Monthly Archives: June 2013

June 21, 2013

Arbitration Agreement Waiving Class Claims Upheld – What it Means for Employers

Arbitration is a matter of contract between the parties and courts are not permitted to invalidate an agreed-upon provision that prohibits claims from being arbitrated on a class action basis, the U.S. Supreme Court ruled in its June 20, 2013 opinion in American Express Co. v. Italian Colors Restaurant. Employers can benefit from this ruling by crafting arbitration agreements that limit an employee’s right to pursue employment claims on behalf of a class of employees.

Cost to Pursue Individual Arbitration Not a Factor

At issue in the American Express case was an arbitration agreement between American Express and merchants who accept its charge cards that required the parties to arbitrate all disputes. The agreement further stated that “there shall be no right or authority for any Claims to be arbitrated on a class action basis.”

When numerous merchants filed a class action lawsuit against American Express alleging violations of federal antitrust laws due to American Express’ alleged high card fees, American Express moved to dismiss the lawsuit and instead force each merchant to arbitrate its claim individually, as required by the arbitration agreement. The District Court agreed with American Express and dismissed the class action lawsuit. The merchants appealed the dismissal to the Second Circuit Court of Appeals, arguing that the cost to prove the antitrust claims by each individual merchant would far exceed the amount they could recover as an individual plaintiff. The merchants submitted a declaration from an economist who estimated that the cost of expert analysis on the antitrust claims would be “at least several hundred thousand dollars, and might exceed $1 million.” The maximum amount of damages that each individual plaintiff could expect to recover was $38,549 as treble damages. The Second Circuit reversed the dismissal, ruling that because the cost for each merchant to arbitrate their claim individually was prohibitive, the class-action waiver in the arbitration agreement was unenforceable and arbitration could not proceed. American Express sought review by the Supreme Court.

In a 5-3 ruling, the Supreme Court held that the Federal Arbitration Act (FAA) does not allow courts to invalidate a contractual waiver of class actions on the ground that the plaintiffs’ cost to arbitrate a federal statutory claim individually exceeds the potential recovery. Justice Antonin Scalia, writing for the majority, rejected the merchants’ argument that cost vs. recovery should factor into the enforceability of an arbitration agreement. He wrote that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The Court drew a distinction between contract provisions that prohibit an individual from asserting their statutory rights at all (e.g., a waiver of certain claims) and prohibiting class claims. Relying on earlier precedent, the Court reiterated that it may invalidate arbitration agreements that operate as a prospective waiver of a party’s right to pursue statutory remedies, but will not invalidate an agreement because it is not worth the expense involved in a party proving a statutory remedy. The Court also refused to create preliminary hurdles before a plaintiff could be held to contractually-agreed arbitration, such as requiring a court to evaluate the cost to prove claims as well as the damages that could be recovered if the plaintiff is successful. Justice Scalia wrote that “such a judicially created superstructure” would “undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure.”

Dissent: Majority’s Response to Merchants Was “Too Darn Bad”

Justice Elena Kagen, joined by Justices Ruth Bader Ginsburg and Steven Breyer (Justice Sotomayor did not take part in the decision), wrote a stinging dissent in which she characterized the case as small business owners who were forced to accept a form contract by a monopolizing credit card company that violated antitrust laws. The dissent states that if the arbitration clause is enforceable, American Express has insulated itself from antitrust liability because it used its monopoly power to insist on a contract that “effectively deprives its victims of all legal recourse.” Justice Kagen wrote: the “nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.” The three dissenting justices believe that the FAA was never meant to produce the outcome arrived at by the majority, and that the majority decision blocks the vindication of meritorious federal claims and insulates wrongdoers from liability. The dissent instead would rely on the “effective vindication” rule, namely that an arbitration clause will not be enforced if it prevents the effective vindication of federal statutory rights, however it achieves that result, to invalidate the bar on class arbitration in the American Express agreement.

Employment Arbitration Agreements

Recent Supreme Court decisions upholding arbitration agreements, such as the American Express opinion, may bolster efforts to use arbitration agreements in the employment context. Although there are pros and cons to utilizing arbitration agreements with employees, a significant advantage is the ability to prohibit class actions by requiring employees to arbitrate their employment disputes on an individual basis. In addition, arbitration can be less costly than litigating in court, and more confidential as most arbitration filings are not public records. Perhaps most significantly, arbitration allows employment cases to be heard by arbitrators, not juries, thereby reducing the risk of runaway verdicts. Employers should consult with employment counsel to determine if arbitration agreements are warranted with their workforce and if so, what provisions will best protect the company’s interests.

Disclaimer: This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

June 19, 2013

Wyoming Employers – Time to Pay More Attention to those Unemployment Claims

By Brad Cave

July 1 creates some new incentives for Wyoming employers to participate in the unemployment claims system. Currently, UI benefits are paid to the employee beginning immediately when a deputy clerk of the Wyoming Department of Workforce Services determines that the employee is entitled to benefits. If the employer appeals that determination, and a hearing officer reverses the deputy’s decision, the employer’s account is not charged for the benefits paid under the deputy’s erroneous decision. The same is true if the employer obtains reversal of a decision granting benefits through an appeal to the Unemployment Insurance Commission or the district court.

Effective July 1, this general rule has an exception that all employers should keep in mind. Bowing to federal pressure, the Wyoming Legislature amended the Wyoming Employment Security Law (ironic name for the unemployment benefit statute, isn’t it) to require employers to respond to requests for information from the Department. See, http://legisweb.state.wy.us/2013/Enroll/SF0073.pdf Employers will no longer escape the monetary consequences of erroneous payments if the Department determines that, (1) an erroneous payment of benefits was made because the employer was at fault for failing to respond adequately or on time to a written request for information; and, (2) the employer has established a pattern of failing to respond adequately or on time to such requests. The employer’s responses must be received within fifteen (15) days after the Department sends the request, whether by regular mail or email. What constitutes a pattern of failing to respond remains to be seen – the Legislature said only that the phrase means a “repeated documented failure” to respond to written requests for information, “taking into consideration the number of instances of failure in relation to the total volume of requests by the Department” to the employer.

Action items for Wyoming employers:

1. Maintain documentation of your responses to the Department on unemployment claims. We don’t believe that certified mail is necessary for most employers, but we do suggest keeping copies of all the documentation you return in response to a request. Also, the amendment requires the Department to acknowledge receipt of the requested information within fifteen (15) days if the employer requests such acknowledgement.

2. Some employers use a third-party agent or centralized offices in remote states to respond to unemployment claims. Be sure to notify those who process your UI claims, as the amendment clearly holds the employer responsible for delays or inadequate information from an employer’s agent. Likewise, if you have drug your feet getting back to your UI agent with the necessary information, now is the time to improve your response time so the agent does not blame you for a “pattern of failing to respond.”

3. As always, be very careful about what you (or your agent) say or submit in response to a request for information. A determination for or against an employee regarding unemployment benefits is not “binding, conclusive or admissible” in any subsequent litigation between the employer and employee. But the employer can be bound by what it says were the reasons for termination and the documents it submits to support the termination. Any discrepancy in the employer’s reasons can weaken your objection to the UI claim and be used in other legal proceedings to challenge the legitimacy of your reasons for the termination.

June 10, 2013

Fired for Dating a Client, Employee Fails to Prove Violation of Colorado’s Lawful Activities Statute

By Mark Wiletsky

Dating a client is probably never a good idea. In some professions, it is a violation of ethical responsibilities. In other cases, it may be bad for business when the relationship goes sour. In the case of a family advocate for a social services organization, it created the appearance of a conflict of interest. That conflict of interest saved a small Colorado employer from being liable for a violation of Colorado’s Lawful Activities statute when it terminated the family advocate for dating a client. Ruiz v. Hope for Children, Inc., 2013 COA 91.

Romantic Relationship as Lawful Activity Conducted Outside of Work

Charlotte Ruiz worked as the only family advocate at a small non-profit social services organization in Pueblo called Hope for Children. Seledonio Rodriguez became a client of Hope for Children when he attended a court-ordered fathering class there. Ruiz didn’t meet Rodriguez until he completed his first class and needed assistance to sign up for a second class. Shortly after completing his second class, Rodriguez ran into Ruiz at the Colorado State Fair and sometime thereafter, they began dating. When Hope for Children’s executive director learned about the romantic relationship, she told Ruiz she could not continue to work for the organization if she wanted to continue to date Rodriguez. Ruiz refused to give up the relationship, so she was fired.

Ruiz sued Hope for Children alleging that she was terminated in violation of Colorado’s Lawful Activities Statute, which prohibits terminating an employee for engaging in a lawful activity outside of work. After a two-day bench trial, the judge concluded that Ruiz was indeed terminated for engaging in a lawful activity outside of work. However, the judge also found that the relationship raised a conflict of interest, or at least, the appearance of a conflict of interest which kept the termination from violating the statute.

Conflict of Interest Defense to Lawful Activities Statute

Colorado’s Lawful Activities statute provides defenses that allow an employer to restrict employees’ off-duty, off-premises lawful activities, namely when the restriction: (1) relates to a bona fide occupational requirement or is reasonably and rationally related to the employment activities and responsibilities of a particular employee or group of employees; or (2) is necessary to avoid a conflict of interests with any responsibilities to the employer or the appearance of such a conflict of interest. Before this opinion, no Colorado appellate opinions interpreted these statutory defenses. In the Ruiz case, the Court of Appeals ruled that the conflict of interest defense was not limited to financial conflicts or an actual interference with the employee’s ability to perform a job-related duty. Instead, the Court stated that the determination of a conflict of interest, or appearance of one, must be made in light of the facts and circumstances of each particular case looking at both the context and industry involved.

In Ruiz’s case, the Court agreed that there was sufficient evidence to support the trial court’s conclusions that Ruiz’s romantic relationship with a client created an appearance of a conflict of interest with her job duties. The relevant facts in this case included that: (a) Ruiz might be called to testify in court about Rodriguez’s completion of his court-ordered fathering class; (b) Hope for Children does not “close” its files and frequently worked with families over the course of many years, meaning Rodriguez would always be considered a client; (c) most of the organization’s budget was from a state agency grant and referrals from the agency would be negatively affected by permitting employees to date clients; (d) a romantic relationship between an employee and a client would negatively impact the credibility of the social services organization, as testified to by a former director of another social services agency and board member; and (e) the organization’s funding might be revoked if it allowed its employees to date clients. Based on the appearance of a conflict of interest created by Ruiz’s relationship with Rodriguez, the Court agreed that Hope for Children’s termination of Ruiz fell within the statutory defense language contained within the Lawful Activities statute and therefore, did not violate the statute.

What do we learn from this case? First, be cautious before terminating an employee for otherwise lawful, off-duty activities, at least in Colorado and other states that protect such conduct. Second, a romantic relationship can be a lawful, off-duty activity under the Lawful Activities statute. Therefore, if you terminate an employee for a romantic relationship, be sure you are on solid footing to establish a defense to a wrongful termination claim.