THE EVOLVING ENFORCEABILITY OF ARBITRATION AGREEMENTS WITH CLASS ACTION WAIVERS
In recent years, employers have embraced arbitration agreements containing class and collective action waivers. The advantages to such agreements from a company perspective can be significant. First, and perhaps most importantly, an enforceable class action waiver eliminates the risk of a private party class or collective action, which – especially for companies with large numbers of employees in similar classifications and/or industries with widespread wage classification challenges – is the single largest employee-based litigation cost, outside of catastrophic injury or benefits. Second, arbitration can be more cost-efficient and expedited than federal or state court litigation, allowing the parties to get to resolution quicker and for less cost. Third, the finality of arbitration with its limited right to appeal allows for closure on an accelerated basis, as opposed to open-ended litigation.
These arbitration agreements, however, had been viewed skeptically by many courts and government agencies. Critics objected to the elimination of the class action vehicle, which – according to them – could effectively prevent employees from asserting their rights because of limited individual damages. Critics also objected to removing from the public eye of the court system disputes alleging unfair treatment in the workplace. And government agencies with authority to investigate and initiate litigation on behalf of workers made clear that these agreements could not be an obstacle to their right to bring such litigation on a group basis.
Nonetheless, in a series of decisions over the last decade or so, the United States Supreme Court rejected many of the arguments previously used to invalidate such arbitration agreements and came down squarely in favor of enforcing the agreements if they were properly drafted and entered. The Supreme Court made clear that class/collective action waivers did not create an elevated standard of enforceability of the agreement and, if the agreement was otherwise enforceable based on general contract principles, then it should be enforced and the waiver applied. One by one, arguments in opposition fell, and the general consensus was that a properly-drafted agreement would more likely be enforced than invalidated.
Now, a recent federal circuit split has revitalized the debate over the enforceability of these agreements, with a likely showdown at the Supreme Court to occur. Specifically, the Seventh Circuit and Ninth Circuit have recently concluded that requiring class and collective action waivers as a condition of hire or continued employment violates the National Labor Relations Act. See Lewis v. Epic Systems Corp., and Morris v. Ernst & Young. In doing so, these circuits have adopted the reasoning of the National Labor Relations Board that class waivers violate an employee’s right to engage in protected concerted activity for mutual aid and protection under Sections 7 and 8 of the NLRA. This reasoning, which had previously been rejected by the Second, Fifth, and Eighth Circuits, as well as the vast majority of federal district court opinions addressing the argument, creates a potential new avenue for employees filing putative class actions to invalidate the arbitration waivers.
The Third Circuit has not addressed this issue definitively nor given any guidance as to where it would come down in response to such a challenge. With the circuit split, it would not be surprising for the Supreme Court to take up the issue on appeal. However, many of the prior Supreme Court arbitration decisions were decided by a 5-4 vote with Justice Scalia siding with the majority, so it is unclear how the current 4-4 composition would decide the issue.
For companies, the takeaway should be that these agreements are still valuable in guarding against unwanted class actions but that there are now cracks in the armor. Companies with class and collective action concerns would be well-advised to continue to consider these arbitration agreements and make sure that they are drafted and implemented properly to maximize the likelihood of enforcement. In the meantime, pending Supreme Court action, the impact of NLRB reasoning is unsettled.
By: Jonathan S. Krause
THE FIFTH CIRCUIT ALLOWS A JURY TO DECIDE WHETHER AN EMPLOYER THAT MERELY IMPLEMENTED, POSTED AND TRAINED SOME EMPLOYEES ON ITS SEXUAL HARASSMENT POLICY EXERCISED “REASONABLE CARE” UNDER FARAGHER/ELLERTH
As most employers know, in a pair of cases called Faragher v. City of Boca Raton and Burlington Industries, Inc. v. Ellerth, the Supreme Court created an exception to the general rule that employers are strictly liable for supervisor harassment, provided the harassment did not result in a tangible employment action. To avail itself of the affirmative defense, the employer must show that: (1) it exercised reasonable care to prevent and remedy promptly any harassing behavior; and (2) the employee alleging harassment unreasonably failed to take advantage of preventative or corrective opportunities provided by the employer, or to otherwise avoid the harm. In a Fifth Circuit decision rendered this summer – Kandace Pullen v. Caddo Parish School Board – the Court made it clear that an employer has not exercised “reasonable care to prevent and remedy” harassment as a matter of law merely by implementing, posting and training some employees on its anti-harassment policy.
In Pullen, the plaintiff claimed she was sexually harassed by her supervisor (Graham) on many occasions. Plaintiff, however, did not contemporaneously complain to anyone about this conduct. The company learned of the alleged harassment only in the course of investigating a harassment complaint lodged by another potential victim. At the conclusion of the investigation, the School Board found that Graham’s conduct was not harassment but was inappropriate and unprofessional nonetheless. For this, the school board suspended Graham. Pullen sued the School Board and Graham under Title VII. Defendants argued that they were entitled to summary judgment on its Faragher/Ellerth defense. The Fifth Circuit disagreed.
Regarding the first element of the Faragher/Ellerth defense, the Fifth Circuit explained that, typically, where the plaintiff admits that he/she knew about the policy and complaint procedure and the policy was reasonable, the first element has been met. In the Pullen case, Pullen conceded to the existence of the anti-harassment policy, did not contest that it was reasonable, and there was evidence that the employer had trained some employees on the policy and had posted it on bulletin boards in the office and online. Nevertheless, the Fifth Circuit held that a jury should decide if the company had acted reasonably. The Court so held given evidence that, if believed, would show that not all employees (including the alleged harasser) had been trained on sexual harassment and had been informed about the policy, where to find it or to whom complaints could be made. Pullen, in particular, claimed that she never had received the policy. Further, the evidence created a reasonable inference that the policy had not been posted in a conspicuous location, as many employees testified they never noticed it. Thus, the School Board was not entitled to summary judgment.
This case makes it clear to employers that an anti-harassment policy, even if reasonable, may be ineffective and of little worth if the employer does not take adequate steps to train employees on the policy, make the policy visible and readily available to employees, and reiterate the provisions in the policy on a regular basis.
By: Lee D. Moylan
SEXUAL HARASSMENT TRAINING: IS YOUR COMPANY DOING ENOUGH?
As discussed in the above article on the Fifth Circuit’s holdings on employer-implemented sexual harassment policies in the Faragher/Ellerth cases, an anti-harassment policy, even if “reasonable,” may still be ineffective if an employer does not provide sufficient training on the policy. This leaves many employers asking: “What can we do to ensure our sexual harassment policy is effective and enforceable?” In addressing that question, we first examine the current culture and the factors putting employers at risk for harassment claims, and then provide specific suggestions for effective training.
Issues and Risks Related to the Current Workplace Culture
In June, the EEOC’s Select Task Force on the Study of Harassment in the Workplace issued a Report on its evaluation of the prevalence of harassment in the workplace despite the establishment of legal liability and the widespread implementation of workplace compliance and training programs. The Report noted that despite such programs, workplace harassment remains a persistent problem, with almost one third of charges filed with the EEOC in 2015 including an allegation of harassment. In response to research surveys, almost 60% of women report having experienced gender harassment in the workplace, which can include sexually crude terminology or displays and sexist comments. The EEOC notes that gender discrimination is the most common form of harassment and differs from unwanted sexual attention in that it aims to insult and reject women rather than pull them into a sexual relationship.
The EEOC has found that organizational culture is one of the key influences of workplace harassment. According to researchers, general incivility is often a precursor to workplace harassment as it creates a climate of ridicule and disrespect in which harassing behaviors are tolerated. Also, businesses in male-dominated industries or workplaces largely led by men appear to have increased instances of workplace harassment. In such cases, researchers have found that men may use the suppression of women as a way to prove their masculinity, while women may downplay harassment in an effort to gain access to the elite “boys club.”
Another factor that may contribute to the continuing presence of harassment in the workplace is the fact that most incidents go unreported. The majority of individuals who experience workplace harassment never report the harassing conduct to their employer, mostly based out of fear that they will not be believed, that the employer will not take any action to resolve the issue, or that they will be subjected to professional or social retaliation. In fact, the EEOC reports that only 6-13% of individuals who experience harassment file a formal complaint, meaning that, on average, approximately 87-94% do not formally report the conduct.
Why Your Current Harassment Training May be Deficient and How to Fix the Problem
Most of the training provided by employers is focused on building a legal defense to a potential or future lawsuit. This places the emphasis on the wrong issue by focusing on the legal definition of sexual harassment. Instead, employers should provide training that focuses on inappropriate behavior in the workplace and methods to change that behavior in order to create a work environment where employees feel safe, secure and respected. Training should focus on the importance of promoting professional and non-harassing behavior in the workplace, rather than simply providing instruction on the steps to take once a harassment claim is raised. Moreover, the EEOC has concluded in its Report that, to be effective in stopping harassment, training must be part of a holistic effort undertaken by the employer to prevent harassment, must be clearly supported by upper management, and must be enforced consistently.
Based on its investigation, the EEOC has recommended employers implement the following types of training:
For all types of training, the EEOC recommends that employers conduct and reinforce their programs on a regular basis, and routinely evaluate such programs to ensure they are effective. It also recommends that training be conducted by live, interactive trainers rather than computer and/or video based training.
In addition to the basic moral and legal obligations to stop and prevent sexual harassment in the workplace, employers can also benefit financially from an effective training program. Harassment claims can be very costly, resulting in the diversion of time, energy and resources from the company to legal representation, litigation, and damages. Other costs include detrimental workplace effects including decreased performance and productivity, increased employee turnover, and reputational harm.
By: Carianne P. Torrissi