Client Alert: Supreme Court’s 2018-2019 Term Could Impact Employers

Client Alerts Labor & Employment

The U.S. Supreme Court’s 2018-2019 docket includes many cases that will likely impact both public and private employers.  In particular, the Supreme Court is reviewing several lower court decisions that could impact the enforceability of employee arbitration agreements.  Earlier this year (during the Supreme Court’s 2017-2018 term) the Supreme Court issued a landmark decision in Epic Systems Corp. v. Lewis, in which the Court held that class action waivers contained in employment arbitration agreements are enforceable under the Federal Arbitration Act (“FAA”).  (For more information on the Supreme Court’s decision in Epic Systems, see Wyrick’s article here).  The Supreme Court’s 2018-2019 docket demonstrates that issues related to employee arbitration agreements continue to be an important focus for the Roberts Court.

Lamps Plus, Inc. v. Varela, U.S. No. 17-988

In Lamps Plus, the Supreme Court will decide whether the FAA forecloses a state law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.  The defendant in Lamps Plus maintained an arbitration agreement that provided that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings.”  The Ninth Circuit Court of Appeals held that based on this language, the parties’ arbitration agreement authorized the plaintiff to pursue his claims through class arbitration, rather than solely on an individual basis.  Specifically, the Ninth Circuit held that California contract law required ambiguous contract terms to be interpreted against the drafter (in this case the defendant), and that the language of the arbitration agreement therefore permitted class arbitration.

Many commentators have pointed out that the Ninth Circuit’s decision in Lamps Plus seems to conflict with the U.S. Supreme Court’s decision in Stolt-Nielson v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).  In Stolt-Nielson, the Supreme Court held “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  The Supreme Court’s decision in Lamps Plus will likely impact any employer that maintains arbitration agreements which are silent on the issue class-wide arbitration.  The Supreme Court will hear oral arguments in the Lamps Plus matter on October 29, 2018.

Henry Schein, Inc. v. Archer and White Sales, Inc. No. 17-1272

Many arbitration agreements contain “delegation clauses,” which provide that the arbitrator (not the court) must decide threshold issues of whether an issue should be decided by an arbitrator or the court.  In Henry Schein, the parties’ arbitration agreement expressly excluded claims for injunctive relief.  Although the parties’ arbitration agreement contained a delegation clause, the Fifth Circuit Court of Appeals held that the express exclusion of claims for injunctive relief from the arbitration clause rendered the question of arbitrability “wholly groundless,” and that the court therefore was not required to submit the question to an arbitrator. 

In Henry Schein, the Supreme Court will determine whether the FAA permits a court to decline to enforce a delegation clause if it determines that the question of arbitrability is “wholly groundless.”  Because many employee arbitration agreements contain delegation clauses, the Court’s decision will likely impact the enforceability of such agreements.  The Supreme Court will hear oral arguments in Henry Schein on October 29, 2018.

New Prime Inc. v. Oliveira, U.S. No. 17-340

In New Prime, the Supreme Court will determine whether the FAA’s Section 1 exemption is applicable to independent contractors.  Section 1 of the FAA provides that the Act does not apply to certain contracts, including “employment contracts” between employers and transportation workers.  The plaintiff in New Prime worked as a long-haul trucker and independent contractor.  After the plaintiff initiated a lawsuit against her employer, she contended that New Prime could not compel her to arbitrate her claims.  Specifically, the plaintiff contended that her “employment contract” was exempt from the FAA pursuant to Section 1, regardless of whether the employer classified her as an employee or an independent contractor.  The First Circuit Court of Appeals agreed with the plaintiff and determined that Section 1 applies to all transportation workers, regardless of whether they are classified as employees or independent contractors.  The lower court also held that a court must decide whether FAA exemptions apply before compelling a case to arbitration, even if the arbitration agreement contains a “delegation clause.”

The Supreme Court will review the First Circuit’s decision that the FAA’s Section 1 exemption applies to independent contractors, as well as the lower court’s decision regarding whether FAA exemptions must be resolved by a court or an arbitrator.  The Court’s decision will impact any employer in the transportation industry, particularly those employers with existing arbitration policies.  The Court heard oral arguments in New Prime on October 3, 2018.

Mount Lemon Fire District v. Guido, No. 17-587

In Mount Lemon Fire District, the Supreme Court will determine whether the Age Discrimination in Employment Act (“ADEA”) applies to all government entities regardless of size.  Under the ADEA, a private employer must employ at least twenty (20) employees to be covered under the Act.  The plaintiffs in Mount Lemon Fire District are two firefighters who sued their employer for age discrimination.  The employer argued that because the fire district only employed eleven (11) employees, the ADEA did not apply.  The Ninth Circuit disagreed and held that the ADEA applies to all state political subdivisions, regardless of size.

The Ninth Circuit’s decision created a circuit split, as several other federal appellate courts have held that the twenty-employee threshold under the ADEA applies to both private and public employers.  The Supreme Court heard oral arguments in Mount Lemon Fire District on October 1, 2018.

Bottom Line

The Supreme Court’s 2018-2019 docket highlights the importance of updating employee arbitration agreements to comply with recent state and federal case law.  In light of the Supreme Court’s decision in Epic Systems (as well as the cases on the Supreme Court’s 2018-2019 docket) Wyrick encourages employers to consider implementing mandatory arbitration agreements that include clear delegation clauses and class action waivers.