Arbitration Clauses, Class Action Litigation

Class Action Waiver and Arbitration Clauses in Limbo

Mandatory arbitration clauses and class action waivers have not yet ripened into the panacea that employers had hoped.  While they can sometimes eliminate or reduce the expense and exposure of legal claims and even eliminate class actions, they also can spawn their own litigation as to enforceability, as three recent decisions illustrate.

First, federal Judge Joseph F. Leeson Jr. in Allentown, Pa., last week issued a stay of a Fair Labor Standards Act lawsuit for overtime pay against U-Haul International and its subsidiaries, pending the outcome of three cases on arbitrability and class action waivers now pending before the U.S. Supreme Court.  That will delay the U-Haul case for months, as the Supreme Court won’t hear oral argument on its cases until October 2, with decisions to follow later this year or next.

Second, a state court in New Jersey rejected a mandatory arbitration clause that was sent to employees electronically, requiring them to click on a box acknowledging that they had read and understood the policy.  Held the court in Dugan v. Best Buy Co. Inc., “Plaintiff’s mouse-click on the acknowledgment box did not manifest his assent to the policy, only that he read and understood the policy.”  Instead, the mouse-click should have said something like, “I agree.”

And third, the U.S. Court of Appeals for the Third Circuit (over federal courts in Pennsylvania, New Jersey, Delaware and the U.S. Virgin Islands) ruled last month that under New Jersey law, in order for an arbitration clause to be enforceable as to statutory claims (such as employment discrimination or wage payment violations), the clause must (1) make clear that the employee is agreeing to arbitrate statutory claims, (2) make reference to the types of claims being waived, such as “workplace discrimination claims,” and (3) explain the difference between arbitration and litigation, including the waiver of the right to a jury trial.  Because the clause in Moon v. Breathless Inc. did not meet all three of these standards, the appellate court ruled it unenforceable.  And so the parties, after a year of litigation over arbitrability, can advance to litigation on the merits.  Fun.

So a word to the wise – check your arbitration clauses closely to be sure they are enforceable under both state and federal law.  Legal review is definitely recommended.  And watch for the Supreme Court’s decision soon on its arbitration trio – NLRB v. Murphy Oil USA, Epic Systems v. Lewis, and Ernst & Young v. Morris.  That could be a game changer.

Michael Homans is a Labor & Employment attorney and founding partner of HomansPeck LLCFor more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.