United States: NY Court Rules That Class Action Waivers Are Unenforceable

While pundits and practitioners eagerly await the U.S. Supreme Court's looming decision on whether class action waivers in employment-related agreements violate the National Labor Relations Act (NLRA) – which will not be issued until 2018 – one New York State court has decided to wade into the fracas. On July 18, a New York State appellate court – whose jurisdiction covers Manhattan and the Bronx – concluded in Gold v. N.Y. Life Insurance Co. that contract clauses barring employees from commencing class, collective, and other representative actions against their employers are unenforceable and do indeed violate the NLRA.

In Gold, the appellate court examined whether an employer can force its employees to sign an agreement requiring that all legal claims against the employer be brought only through arbitration and, perhaps more importantly, only on an individual basis and in separate proceedings.  After recognizing that "there is a recent split among the Federal Circuit Courts regarding these types of clauses," the Court answered this question with a resounding "no."

In the underlying case, a group of former New York Life Insurance Company agents filed a class action lawsuit claiming that the agency took illegal wage deductions and committed assorted violations of the state minimum wage and overtime laws. One of the agents, however, had signed an agreement upon joining New York Life requiring her to arbitrate any claim or dispute with the insurance agency.  Additionally, under the arbitration provision, the agent agreed that no claim could be brought or maintained "on a class action, collective action or representative action basis either in court or arbitration."  Despite this, the insurance agents nevertheless filed their wage case together in court and as a proposed class action.  After New York Life moved to compel arbitration, the claims of the agent who had signed the arbitration agreement were ordered to be submitted to arbitration on an individual basis.  The plaintiffs subsequently appealed.

On appeal, the Court examined the class action waiver and determined that interference with an employee's right to pursue work-related legal claims together, whether in arbitration or other legal proceedings, violates Sections 7 and 8 of the NLRA. In explaining its rationale, the Court relied chiefly on a recent decision by a federal appeals court in Chicago that likewise invalidated a class waiver.  As the New York Court explained, such waivers violate the NLRA because they interfere with employees' "right to engage in concerted activities for mutual aid and protection, and [are] therefore unenforceable. . . . [S]ection 7 of the NLRA provide[s] that employees have the right to engage in concerted activities, and concerted activities 'have long been held to include resort to . . . judicial forums.'"  Additionally, the Court determined that the waiver was unenforceable under the Federal Arbitration Act.

Consequently, the Court concluded that the plaintiffs had the right to proceed with their claims on a class action basis (although, after dispensing with this issue, the Court did dismiss most of the plaintiffs' substantive causes of action). This is the first time that a New York State appellate court has directly ruled on this particular issue, and aligns the Court with the three federal Courts of Appeals that previously reached similar conclusions.

Practical Considerations

In light of this ruling, and until the U.S. Supreme Court provides more definitive guidance, employers in Manhattan and the Bronx may see additional challenges to their arbitration agreements – particularly agreements with class action waivers – and should take a careful look at them. As the focus on potential wage and hour violations continues to increase in workforce popularity, now is also a good time for employers to review their wage and hour practices to minimize potential exposure to employment class actions in this area.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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