THE UNITED STATES SUPREME COURT UPHOLDS ARBITRATION CLAUSES THAT PRECLUDE CLASS ACTIONS
On Monday, May 21, 2018, in a much-anticipated decision that settles a split among several federal circuit courts, the United States Supreme Court held that arbitration clauses/policies waiving an employee’s right to pursue collective/class action claims do not violate the National Labor Relations Act (NLRA) and, therefore, are not unlawful as a matter of law.
Attorneys for the employers (and the U.S. Chamber of Commerce) argued that arbitration is an efficient way to resolve employee disputes and saves employers the cost of frivolous class action litigation — and thereby benefits consumers. Attorneys for the employees (and other employee advocates, including the National Labor Relations Board) argued that arbitration prejudices employees because it is cost-prohibitive to pursuing small claims individually. It also unduly impacts non-unionized workforces because unionized work forces still maintain the ability to pursue actions on behalf of all its members thru collective bargaining and a grievance procedure.
Ultimately, the Supreme Court’s opinion was based on statutory interpretation. Specifically, the Court interpreted Congress’ explicit instruction in the Federal Arbitration Act (FAA) that arbitration agreements providing for individualized proceedings must be enforced, absent generally applicable contract defenses, such as fraud, duress, or unconscionability, i.e., the “Savings Clause.” The Court held that the fact that the NLRA confers on employees the right to engage in “concerted activities” does not override the FAA and does not implicate the Savings Clause. The NLRA’s “catchall terms” do not indicate that Congress intended to alter the fundamental provisions of the FAA.
In light of this decision, employers, with their legal counsel, should weigh the pros and cons of implementing an arbitration policy and/or class action waiver. There are many factors to consider, including the employer’s class/collective action risk. The risk could be low if, for example, the workforce is not large and does not consist of similarly situated employees who could successfully state class or collective action claims. In such a case, arbitration may not be beneficial because, when compared to court, arbitration, in fact, can be expensive and employers may be less likely to obtain a dismissal of the claims at the early stages. What is more, it is possible that plaintiff’s lawyers, especially in light of this very employer-friendly decision, may make employers regret implementing a class action waiver. Plaintiff’s lawyers may be willing to bring separate claims on behalf of each and every individual employee, thereby making the employer litigate on countless fronts with no assurance of any consistency regarding the outcomes.
Another factor that employers may want to consider before implementing a class action waiver is the employer’s public profile. Implementing a class action waiver, especially if it applies to sexual harassment/discrimination claims in the context of the #MeToo movement, could subject the employer to a great deal of adverse publicity. To be sure, in her dissent, Justice Ruth Bader Ginsburg gave objectors to class action waivers plenty of good quotes to use to smear employers. Among others, Justice Ginsburg called the majority ruling “egregiously wrong” and wrote that the ruling would drastically impact “vulnerable workers.”
Despite the foregoing, class action waivers certainly can be tremendously valuable to companies in the right context and the Supreme Court’s decision eliminates what has been the chief obstacle to their enforceability.
TEN ISSUES TO CONSIDER WHEN CONDUCTING AN INTERNAL INVESTIGATION
While responsible companies have long been sensitive to the obligation and benefit of promptly investigating internal complaints of misconduct, whether it be sexual harassment or policy violations, the rise of the #metoo movement has cast an important spotlight on corporate practices in this area. Companies are loathe to have their leader described as the next Harvey Weinstein or Steve Wynn, or to have their Board or senior leadership condemned in the court of public opinion for burying their head in the sand when confronted with improprieties. The risks to companies improperly handling these investigations are multiple, including legal, financial, and reputational.
However, while there is consensus that complaints should be investigated seriously, reasonable, responsible decision-makers could choose different paths for investigations, depending upon the circumstances. Corporate investigations are not paint-by-numbers. Below are ten issues that responsible decision-makers should consider when overseeing an investigation into an internal complaint.
FEDERAL COURT INVALIDATES PART OF PHILADELPHIA’S ORDINANCE PROHIBITING SALARY HISTORY INQUIRIES
In January 2017, Philadelphia became one of the first cities in the United States to enact an ordinance prohibiting employers from: (1) asking job applicants questions about their salary history, and (2) using salary history to determine a prospective employee’s wages. The premise of the ordinance—and of similar laws around the country—was that the inquiry into and use of salary histories perpetuates unequal pay for women and minorities. Violators of the ordinance were subject to stiff penalties, as the law provided that employers could be liable for $2,000 in punitive damages per violation, and that repeat offenders could be subject to 90 days’ imprisonment. However, on April 30, 2018, before the ordinance ever went into effect, Philadelphia became the first city to have its wage equity law invalidated (in part) based on a determination that the ordinance violated employers’ First Amendment free speech rights.
In a 62-page opinion, the U.S. District Court for the Eastern District of Pennsylvania granted in part the Chamber of Commerce’s motion for preliminary injunction, holding that the ordinance’s prohibition of employers’ inquiries into an applicant’s salary history (the “Inquiry Provision”) was an improper restriction of employers’ free speech rights. The Court determined that questions regarding a prospective employee’s salary history constituted commercial speech, and that the regulation of such speech must withstand intermediate scrutiny. The Court agreed that the City had a substantial interest in promoting wage equity and reducing discriminatory wage disparities, but determined that there was insufficient evidence supporting the proposition that asking about prior wage history contributes to a discriminatory wage gap, and noted that, when the City Council passed the law, it did not consider that disparate wages could also be based on factors having nothing to do with discrimination. Without better evidence supporting the premise underlying the ordinance, the Court stated that it was “compelled” to conclude that the Inquiry Provision did not directly advance the substantial governmental interests of reducing discriminatory wage disparities and promoting wage equity. Thus, it determined that the Inquiry Provision infringed upon the employers’ free speech rights. The Court did uphold the ordinance’s prohibition on employers’ use of salary history information to determine an employee’s wages (the “Reliance Provision”), agreeing with the City that the Reliance Provision regulates only conduct, and thus does not implicate the First Amendment.
While one or both parties will likely appeal from the Court’s decision, Philadelphia employers may still ask about a prospective employee’s salary history. However, because Judge Goldberg upheld the Reliance Provision, if employers do ask about salary history, they cannot then rely upon that information to set the employee’s wages. Thus, it can be assumed that, if the employer is later subject to an Equal Protection Act claim based on discriminatory wages, and, if the employer asked about the employee’s salary history, it may prove difficult to prove that disparate salaries did not the result from that information. Employers should carefully consider whether they still want to make the inquiry at all.
This issue is being addressed throughout the country as well. In fact, a few weeks before Judge Goldberg’s decision, the U.S. Court of Appeals for the Ninth Circuit held that employers may not consider (alone or with other factors) prior salaries in setting a person’s pay, after determining that the consideration of prior salaries in setting pay was “wholly inconsistent” with the federal Equal Pay Act.
There is currently a Circuit split on this issue, with the 10th and 11th Circuits holding that prior pay cannot be considered alone in setting wages, and the 7th and 8th Circuits determining that that employers may consider salary history in setting wages. This area of law is evolving quickly, and employers should ensure that they keep apprised of local, state, and national developments.