Tag Archives: employment

External Bloggers: 2023 - 2024

Faux Businesses; Real Consequences: Commentary on the FAA’s “Transportation Worker’s” Exception pre-Bissonnette

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By

Hannah Chapple

Section 1 of the Federal Arbitration Act (FAA) exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the statute’s coverage.1 In the case of Bissonnette v. Le-Page Bakeries, which, at the time of writing, the United States Supreme Court had just granted cert,2 the Court is poised to squarely address if commercial truck drivers are “transportation workers.” In so answer, the Court will shed light on the entire Section 1 exception.

Neal Bissonnette, the name plaintiff, drives trucks for Le-Page Bakeries, the defendant, delivering goods through channels of interstate commerce. Despite this, the Second Circuit Court of Appeals held that these workers were not exempt under Section 1 of the FAA,3 as the Second Circuit found to be covered under such exemption requires that the worker be a “transportation worker” in a “transportation industry.”4 The Second Circuit considered the plaintiff part of the “baking industry” since the defendant hired the plaintiff directly, rather than by a trucking company.5

If the Supreme Court were to rule in favor of Le-Page Bakeries, there would be significant implications to the scope of the Section 1 exception, as well as in how employers would be able to categorize their employees to evade this exception.

In 2022, the Supreme Court in Southwest Airlines Co. v. Saxon,6 confronted the argument that when determining whether an employee falls within the scope of the FAA exemption, the courts analysis should focus on the industry involved, not simply on the work being performed by the employee. In Saxon, the plaintiff was a cargo loader for Southwest Airlines, and although she did not personally transport the cargo over state lines, the Court found that their focus should be on whether the workers play “a direct and ‘necessary role in the free flow of goods’ across borders.”7 The Court held that the nature of an employee’s work determines whether they are exempt from arbitration agreements in the employment contract.8 The Court expressly declined to limit the FAA’s exemption to workers who personally cross state lines because that is not rooted in the FAA’s express language.9 If the Court were to follow this route and say that the truck drivers of Bissonnette are not “transportation workers in a transportation industry,” it would weaken Saxon and open holes for abuse among other employer-employee/independent contractor/franchisee relationships.

Many workers who primarily transport goods across interstate commerce are not in the “transportation industry.” They instead operate under the umbrella of a different industry entirely, despite the nature of their work being exactly what the FAA sought to protect – that which dealt with interstate commerce. Bissonnette’s dissent notes this, stating, “the plaintiffs drive trucks; they are not bakers. And while they happen to be employed by the bakery whose bread they deliver, this is nothing new.”10

Additionally, the Supreme Court has revisited the FAA’s worker exception in New Prime, Inc. v. Oliveira, and held that Section 1’s exception applies to both an employer’s direct employees and independent contractors.11 Le-Page hired Bissonnette as a compelled “franchised business,” rather than under their own employer-employee umbrella. In compelling their drivers to franchise, Le-Page Bakeries may evade the ruling of New Prime, which failed to differentiate between employees and independent contractors when determining whether a worker was exempted pursuant to FAA § 1.12 Instead, Le-Page Bakeries has obligated its workers to become “Independent Distributors” by forming contracts with these employees as a condition for work. Under this theory, future arbitration between Le-Page and similarly situated plaintiffs would be framed as business-to-business commercial arbitration beyond the scope of FAA § 1.

If incorporated workers are found to be exempt from the protection granted to them in Section 1 of the FAA, then corporations could easily undermine the FAA’s protection by simply mandating incorporation as a precondition of work. This ruling would allow companies to enforce arbitration against transportation workers—including seamen and railroad workers—in clear circumvention of the statue’s plain meaning. This interpretation would clearly eat away at the FAA’s exception, diminish the meaning and power of the statute as a whole, and perpetuate an abusive relationship between these workers and their employers who are unable to adequately advocate for themselves as a business, as they are not truly operating as such.

  1. Federal Arbitration Act, 9 U.S.C. §1. ↩
  2. See Bissonnette v. LePage Bakeries Park St., LLC, 144 S. Ct. 479 (2023) ↩
  3. Bissonnette v. LePage Bakeries Park St., LLC, 49 F.4th 655, 662 (2d Cir. 2023) ↩
  4. See id. at 660. ↩
  5. See id. at 661-62. ↩
  6. 142 S. Ct. 1783, 1791 (2022) ↩
  7. Id. at 1790 (quoting Circuit City Stores v. Adams, 532 U.S. 105, 121 (2001)). ↩
  8. Id. at 1785 (“Saxon is therefore a member of a ‘class of workers’ based on what she frequently does at Southwest—that is, physically loading and unloading cargo on and off airplanes…”). ↩
  9. Id. at 1791-92. ↩
  10. Bissonette, 49 F.4th at 671 (Pooler, J., dissenting); see generally Loc. 50, Bakery & Confectionery Workers v. Gen. Baking Co., 97 F. Supp. 73, 74 (S.D.N.Y. 1951). ↩
  11. 139 S. Ct. 532, 539-43 (2019). ↩
  12. See id. at 543-44 ↩
ALR 2023 - 2024

In Payne? Can’t Pay? The Eleventh Circuit’s Paradoxical Standard for Loser-pays Arbitration Provisions

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By

Ava McCartin

Under the Federal Arbitration Act (“FAA”), United States courts will uphold and enforce arbitration agreements unless they are voidable under contract law.1 While not specifically stated in the FAA, the doctrine of “effective vindication” empowers courts to void what would otherwise be facially valid arbitration agreements when the agreement would preclude a party from effectively vindicating their legal claims.2 When bringing an effective vindication claim, claimants primarily argue that the cost associated with arbitration bars effective vindication of legal rights.

In 2013, the Supreme Court addressed this judicially crafted doctrine directly in American Express Co. v. Italian Colors.3 In Italian Colors, the court recognized the doctrine as a valid exception to the general mandate of the FAA but declined to apply it in that particular instance.4 However, the court explained that a party could “certainly” rely on effective vindication to escape an arbitration provision where the agreement forbade asserting a statutory right in any forum, and possibly where filing and administrative fees were high enough to preclude a party from accessing the forum.5 But what if the administrative fees are uncertain or premised on losing on the merits?

In Payne v. Savanah College of Art and Design, the Eleventh Circuit was faced with those very issues.6 Payne concerned an arbitration provision in an employment contract, which Payne—the employee—sought to avoid under the doctrine of effective vindication.7 In Payne, the would-be-litigant argued that the agreement’s “loser pays” provision was unconscionable because if he were to lose at arbitration he would not be able to pay the arbitrator’s bill.8 To support this claim, Payne provided expert testimony that predicted the cost of arbitration could be up to $39,000 or more, declarations about his inability to pay, and testimony from another former SCAD employee who explained that “the risk of paying significant arbitration costs discouraged him from continuing [to pursue] his discrimination case against SCAD.”9 The risk of financial ruin, Payne argued, prevented him from effectively vindicating his statutory right to be free from racial discrimination.10 The Eleventh Circuit disagreed.

Because the employer would pay the cost up-front, the court distinguished this situation from the hypotheticals in Italian Colors, where fees were required as a threshold matter to initiate arbitration.11 Unlike threshold costs, which will certainly be incurred, the costs in Payne were “speculative.” The court reasoned that the only way Payne could prevail with his effective vindication argument would be if he could show that he would be “likely” to pay.12 But the only way that Payne would be likely to pay would be if he were “likely” to lose on the merits of his case. “The ‘problem,’” the court explained “is that [Payne] might win.”13 This standard is unworkable.

When costs are assigned only to a losing party, the Eleventh Circuit’s standard essentially forces a party to admit that their case lacks merit as a prerequisite to bringing forth the effective vindication doctrine. But even if a party believes that they have a sound case, as they should to initiate litigation, the fear of losing at arbitration and subsequently going bankrupt could still deter that party from arbitration. And in fact, that scenario is exactly what happened to Darnell Holcomb, another former SCAD employee whose testimony Payne introduced in his case.

Like Payne, Holcomb was fired from his position at SCAD, attempted to sue, but “the risk of paying significant arbitration costs discouraged him from continuing his discrimination case against SCAD.”14 By creating a loser-pays cost shifting agreement, SCAD effectively forces employees to gamble on their legal claims: the employee must either proceed with arbitration and risk footing tens of thousands of dollars in fees, or drop the claim entirely. But how much money are litigants forced to gamble with? Could an arbitration agreement impose a one-million-dollar fee on the losing party? Under Eleventh Circuit precedent, unless a party could show they would be likely to lose that case, the answer seems to be “yes.”

To remedy this paradoxical standard, legislative intervention is required. Congress should codify a clear effective vindication doctrine in the FAA itself that considers both front and back-end costs of arbitration. A workable standard should ask whether the certain and uncertain costs of arbitration would deter a reasonable person in the plaintiff’s position from pursuing claims in the arbitral forum. In doing so, Congress could end the judicial interpretation of the doctrine of effective vindication, close this cost shifting contract loophole, and better serve the pursuit of justice for Payne and other plaintiffs like him.

  1. 9 U.S.C.A. § 2. ↩
  2. Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 235 (2013). ↩
  3. Id. ↩
  4. Id. ↩
  5. Id. at 236. ↩
  6. Payne v. Savannah Coll. of Art & Design, Inc., 81 F.4th 1187, 1190 (11th Cir. 2023). The relevant facts of Payne are as follows: Payne was a fishing coach for SCAD. SCAD fired Payne from his job and he subsequently brought suit for racial discrimination and retaliation. SCAD moved to dismiss and settle the case in arbitration and Payne opposed. ↩
  7. Id. ↩
  8. Id. at 1192. (“In making his/her award, the arbitrator shall require the non-prevailing party to bear the cost of the arbitrator’s fees, provided however, that SCAD will advance the cost of the arbitrator’s fees at the initiation of the arbitration, subject to reimbursement by the employee following arbitration if the employee does not prevail.”) ↩
  9. Id. ↩
  10. Id. ↩
  11. Id. at 1195. ↩
  12. Id. at 1196-97. ↩
  13. Id. at 1197. ↩
  14. Id. at 1191. ↩
ALR 2016 - 2017

Supreme Court to Hear Murphy Oil USA v. NLRB

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By: Lauren Piciallo

The Supreme Court will hear Murphy Oil USA, Inc. v. N.L.R.B., which raises significant questions about the conflict between arbitration and class action suits in the employment context. Among other holdings, the Fifth Circuit held that Murphy’s Oil “did not commit unfair labor practices by requiring employees to sign its arbitration agreement or seeking to enforce that agreement in federal district court.” 808 F. 3d 1013, 1015 (2015). While such a holding is common practice in arbitration, it had the effect of waiving the employees’ rights to pursue class actions under the National Labor Relations Act (“NLRA”).

The arbitration agreement stated that “any and all disputes or claims [employees] may have… which relate in any manner … to …. employment” must be submitted to individual arbitration. Id. at 1019.  Further, parties to the agreement “waive their right to… be a party to any group, class or collective action claim… in any other forum.” Id.

The holding in D.R. Horton, Inc., 357 N.L.R.B. 184 (2012), is relevant to this case. In D.R. Horton, the Board held that “agreements requiring employees to waive their right to pursue class and collective claims “restricted employees’ Section 7 ‘right to engage in protected concerted activity in violation of Section 8(a)(1).’” D.R. Horton, Inc., 375 N.L.R.B. 184 (2012). Section 8(a) makes it unlawful for an employer to commit unfair labor practices. 29 U.S.C. § 158(a).  However, the Fifth Circuit later overruled the Board’s holding stating that: “[1] the NLRA does not contain a “congressional command overriding” the Federal Arbitration Act (“FAA”); and (2) “use of class action procedures… is not a substantive right” under Section 7 of NLRA.”  Murphy Oil USA v. NLRB, 808 F. 3d at 1016.

Though the Fifth Circuit found that no violation of the NLRA occurred where an employer restricted class or collective actions in an employment agreement, the Board again reaffirmed D.R. Horton when the Board heard the case for Murphy Oil USA.  Id. at 1017. The Board relied on the holding in Bill Johnson’s Restaurants, Inc. v. NLRB, where the Supreme Court held that for a lawsuit to be enjoinable, the “lawsuit prosecuted by the employer must (1) be “baseless” or “lack[ing] a reasonable basis in fact or law” and be filed “with the intent of retaliating against an employee for the exercise of rights protected by” Section 7, or (2) have “an objective that is illegal under federal law.” Id. at 1021.  In the present case, the Fifth Circuit found that Murphy Oil’s motion to dismiss and compel arbitration was not “baseless.” Id.

 This case may have important implications on class action suits in the employment context. As can be seen from the facts of this case, some employees are prevented from bringing class actions against their employers. This may have the effect of dissuading plaintiffs from bringing actions due to the cost of arbitration. Here, however, if the court decides on this issue, class action suits may be protected, and employees may be able to bring class action suits against the employer.

ALR 2016 - 2017

District Court for the Western District of Pennsylvania Denies Validity of Agreement to Arbitrate

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By: Lauren Piciallo

This blog will describe the Western District of Pennsylvania’s analysis in Scott v. Education Management Corporation, which illustrates an important practice of resisting arbitration agreements that were formed as a condition of employment after a legal dispute arose. In Scott v. Education Management Corporation, the District Court found that the parties did not agree to arbitrate claims. Scott v. Education Management Corporation, No. 2-14-cv-00537 (D.C. Pa. 2016).

The dispute arose when Mr. Scott filed an Age Discrimination complaint, and Mr. Jones filed a Race Discrimination complaint, in August of 2012, against the Education Management Corporation (“EDMC”).  Id. at 3. After the complaints to the Equal Employment Opportunity Commission (“EEOC”) were filed, in late September to early October, EDMC enacted a new policy for alternative dispute resolution. Id. The policy stated that it “intended to create the exclusive means by which all work-related disputes between [EDMC] … and its employees will be promptly addressed and fairly resolved.” Id. This included all claims regarding Employment Discrimination. Id. The company then expressed that the new alternative dispute resolution policy was a “condition of continued employment.” Id. at 4. After the attorney for both Mr. Scott and Mr. Jones wrote to express the illegality of such a policy, both men were terminated from their positions. Id.  After the attorney requested a right to sue from the EEOC, both men filed, in court, complaints against EDMC alleging that the company disEncriminated and retaliated against them, in violation of the ADEA, Title VII, and Pennsylvania common law. Id. The trial court dismissed both complaints with reference to the arbitration policy. Id.

             On appeal the District Court noted that all valid agreements to arbitrate should be enforceable if the dispute is within the scope of the arbitration agreement. Id. at 7. Under Pennsylvania Law, which the District Court applied, a valid contract for arbitration exists if “(1) both parties manifested an intention to be bound by the agreement; (2) the terms of the agreement are sufficiently definite to be enforced and (3) there was an exchange of consideration.” Id. While continued employment is a manifestation of assent and the men continued to be employed, the court found that assent was questionable due to the individuals’’ immediate objection via their attorney to the alternative dispute resolution policy. Rather, the court reiterated the Pennsylvania Superior Court in Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alternatives, Inc., stating “[a] contract cannot be implied when assent has been expressly disavowed.” Id. at 9 (citing Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alternatives, Inc., 764 A.2d 587, 594 (Pa. Super. Ct. 2000)). This result was supported by case law as agreements to arbitrate must be “clear and unmistakable.” Id. at 9.

Though this case is not binding upon higher courts, it notes an important practice of resisting alternative dispute resolution policies put in place after the suit has been brought against the company. By resisting the validity of the arbitration clause, the attorney was able to prove that neither party agreed to the alternative dispute resolution policy. As a result, neither party had to submit to the arbitration agreement.