclaimer that the views you share are yours, and not necessarily the views of the Company. In the event state or federal law precludes this policy, then it is of no force or effect.

The NLRB found that this policy violated employee’s rights under Section 7 of the Act because, “…we believe that employees would reasonably interpret the Respondent’s rule as proscribing any discussions about their terms and conditions of employment deemed ‘inappropriate’….”  This finding was despite the policy’s savings clause.  The ruling leaves many questions of what type of policy would be upheld by the NLRB, and is a point of caution for employers.

Photo: Sam Michel

This Friday’s Five covers five employment law developments that occurred in August 2015 that will have an impact for employers in California.

1)     NLRB ruling widens which companies may be considered “joint employers”

In a 3-2 decision, the NLRB ruled that Browning-Ferris Industries of California, Inc. was a joint employer with a staffing agency, Leadpoint Business Services, and therefore the employees of Leadpoint have bargaining rights with Browning-Ferris Industries.

The NLRB’s opinion stated that given the increase in employment placement agencies and temporary help services projected to be employing as many as 4 million employees by 2022, it “is reason enough to revisit the Board’s current joint-employer standard.”

The NLRB set forth this new standard:

 Under this standard, the Board may find that two or more statutory employers are joint employers of the same statutory employees if they “share or codetermine those matters governing the essential terms and conditions of employment.”  In determining whether a putative joint employer meets this standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful collective bargaining.

The NLRB also explained that the mere ability to control employees, even if never actually used in the workplace, would still be sufficient to establish a joint employment relationship:

 We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry.

This ruling will likely be appealed to the courts for review.  However, the ruling could have an impact upon employers who don’t have union workers, as the NLRB decisions are often times relied upon by courts as persuasive authority.

2)     Minimum wage increase stalls in state legislature

As written about previously, a bill, SB 3 proposed increasing California’s minimum wage to $11 per hour on January 1, 2016 and then again to $13 per hour by July 1, 2017.  Then beginning on January 1, 2019, the minimum wage would have been indexed to inflation and would be adjusted upward every year afterwards.  The bill was held in committee by the Assembly Committee on Appropriations this week, and will not likely make it out of the Committee this year.

3)     California Supreme Court addresses arbitration agreements and what makes such agreements “unconscionable” and therefore unenforceable

In a consumer case, the California Supreme Court ruled in Sanchez v. Valencia Holding Company that an arbitration agreement that contained a class action waiver was not unconscionable, and therefore enforceable.  The Court explained that the “unconscionability doctrine ensure that contracts, particularly contracts of adhesion, do not impose terms that have been described as …’so one-sided as to ‘shock the conscience’”.  The Court noted that because unconscionability is a contract defense, the party asserting the defense bears the burden of proof.  The Court ultimately held that plaintiff could not meet this burden in establishing that the arbitration agreement was unconscionable, and therefore could not proceed as a class action.  Even though this case was in the consumer context, the ruling will apply to the enforcement of arbitration agreements with class action waivers in the employment context as well.

4)     Bill precluding mandatory arbitration agreements passes legislature and sent to the Governor for his consideration

Speaking of arbitration agreements, AB 465 is a bill that prohibits employers from utilizing mandatory arbitration agreements was passed by the legislature this week.  Now it is up to Governor as to whether the  bill becomes law.  The bill prohibits “any person from requiring another person, as a condition of employment, to agree to the waiver of any legal right, penalty, forum, or procedure for any employment law violations.”  The bill also shifts the burden of proof onto the employer enforcing the waiver to show that the waiver was “knowing and voluntary.”  Violation of these provisions carry a penalty of $10,000 per violation plus attorney’s fees to the prevailing employee.

5)     Studios fail to have antitrust class action dismissed, which alleges the studios engaged in a conspiracy to fix employee compensation and restrict mobility

Case sounds familiar, right?  As the court noticed in its opinion the case is very similar to the High-Tech Employee Antitrust class actions alleging Adobe, Apple, Google, Intel, Intuit, Pixar, Lucasfils and eBay, alleging the companies had “no cold call” agreements to limit the requiring of high tech workers.  This made Steve Jobs’ email response back to Eric Schmidt infamous, which only consisted of a smiley face when he was told that the recruiter who violated the no call rule was terminated.

In this case, the plaintiffs allege that Blue Sky Studios, DremWorks Animation SKG, ImageMovers Digital, Lucasfilm, Pixar, Sony, and Disney all had a scheme not to actively solicit each other employees and that the studios engaged in “collusive discussions in which they exchanged competitively sensitive compensation information and agreed upon compensation ranges,” that would keep the salaries artificially low in the industry.  The court denied defendants’ motion to dismiss, permitting plaintiffs to litigate the case.

I will be conducting a webinar on January 15, 2013 on legal issues of social media in the workplace. The presentation will cover everything a California employer needs to know about social media in the modern workplace of 2013:

  • Discussion on the new law (Labor Code section 960) that prohibits employers from asking applicants and employees for their social media passwords taking effect on January 1, 2013.
  • How to avoid invading employees’ privacy rights when using social media for background checks.
  • Developments on how the NLRB held that some social media policies restrict an employee’s right to “engage in concerted activities.”
  • How to use the Internet to properly conduct a background check for applicant.
  • Discussion on whether your company needs a social media policy.
  • Evaluating whether an employer may be held liable for failing to use social media and the Internet to conduct a background check.
  • Alternatives to social media policies.

The cost is $150 (this is waived for clients). You may register below, or send me an email if you are a client.

This webinar has been preapproved by HRCI for 1 recertification credit hour. 

"The use of this seal is not an endorsement by the HR Certification Institute of the quality of the program. It means that this program has met the HR Certification Institute’s criteria to be pre-approved for recertification credit."

There is concern about a bill making its way through the Senate that would drastically change individuals’ privacy interest in their internet communications and “cloud” information. The bill, named the Electronic Communications Privacy Act Amendments Act of 2011, originally started out as offering more protection to individuals, but after law enforcement expressed its concerns about the bill, it was rewritten to allow more than 22 governmental agencies to search e-mail, Google Docs files, Facebook posts, and direct messages through Twitter. 

Other than lowering everyone’s privacy rights in this information, why would employers have any concern about the bill? The National Labor Relations Board (NLRB) is one of the governmental agencies expressly listed as having the power to search this electronic information without a search warrant. In addition the Occupational Safety and Health Administration (OSHA) would also have the warrantless subpoena power should the bill pass.  This would give the NLRB and OSHA unprecedented access into a private employer’s e-mails and any other information stored in the cloud. 

Under the bill, anyone who sends email or stores information in the cloud would be given less privacy than if the information was stored on a hard drive kept in the office or home. Many companies, such as Google and Apple, who are touting new cloud services are fighting hard to protect the information individuals store in the cloud because a decrease in privacy of cloud based information would likely reduce the consumer demand for the services.

Further diminishing companies’ and individuals’ privacy rights, there has been an argument which was upheld by a federal district court in Oregon in 2009, that the government does not have to give notice to the individual or company to search e-mails or other electronic information, even when the agency has a search warrant. The court held that the notice requirements under the Electronic Communications Privacy Act (ECPA) and the Fourth Amendment is satisfied when the only the internet service provider who is storing the information is served with a search warrant.

The vote on the proposed bill is scheduled for Thursday, November 29, 2012.

In October 2012 the National Labor Relations Board issued an advice memorandum regarding whether an employer’s social media policy violated the National Labor Relations Act (“NLRA”). This memorandum is of importance because the NLRB has issued findings recently that employer’s seemingly neutral social media policies violated employees’ rights under the NLRA. Section 7 of the NLRA provides that employees have the right to self-organize, form, join or assist labor organizations, and generally “engage in other concerted activities.” Section 8 of the NLRA makes it unlawful for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” This prohibits applies to all employers, even if the employees are not unionized.

In the memorandum the NLRB sets forth its two step analysis in determining whether a “work rule” “would reasonably tend to chill employees in the exercise of their Section 7 rights.” First, the NLRB examine whether the rule “is clearly unlawful if it explicitly restricts Section 7 protected activities.” Second, the rule is examined to determine if “(1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights.” While the Board said that a rule “that could conceivably be read to restrict Section 7 activity” would does not automatically violate the NLRA, but if the rule is ambiguous and contains no limiting language or context to clarify that it does not restrict their Section 7 rights would be in violation.

The case at issue in the memorandum involved Cox Communications. The company had a standard social media policy:

Nothing in Cox’s social media policy is designed to interfere with, restrain, or prevent employee communications regarding wages, hours, or other terms and conditions of employment. Cox Employees have the right to engage in or refrain from such activities. . . .

DO NOT make comments or otherwise communicate about customers, coworkers, supervisors, the Company, or Cox vendors or suppliers in a manner that is vulgar, obscene, threatening, intimidating, harassing, libelous, or discriminatory on the basis of age, race, religion, sex, sexual orientation, gender identity or expression, genetic information, disability, national origin, ethnicity, citizenship, marital status, or any other legally recognized protected basis under federal, state, or local laws, regulations, or ordinances. Those communications are disrespectful and unprofessional and will not be tolerated by the Company. . .

DO respect the laws regarding copyrights, trademarks, rights of publicity and other third-party rights. To minimize the risk of a copyright violation, you should provide references to the source(s) of information you use and accurately cite copyrighted works you identify in your online communications. Do not infringe on Cox logos, brand names, taglines, slogans, or other trademarks.

An employee was fired for violating this policy by posting an offensive and derogatory comment on his Google+ account via his cell phone. The company suspended the employee and conducted a further investigation, which revealed that the employee made numerous other posts “containing lewd language which disparaged customers.” The company terminated the employee.

Applying the analysis above to Cox Communication’s social media policy, the NLRB found that the policy did not violate the NLRA. The Board said that the examples of egregious conduct listed in Cox Communication’s policy established a context that “clearly would not be reasonably understood to restrict Section 7 activity.” Also, the policy’s savings clause that specifically set forth that it was not designed to violate any communications employees had the legal right to make, also supported the finding that it did not violate Section 7.

The NLRB memorandum can be read here (PDF)

There has been a lot of debate and legal action about the NLRB’s new posting requirements. However, as it now appears, most employers (union and non-union) will be required to post a new NLRB poster by April 30, 2012.

For more information about the new poster, visit the NLRB’s website here. Of particular importance is to determine if your company is required to post the poster, and that information can be found here.  Employers can simply print the poster from the NLRB’s website. 

There has been a lot of discussion about the legality of this new posting requirement, but I generally agree with Daniel Schwartz of the Connecticut Employment Law Blog that this poster is just another one to put on the wall. Daniel points out that employees are probably more likely to Google some question before they go to the lunch room wall full of notice requirements. Will it really change things much? Probably not given that employees can access all of this information, and more on their smart phone.