Class Arbitration of Employment Disputes in New York

Some employment contracts contain arbitration clauses requiring legal disputes to be resolved through arbitration as opposed to a court proceeding. Arbitration differs from a court proceeding in several ways. For example, arbitration is generally less formal, less expensive, and quicker than a typical court proceeding. A significant drawback to arbitration, however, is the difficulty in appealing arbitration decisions. Today’s Long Island employment law blog discusses whether employment disputes can be arbitrated as a class or whether they must be filed as individual arbitrations.

Arbitration can be handled on an individual or class basis and can involve many different kind of employment disputes. For example, arbitrations can be started for breach of an employment contract, an employment discrimination or retaliation claim, or for improper payment of wages or overtime.

Class arbitration occurs when a group of employees join together on behalf of themselves and other similarly situated employees to bring a legal dispute against the employer. When an individual employee has a small claim, it is typically better for the employee to proceed as a class because adding other cases could result in greater monetary recovery. However, for this reason employers often prefer to avoid class arbitration proceedings.

At least three federal circuit courts of appeals require an arbitration clause to explicitly include language stating that class arbitration issues can be resolved by an arbitrator. Otherwise, these federal courts will automatically assume that an arbitrator does not have the requisite authority to address this issue and will authorize courts only to address class arbitration issues. On March 7, 2018, in Wells Fargo v. Sappington, New York’s federal appellate court refused to follow the footsteps of its sister courts.

In the Wells Fargo case, six former entry-level financial advisors employed by Wells Fargo joined together to bring a class suit against Wells Fargo for unpaid overtime under the federal Fair Labor Standards Act (“FLSA”) and state labor law. The employee’s employment agreements were not only broad, but also silent as to whether class arbitration was permitted to begin with.

Wells Fargo did not want the case to proceed as a class. Therefore, they filed a petition asking the court to compel arbitration on an individual basis instead of allowing the case to proceed as a class arbitration. The lower court denied the petition on the basis that an arbitrator rather than a court had to decide this issue. Wells Fargo was not content with this decision and subsequently appealed.

On appeal, the Second Circuit, New York’s highest federal appellate court, ultimately agreed with the lower court’s decision denying Wells Fargo’s petition. The rationale behind the Second Circuit’s decision involved a two-step analysis.

First, the court relied on a “presumption test” and stated that there was a general presumption that courts rather than arbitrators should decide “gateway questions of arbitrability.” The court then assumed that the issue in the Wells Fargo case, whether the arbitration clauses included in the employee’s employment agreement authorized class arbitration, was indeed a “gateway question of arbitrability” that a court should decide.

The Second Circuit, however, stated that this first step was not enough and continued to explain the second part of the test. The second step allowed the presumption from the first step to be overridden by “clear and unmistakable” evidence gathered from the arbitration agreement which indicated that both parties involved intended the question to be decided by an arbitrator and not a court.

After applying this two-pronged test to the facts involved in Wells Fargo, the Second Circuit concluded that there was indeed “clear and unmistakable” evidence that both parties intended that an arbitrator and not a court to decide any issue related to arbitration of the employment agreement. Further, the court pointed to numerous reasons that supported this conclusion, which were primarily based on the language of the arbitration clauses.

In sum, while the Second Circuit concluded that explicit language delegating class arbitration issues to an arbitrator is unnecessary in some cases, in an effort to prevent confusion, it is important that prior to signing an employment agreement both parties review every clause to ensure that it contains clear and specific language. Indeed, employees who are asked to signed an employment agreement should have the agreement reviewed by an experienced employment lawyer, before signing the agreement.

The bottom line is that deciding whether an arbitrator or a court has the requisite authority to address class arbitrability issues is not always clear. Thus, conflicting interpretations caused by broad arbitration clauses will ultimately require both parties to dig for the best arguments.

Famighetti & Weinick, PLLC are employment lawyers in New York. We are experienced in reviewing employment contracts. If you have a question about an arbitration clause in an employment agreement, or any other employment matter, contact a Long Island employment lawyer at Famighetti & Weinick, PLLC. We are available at 631-352-0050 or on the internet at https://www.linycemploymentlaw.com.

Today’s Long Island employment law blog was written Thalia Olaya, a Hofstra Law School intern.