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JPMorgan, Facebook Fight Mass Arbitration Legal Strategy

July 3, 2019, 9:58 AM

Employers increasingly fear the unintended consequences of their success in keeping workplace disputes out of court, and the latest front in the battle over arbitration could mean they face tens of thousands of individual cases that overwhelm and burden them instead of providing the speedier solution for which they hoped.

In a recent case before the U.S. Court of Appeals for the Fifth Circuit, JPMorgan Chase faced a claim that it shorted a potential group of 42,000 workers on wages. The bank moved for arbitration agreements for 30,000 of the workers to be enforced by a federal court.

Key in that case was the question: Should those workers be notified of their right to file an arbitration claim?

The Fifth Circuit became the first appeals court to rule on that question earlier this year, finding that only the members of the collective action who hadn’t signed agreements could receive notice, and said alerting those who can’t participate “merely stirs up litigation.” Now, the Seventh Circuit is poised to consider a similar question against Facebook and a group of 400 employees suing for overtime pay.

However, tactics to push serial arbitration, as well as public scrutiny sparked by the #MeToo movement opposing arbitration, have led employers to question whether to reflexively push for such agreements. This is despite U.S. Supreme Court rulings in recent years that bolstered the Federal Arbitration Act, the law that governs the agreements. More than half of nonunion private-sector employers have mandatory arbitration procedures, according to a 2018 report from the Economic Policy Institute.

“A lot of in-house employment counsel slept well having arbitration agreements to avoid the multimillion class actions, then they woke up to a nightmare of hundreds of thousands of arbitration cases,” said Stephanie Adler-Paindiris, at Jackson Lewis P.C. in Orlando, Fla., and co-leader of the firm’s class actions and complex litigation practice group. “The idea of arbitrating claims or class actions has gone through this metamorphosis. What this does is present an opportunity for employers to think carefully if it’s their objective and the right program for them.”

Appeals Court Nixes Notice

District courts are split over the issue of notifying workers of their right to file arbitration and it has little appellate review. The U.S. Chamber of Commerce signaled the importance of the Seventh Circuit case, Bigger v. Facebook, Inc., in arguing for the appeals court to take up the issue. The Chamber and Facebook argued that providing the notice to the workers would undermine the policy that favors the enforcement of arbitration agreements.

Workers’ attorneys say this is simply a tactic by companies to avoid the disputes, and allows employers to sidestep claims.

Both sides agree lead plaintiff Susie Bigger didn’t sign an arbitration agreement. Facebook contends that 300 of the 400 individuals who may have similar claims are bound by some form of arbitration agreement and that that should preclude them from receiving notice of their rights. The district court ruled that since no one who has an arbitration agreement had agreed to join the case, Facebook’s attempt to limit the class was premature.

The issue represents a larger movement among employers who want to keep cases out of court, said Teresa Becvar, a partner at Stephan Zouras LLP in Chicago who represents Bigger. She said the point of fighting notice of a worker’s right to arbitrate or be part of a collective action is to limit the number of individuals who are aware of their claims against their employers, curtail their ability to bring claims as a group, and stack the deck against them by keeping them out of court.

“Employers started rolling out arbitration agreements in recent years, and they are being used more and more to limit employee access to courts to address disputes in employment,” Becvar told Bloomberg Law. “This is something unique that is happening right now. It’s endemic to the fights that are going on between employers and employee advocates inside and outside of court.”

New Front in Legal Battles

A recent report from Jackson Lewis calls this issue the latest front in the battleground emerging between employers and plaintiffs’ attorneys. The tactic used by the plaintiffs’ bar could serve to convince employers to avoid using arbitration clauses, despite the U.S. Supreme Court’s rulings in recent years that have validated the Federal Arbitration Act.

“The plaintiffs’ bar has been very antagonistic to arbitration agreements and has been trying to do everything they can to invalidate them,” said Adler-Paindiris. She said the tactic would, no matter the validity of the claim, force the employer to suffer “a death by a thousand cuts.”

Several Supreme Court decisions cleared the way for employers to use arbitration, including a May 2018 decision in Epic Systems v. Lewis that upheld class action waivers in mandatory agreements despite a potential clash with protected speech between two or more workers. Still, there have been challenges to this momentum for arbitration and strategies from the plaintiffs’ bar made some question whether to take on these agreements, Adler-Paindiris said.

Companies such as Uber Technologies Inc., Lyft Inc. and Chipotle Mexican Grill Inc. faced mass arbitration filings after class actions against them were pushed into arbitration. The cost of fees alone for each individual arbitration case would be as much as $1,500 per case. Ultimately, each arbitration could cost an employer as much as $10,000. There also has been some movement to limit arbitration that uses confidentiality clauses, including in several state legislatures and at least one ruling from a National Labor Relations Board administrative law judge.

Google recently ended its use of mandatory arbitration in employment disputes in response to employee protests. Microsoft Corp. also ended its policy. Several other technology companies, including Facebook and Airbnb Inc., carved out exceptions to arbitration for certain harassment claims. Several law firms also eliminated their arbitration programs, in response to criticisms from law school students seeking summer associate positions.

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Phil Kushin at pkushin@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com