United States: New York State Appellate Court Finds Arbitration Agreement Requiring Employees To Bring Claims Individually Violates The National Labor Relations Act

On July 18, 2017, in Gold v. New York Life Ins. Co., New York's Appellate Division, First Department1 issued a decision that directly contradicted the decision of the U.S. Court of Appeals for the Second Circuit in Sutherland v. Ernst & Young, LLP.2 The First Department found that an arbitration agreement requiring employees to bring claims individually and barring an employee's participation in class and collective actions violated the employees' right to engage in concerted activity under the National Labor Relations Act ("NLRA"). With this ruling, the First Department followed the lead of the National Labor Relations Board ("NLRB") and the U.S. Courts of Appeals for the Seventh3 and Ninth4 Circuits, rather than the federal appeals court having jurisdiction over New York, thereby complicating the already fractured legal landscape concerning the viability of class and collective action waivers in arbitration agreements.5

The First Department adopted the Seventh Circuit's reasoning and held that a lawsuit filed "by a group of employees to achieve more favorable terms or conditions of employment" constitutes "concerted activity" under section 7 of the NLRA. As a result, the court found that arbitration agreements that contain class waivers are unenforceable because they stipulate away rights provided by the NLRA. The First Department also held that there was no conflict between the NLRA and the Federal Arbitration Act ("FAA"), which governs the enforcement of arbitration agreements, because the FAA's "savings clause" provides that arbitration agreements are enforceable unless there are grounds at law or in equity to revoke the contract. The First Department found that since the arbitration agreement at issue required employees to bring claims individually, it was illegal under the NLRA, and therefore enforcement was not required under the FAA's saving clause.

Two justices of the First Department did, however, dissent from the Gold opinion, finding that the opinions of the Second, Fifth and Eighth Circuits were correct because the NLRB "has no special expertise in, and is not charged with administering, the FAA." Indeed, the dissenting justices found persuasive the argument that class and collective action waivers are merely procedural because they do not waive the substantive rights afforded by any particular statute, only the forum in which the claims may be raised.

Though the First Department's decision in Gold is striking for its refusal to follow the Second Circuit, it is the confusion sowed by these competing opinions that should give New York employers pause before implementing arbitration agreements with class/collective action waivers. New York employers considering such waivers or enforcing such waivers, should evaluate, with assistance from counsel, whether to abide by the Second Circuit's opinion in Sutherland or the First Department's opinion in Gold. In the immediate future, when an employee subject to an arbitration agreement containing a class waiver files a complaint in state court, that employer may want to consider moving to compel arbitration in federal court in accordance with the FAA prior to giving the employee an opportunity to file a motion to stay arbitration in state court.

Given that the U.S. Supreme Court will consider next term the lawfulness of class and collective action waivers in arbitration agreements, the Gold opinion may either be short-lived or portend the end of such waivers in arbitration agreements. Indeed, the First Department recognized the U.S. Supreme Court would resolve the split in authority "in due course."

There are likely to be major developments for employers in this area of the law from the U.S. Supreme Court. Alternatively, the Gold opinion may be appealed to the New York Court of Appeals, and an opinion issued before the U.S. Supreme Court issues any opinion on the matter. We will continue to monitor these developments closely.

Footnotes

1. This court is an intermediate state appellate court.

2. Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013).

3. Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016).

4. Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016).

5. The Fifth and Eighth Circuits, like the Second Circuit, have held that held that such waivers do not violate the NLRA. See D.R. Horton, Inc. v. Nat. Labor Relations Bd., 737 F.3d 344 (5th Cir. 2013); Cellular Sales of Missouri, LLC v. Nat. Labor Relations Bd., 824 F.3d 772 (8th Cir. 2016).

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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Authors
Eli Freedberg
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