This article is Part 2 of a two-part series providing an overview of recent United States Supreme Court decisions in employment law. This article addresses decisions affecting arbitration and class actions.
The United States Supreme Court decided several significant cases regarding arbitration and class actions this year. These opinions did not arise out of employment law-based claims. However, the legal principles will apply to employment law arbitration cases in the future.
Oxford Health Plans, LLC v. Sutter
Sutter and a class of doctors sued Oxford Health regarding the health plan’s reimbursement rates. An arbitrator determined that the parties’ arbitration agreement permitted class-wide arbitration, despite no clear language to that effect in the arbitration agreement. Soon after, the Supreme Court issued Stolt-Nielsen v. AnimalFeeds, which held that when an arbitration agreement is silent regarding class arbitration, the presumption is that the agreement permits only individual arbitration. The arbitrator refused to change his ruling.
The Supreme Court noted in Oxford Health Plans, LLC v. Sutter that “class arbitration is a matter of consent.” The Court strongly suggested that the arbitrator’s decision was wrong, particularly after Stolt-Nielsen. However, the Court decided that the arbitrator’s interpretation of the agreement was binding because the parties had submitted it to the arbitrator to decide. Therefore, the Federal Arbitration Act did not authorize the courts to overturn that decision. The Court noted the result might have been different had the health plan asked the district court to compel only the individual to arbitrate.
American Express v. Italian Colors Restaurant
American Express v. Italian Colors Restaurant involved a small business challenging American Express’s merchant fees under anti-trust law. American Express had an arbitration provision precluding class arbitration. Italian Colors argued that the high cost of individual arbitration of an anti-trust claim was prohibitively expensive compared with its potential recovery against American Express. Therefore, Italian Colors argued, the arbitration agreement should be unenforceable under the Federal Arbitration Act because of the “effective vindication” exception – a judge-made rule barring contractual provisions that impair the assertion of federal statutory rights.
The Supreme Court held that a waiver of class arbitration is valid under the Federal Arbitration Act, even where the cost of individual arbitration would exceed any potential recovery. The Court declined to apply the exception on grounds that the financial inefficiency of pursuing individual arbitration was not the same thing as a roadblock to asserting statutory rights. In short, the Court essentially declared that class arbitration is a privilege by consent, not a right. Keep an eye out for further updates to see how this case will influence California courts going forward on the waiver issue.
Comcast Corporation v. Behrend
Certification of a federal class action requires plaintiffs to show that issues common to the class “predominate” over issues unique to individual class members. However, courts will certify class actions when common issues may determine liability on a classwide basis, even if there are individual issues pertaining to damages.
The plaintiffs in Comcast Corp. v. Behrend are certain cable television customers of Comcast. They claimed anti-trust violations based on several theories and sought certification of a class of subscribers. The district court certified a class based on the theory that Comcast engaged in conduct that deterred other cable providers from setting up competing services in certain markets.
The lower courts decided the class could proceed even without evidence that damages could be calculated and awarded on a class-wide basis. The plaintiffs submitted a damages model that was not tailored to the liability theory that the district court approved for class certification. The lower courts considered analysis of the damages issue to be improper at the certification stage.
The U.S. Supreme Court reversed. The majority held that the plaintiff’s case cannot be certified unless the plaintiff submits evidence showing that damages are capable of calculation on a classwide basis, even if there are some individual issues that must be resolved.
This case therefore permits the defendant to oppose certification motions when the plaintiff does not address how damages will be calculated. It also permits defendants to argue that individual damages calculations may tip the balance in opposition to class certification when the individual issues predominate over the common ones. It is likely this case will affect California class actions, because the California courts consider federal class action jurisprudence to be persuasive authority.
Nitro-Lift Technologies v. Howard
Two Oklahoma employees entered into a confidentiality and noncompetition agreement that contained an arbitration clause. Nitro-Lift demanded arbitration after the employees left to work for a competitor. The employees sought injunctive relief in state court and argued that the underlying agreement was invalid.
The Oklahoma Supreme Court invalidated the non-competition agreement, holding it was entitled to review a contract otherwise submitted to arbitration in situations where a party argues that the underlying contract itself is void.
The U.S. Supreme Court in Nitro-Lift Technologies v. Howard reversed. The Court held the arbitration clause within the agreement was valid. Therefore, under the Federal Arbitration Act, the arbitrator would be responsible for hearing attacks on the validity of the underlying agreement.
The U.S. Supreme Court’s 2012-2013 opinions clarified arbitration law under the Federal Arbitration Act. The California Supreme Court is considering several issues that will determine these decisions’ impact on California cases. California employers considering arbitration – and those with existing arbitration programs – should keep abreast of new developments in this fluid area of the law.