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Arbitration and Class Action Waivers After 'Concepcion' and 'Horton'

Almost a year ago, the U.S. Supreme Court decided AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), regarding the enforceability of arbitration agreements with provisions that waive employees' rights to assert their claims as class actions. In Concepcion, the Court held that the Federal Arbitration Act (FAA) preempted a state-law rule that prohibited, as unconscionable, the enforcement of such "class action waiver" provisions in arbitration agreements because the state rule impermissibly interfered with accomplishing the FAA's objectives.

Concepcion arose in the context of a consumer's challenge to a sales tax charge on a cell phone that had been advertised as "free," and the case did not address how the FAA might apply to class action waiver provisions in arbitration agreements covering employment disputes. After Concepcion, the National Labor Relations Board (NLRB) in D.R. Horton Inc., 2012 WL 36274 (N.L.R.B. Jan. 3, 2012), invalidated an agreement that required all employees individually to arbitrate employment claims as contrary to §§7 and 8 of the National Labor Relations Act (NLRA). The NLRB found that the waiver violated §7 because it restricted group association by prohibiting employees from bringing collective or class claims in any forum. The NLRB found Concepcion inapplicable because it did not address the NLRA or employment disputes.

Both before and after Horton, courts have reached divergent conclusions regarding how Concepcion affects the enforceability of class action waivers in employment cases. In this article, we analyze these cases and address whether and how employers may modify their arbitration programs in light of Concepcion and its progeny.

'Concepcion' and 'Horton'

In Concepcion, the Supreme Court held, in the context of a consumer arbitration agreement, that the FAA preempted a state law that invalidated, as unconscionable, class-action waivers in private arbitration agreements. 131 S. Ct. at 1753. Because the state law at issue targeted and disfavored arbitration agreements, the Court found that the FAA preempted the state law. The Court also noted that because class arbitration, as "manufactured by" the state law, is fundamentally different from bilateral arbitration, the state law was "inconsistent with the FAA," and impermissibly imposed procedures that were not agreed to in the parties' arbitration agreement.

Some employment law practitioners initially believed that Concepcion supplied employers with a tool to require all employees individually to arbitrate employment disputes. However, in D.R. Horton, the NLRB provided employees with grounds to argue against universal application of Concepcion to employment claims. In Horton, the NLRB examined the enforceability of a home builder's mutual arbitration agreement (MAA) that employees were required to sign as a "condition of employment." See 2012 WL 36274, at *1. The MAA provided, in part, that: (1) all employment claims will be determined only by final and binding arbitration; (2) the arbitrator may hear only individual claims; and (3) the employee waives the right to file a civil proceeding.

Michael Cuda, a superintendent with Horton, the home builder company, notified his employer of his intent to initiate arbitration on behalf of himself and a class of superintendents, alleging that they were misclassified as exempt under the Fair Labor Standards Act (FLSA). After Horton challenged Cuda's notice based on the MAA's restrictions on collective claims in arbitration, Cuda filed an unfair labor practice charge, and the NLRB's general counsel issued a complaint alleging that the MAA violated §8(a)(1) of the NLRA because the waiver provision violated employees' §7 rights under the NLRA.

The NLRB held that the class action waiver did violate §8(a)(1) because it "clearly and expressly" barred employees from exercising "substantive" §7 rights by prohibiting class or collective claims in any forum. The NLRB also determined that its finding would not conflict with the FAA, but that even if it did, the FAA's intent was always "to leave substantive rights undisturbed."

The NLRB identified two limitations on Horton. First, Horton is limited to "agreements applicable to 'employees' as defined in the NLRA," so it does not apply to supervisors1 and managers2 who are excluded from NLRA coverage. Second, only agreements that would "reasonably [be] read" to bar concerted activity are vulnerable. Thus, the NLRB ruled that an agreement requiring individual arbitration, "but not precluding a judicial forum for class or collective claims, would not violate the NLRA…."

New Developments

Since Concepcion and Horton, one circuit court has enforced an arbitration agreement that it construed to include a class action waiver, while other district courts have reached varying conclusions on the issue. In Quilloin v. Tenet HealthSystem Philadelphia Inc., 2012 WL 833742 (3d Cir. March 14, 2012), the U.S. Court of Appeals for the Third Circuit granted an employer's motion to compel arbitration. When Janice Quilloin commenced her employment as a registered nurse, she "voluntarily agree[d]" "to submit to final and binding arbitration" any and all employment claims, acknowledging that "arbitration will be the sole and exclusive remedy…." However, Quilloin later brought a collective action under the FLSA.

In opposing the employer's motion to compel arbitration, plaintiff asserted that the agreement was unconscionable. On the issue of unconscionability, and specifically, the "potential inclusion of a class action waiver," the court first recognized that the agreement contains no "express class action waiver," that this "[s]ilence…generally indicates a prohibition against class arbitration, but the actual determination…is a question…for the arbitrator."

Among the federal trial courts to assess the enforceability of class action waivers applicable to employment disputes, two Southern District of New York cases, Sutherland v. Ernst & Young, 2012 WL 130420 (S.D.N.Y. Jan. 17, 2012), and LaVoice v. UBS Financial Services Inc., 2012 WL 124590 (S.D.N.Y. Jan. 13, 2012), particularly illustrate the split in authority post-Concepcion and under the law of unconscionability.

In Sutherland, plaintiff Stephanie Sutherland agreed, as a condition of her employment, to "binding arbitration" "on an individual basis only." But, she later brought a collective action under the FLSA. In the court's original decision on the employer's motion to compel arbitration—pre-Concepcion and­ Horton—Judge Kimba Wood invalidated the agreement because plaintiff "substantial[ly] demonstrat[ed]" that the waiver amounted to her inability to assert her claims. See 768 F.Supp.2d 547, 553 (S.D.N.Y. 2011). Post-Concepcion, the employer moved for reconsideration, but Judge Wood denied the motion. See 2012 WL 130420 at *1, *9. The court stated that the applicability of Concepcion was a "close question," but still determined that Sutherland was unable to vindicate her rights on an individual basis.

In contrast to Sutherland, in LaVoice Judge Barbara Jones granted an employer's motion to compel individual arbitration because plaintiff, a financial adviser, had signed an agreement waiving "any right to commence…any class or collective action…." However, plaintiff later asserted collective and class claims under the FLSA, and state law. The court "read [Concepcion] as standing against any argument that an absolute right to collective action" is consistent with the FAA and found that Larry LaVoice's "circumstances differ[ed] drastically" from Sutherland's because LaVoice would still be able to exercise his statutory rights on an individual basis in arbitration.

Finally, in an unpublished order in Johnmohammadi v. Bloomingdale's Inc., No. 11-cv-06434 (GW)(AJW) (C.D. Cal. Feb. 29, 2012), a California district court granted an employer's motion to compel individual arbitration, and enforced an employee's waiver of his right to bring class claims in both arbitration and in court. Bloomingdale's obtained the waiver as part of its dispute resolution program, Solutions inSTORE (SIS), a pre-dispute program expressly permitting employees to opt out of arbitration and avoid waiving the right to bring employment class claims in all forums.

By accepting employment, the employee agrees to be covered by SIS, a four-step program, with the final step being binding arbitration. But, an employee can "opt out of the step-four arbitration by submitting an opt-out form within 30 days" of his hire date. If an employee does not opt out, "final and binding arbitration" covers all employment claims, and the employee waives any right to class claims in any forum.

Fatemeh Johnmohammadi was hired as a sales associate, and did not opt out of step-four arbitration, so when she brought a class action under state wage and hour laws, Bloomingdale's moved to compel arbitration. In its ruling, the court recognized that of particular concern in Horton "was the fact that the waiver…was compelled by the employer as a condition of employment." Indeed, because the NLRB expressly did not address agreements that are "not a condition of employment," the court stated that it "would find that a voluntary waiver…[that] does not function as a condition of employment would not run afoul of the NLRA." Plaintiff also did not argue that "an employee could never voluntarily and consciously agree to waive his or her section 7 rights, here in the form of a representative action." Thus, in the court's Feb. 29, 2012 "Order of Dismissal," the court held that plaintiff "voluntarily entered" into the SIS to individually arbitrate, and that the class action waiver does not violate the NLRA.

Practical Considerations

In light of Concepcion and Horton and their progeny, employers may wish to review their arbitration programs to assess whether they comply with current precedent regarding questions of enforceability of class action waivers. Employers need to decide whether to structure arbitration programs to avoid legal disputes, or to create programs that may comply with Concepcion, but potentially be subject to challenges based on the theories described above.

The most critical decision is whether the employer will mandate arbitration as a condition of employment, or allow employees permissively to choose to opt out of the arbitration program. Employers may consider that at least one federal court has enforced a permissive pre-dispute resolution program that allows employees to opt out. If this court is correct, employees who do not opt out may be deemed to have voluntarily submitted to individual arbitration of all employment claims.

Alternatively, if employers opt for a mandated pre-dispute arbitration program, they may consider first whether the program will be applicable only to "employees" as defined by the NLRA, or also include supervisors and managers who are not covered by the NLRA. For employees covered under the NLRA, Horton provided that "an agreement requiring arbitration of any individual employment-related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA[.]" Thus, if Horton is not reversed on appeal, an employer may wish to require that its employees covered by the NLRA assert only individual claims in arbitration, but also inform such employees that if they wish to assert class action claims, both individual and class claims must be asserted only in court.

On the other hand, employers may argue that a program applicable to managerial or supervisory staff should not be analyzed under the NLRA. Rather, managerial or supervisory staff who do not meet the criteria for NLRA coverage would not have rights under §§7 or 8, and, therefore, class action waivers in arbitration agreements with such employees would arguably avoid the result in Horton.

Finally, as illustrated by Quilloin, Sutherland and LaVoice, courts may continue to apply the law of unconscionability to evaluating class action waivers. To avoid the substantive unconscionability arguments employees have made, employers may wish to incorporate, as a part of their agreements, provisions that cover cost-shifting and reimbursement of fees, that grant an arbitrator the authority to award any ultimate relief under applicable law, and that retain all statute of limitations. To avoid procedural unconscionability arguments, employers should clearly spell out all terms of any agreement, and for permissive opt-out programs, give employees ample time to opt out of arbitration on a confidential basis.

Jeffrey S. Klein and Nicholas J. Pappas are partners at Weil, Gotshal & Manges. Celine J. Chan, an associate at the firm, assisted with the preparation of this article.


1. Section 2(3) of the NLRA provides that "employee" excludes "any individual…employed as a supervisor…." See also NLRA §2(11)(defining "supervisor").

2. See NLRB v. Bell Aerospace Co. Div., 416 U.S. 267, 289 (1974) (stating that managerial employees are not covered by NLRA).

Reprinted with permission from the April 2, 2012 edition of the New York Law Journal © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, or visit

This article also appeared in the March-April 2012 Employer Update.