United States: Ninth Circuit Upholds Employment Arbitration Agreement And Class Waiver

But Can The Good Guys Avoid A Last Second Goal In This Case?

The Ninth Circuit's decision in Johnmohammadi v. Bloomingdales, Inc., Case No. 12-55578 (9th Cir. June 23, 2014), should have employers feeling as good as the U.S. Men's Soccer team up through the fourth minute of added time in the second half of their match against Portugal. But, is fancy-boy Christiano Renaldo again racing down the side of the pitch, ready to deliver a heartbreaking assist?

[Editor's Note: Frankly, the use of the World Cup metaphor in discussing this case is clumsy at best. However, nearly 72 hours after the end of the U.S./Portugal match, we find ourselves still seething over the draw that was snatched from the jaws of a win. The hope is that the writing of this article will provide the author with a much-needed catharsis. We'll see.]

The plaintiff in Johnmohammadi was a sales associate for Bloomingdale's (one of Renaldo's favorite places to get facials and have his eyebrows waxed). She filed a proposed class action alleging that Bloomingdale's unlawfully failed to pay overtime to its associates. In response, Bloomingdale's pointed out that the materials the plaintiff received when she was hired included an arbitration agreement with a class action waiver provision. The plaintiff was given 30 days to sign and return an opt-out form that would have voided both the arbitration agreement and the waiver, but failed to do so. On that basis, Bloomingdale's argued that the plaintiff was required to arbitrate her individual claim, and was barred from seeking class-based relief. The district court agreed and dismissed the case in favor of arbitration.

On appeal, the plaintiff made an interesting argument. She claimed that the arbitration agreement was comparable to an employer offering a benefit to employees, such as a raise, to dissuade them from engaging in concerted activity, i.e., voting for union representation. The National Labor Relations Board holds that such an offer is actually a disguised (and unlawful) threat that the employer will take benefits away if the employees exercise their right to act concertedly, i.e., "the iron fist in the velvet glove." (Speaking of iron, did you know that Renaldo uses so much hair product that his hair is three times harder than solid steel? True story.) According to the plaintiff, Bloomingdale's offered her the "benefit" of arbitration to dissuade her from preserving her right to engage in concerted activity, i.e., to seek class-based relief.

The Ninth Circuit wasn't buying it. The court held that the plaintiff could prevail on her "iron fist/velvet glove" theory only by showing that Bloomingdale's offered a benefit that was "immediately favorable" to its associates. After concluding that arbitration may come with "disadvantages" for employees, the court found that the plaintiff was unable to make this showing. Accordingly, it rejected her theory and affirmed the district court's order compelling arbitration.

(Let's pause for just a moment to enjoy the irony of the above. In short, the plaintiff was arguing that the arbitration agreement was unlawful because it was just too good a deal to pass up. The Ninth Circuit disagreed and found that the arbitration agreement was perfectly appropriate because there was a decent possibility that the plaintiff would lose. Strange days, indeed.

Now, back to our regularly scheduled programming.)

So, what's with all the hand-wringing Renaldo references (and gratuitous personal attacks)? Well, the Ninth Circuit's reasoning leaves two open questions that may be cause for concern. First, the Ninth Circuit held that the National Labor Relations Board's D.R. Horton ruling (discussed here) was not implicated because the plaintiff had an opportunity to opt out of the arbitration agreement, and was not forced to accept it as a condition of employment. While that remark may not be cause for alarm on its own, the court also observed that "there is some judicial support" for the proposition that the filing of a proposed class action is protected, concerted activity under the National Labor Relations Act. Taken together, these comments might suggest that the Ninth Circuit has not yet recognized the folly of the NLRB's D.R. Horton decision. (Ok, that's probably a somewhat subjective manner of phrasing the issue.)

The second question has to do with the Ninth Circuit's reasoning in rejecting the plaintiff's "iron fist/velvet glove" theory. The court analyzed the question from the perspective of whether arbitration is enough of a benefit to support such an argument. But, given the undisputed fact that the arbitration agreement was not a mandatory condition of employment, there is a much larger question as to whether the "iron fist/velvet glove" theory could ever apply. The rationale for this theory, as explained above, is the implicit threat that "the employer can giveth, and the employer can taketh away." But, an employer cannot unilaterally taketh away an employee's right to bring a class action. That right can only be surrenderedeth by the employee.

Is this a distinction without a difference? Maybe. But, what about those employers who offer a payment to employees as an incentive against opting out of non-mandatory arbitration agreements? How would the Ninth Circuit analyze that case?

Bottom Line: While recent case law from the Supreme Court has been favorable toward arbitration, the case law is still developing around arbitration agreements and class waivers in the employment context. Furthermore, writing a blog article is insufficient to relieve the disappointment of a senseless World Cup loss. Here's hoping that the Germany match makes the Portugal draw nothing but an amusing bit of trivia!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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