New York Times Article: Arbitration Everywhere, Stacking the Deck of Justice -- Is Mainstream Media Finally Recognizing Class Action Waivers as a Political Issue?

As every lawyer practicing in the field has known since at least 2011, the U.S. Supreme Court's approval of mandatory class action waivers in AT&T v. Concepcion has reshaped the entire field of consumer and employment law.  

The odd thing is that this momentous legal development has flown entirely under the radar of the media.  I am sure it's hard for journalist to make the technicalities of Federal Arbitration Act preemption seem "sexy."  But that's still a pretty lame excuse for totally ignoring one of the most important legal story of the decade.  

It was therefore surprising and interesting to see that the nation's "paper of record" is finally on the class-waiver beat.  In an October 31, 2015 New York Times feature article:  Beware the Fine Print: Arbitration Everywhere, Stacking the Deck of Justice, the authors correctly identify the importance of the issue:

By banning class actions, companies have essentially disabled consumer challenges to practices like predatory lending, wage theft and discrimination, court records show.

“This is among the most profound shifts in our legal history,” William G. Young, a federal judge in Boston who was appointed by President Ronald Reagan, said in an interview. “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”
 

However, the authors also go a little overboard in blaming the Supreme Court's rulings on a shady cabal of corporate conspirators. 

More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records. Strategizing from law offices on Park Avenue and in Washington, members of the group came up with a plan to insulate themselves from the costly lawsuits.

(But like I said, it must be hard to make arbitration "sexy" without a secret conspiracy of evil-doers).

To the extent the class action ban is bad law or bad policy the only people really responsible are the five Supreme Court Justices who created the rule.  Indeed, one interesting revelation is that when Chief Justice Roberts was a private attorney working for Discover Bank, he argued for overturning the California Supreme Court decision that held such class action bans to be unenforceable.  As Chief Justice he was able to implement his own arguments by providing the fifth vote in AT&T v. Conception, which struck down the same California "Discover Bank" rule that he had advocated against as a lawyer.  

When the court ruled 5-4 in favor of AT&T, it largely skipped over Mr. Pincus’s central argument [of states' rights].

“Requiring the availability of classwide arbitration,” Justice Scalia wrote for the majority, “interferes with fundamental attributes of arbitration.” The main purpose of the Federal Arbitration Act, he wrote, “is to ensure the enforcement of arbitration agreements according to their terms.”

It was essentially the same argument Mr. Roberts had made as a lawyer in the Discover case.

 Perhaps the Times' article will start a long-overdue trend of more media attention and political discourse on the subject of class action waivers.  Or, more likely, the issue will hing on the next appointment to the Court which may result in a new 5-vote coalition to re-examine the rule.   

Side Note:  I couldn't help looking up the NYT subscriber agreement to see if it has a class action waiver clause. It doesn't.   But the WSJ has one.  

 

 

 

 

 

 

 

Bans on Re-employment In Settlement Agreements May be Unenforceable -- Golden v. California Emergency Physicians Medical Group

Employers prefer to include a "no re-hire" provision in their settlement agreements with former employees.  This provision usually states that the former employee will agree never to re-apply for employment and, if he does, the employer will be entitled to reject his application.  

The rationale for these clauses is that any refusal to hire the plaintiff in the future could be characterized as "retaliation" for having raising protected complaints in the prior lawsuit.  And why would an employer want to settle one lawsuit only to set itself up for another?

But the validity of such "no re-hire" clauses has been cast in doubt by the Ninth Circuit opinion in Golden v. California Emergency Physicians Medical Group.  As the Ninth Circuit explained, the problem with these provisions is that they may be at odds with section 16600 of the California Business and Professions Code, which provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

In reviewing the case law interpreting section 16600, the Ninth Circuit found that California's ban on employment restraints is extremely broad in its scope and extremely "stark" in its prohibition.  As a result, the statute does not merely ban traditional "non-compete" agreements in which an employee is precluded from working for a competitor.  Rather,

[T]he crux of the inquiry under section 16600 is not whether the contract constituted a covenant not to compete, but rather whether it imposes “a restraint of a substantial character” regardless of “the form in which it is cast.

Having articulated this standard, the Court declined to apply it to the specific agreement before it, which involved a settlement agreement by a physician that bound him to never again work for "a large consortium of over 1000 physicians."    Instead, it remanded to the district court with directions to determine if the restraint was "of a substantial character," and therefore void.

It is unclear how this "substantial character" standard may be fleshed out over time.  However, relevant factors would presumably include the market share of the employer, the number of viable alternative employment opportunities in the market, and the employee's degree of specialization.  If the foreclosed employment opportunities, in the context of the specific employee and industry, are "substantial" then any "no re-hire" agreement will be void.