U.S. Supreme Court, in a 5-4 Ruling, Upholds Employers' Use of Class Action Waivers in Employment AgreementsMay 21, 2018 | David Eisenberg
In a closely watched and long-awaited ruling, the U.S. Supreme Court on May 21st held that it is lawful for an employer, in an agreement with an employee, to provide that all disputes be resolved through one-on-one arbitration between the company and the employee. Accordingly, an employee may waive his right to bring his claims in a class action or collective action.
The decision, in a case titled Epic Systems Corp. v. Lewis, resolved a split in authority between Circuit Courts of Appeal, and actually resolved three recent separate appellate court cases with very similar facts. (The other two cases involved employers Ernst & Young, and Murphy Oil USA.) In each instance, the employee had entered into an employment agreement with his employer, which referred disputes to arbitration, and which contained a class action waiver clause. In the Murphy Oil case, the Court of Appeals had upheld the arbitration/class waiver clause. In Epic Systems and Ernst & Young cases, the Courts of Appeal had denied enforcement of those clauses.
At issue was the friction between, on one hand, a consistent line of recent Supreme Court cases upholding arbitration clauses with class waivers, under the Federal Arbitration Act (e.g. Concepcion, Italian Colors, Kindred Nursing); and a doctrine first espoused by the National Labor Relations Board in 2012, in the D.R. Horton case, holding that an agreement purporting to waive class action rights was unenforceable, because it encumbered the fundamental right under Section 7 of the National Labor Relations Act for employees to engage in concerted activity for their mutual aid or protection.
The majority opinion, written by Justice Gorsuch, rejected the employees’ argument about Section 7 rights, holding that the NLRA “does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.” The opinion further observed that unlike the NLRA, various other federal statutes contain very specific language about the manner in which disputes should be resolved, and “when Congress wants to mandate particular dispute resolution procedures it knows exactly how to do so.”
This is a very important ruling for employers. An employer considering whether to resolve disputes with its employees through arbitration might take be tempted to take a narrow view in weighing whether arbitration is worth the bother, compared to having disputes resolved in court. The arguments against arbitration go roughly as follows: It is no longer cheaper than court. Discovery is allowed in arbitration. Cases take a long time to resolve. Arbitration fees can be substantial. And arbitrators are more likely to “split the baby”, and issue a compromise ruling in a case, even where the employer’s position is meritorious.
But this type of analysis overlooks an important additional factor. For it is now established law that an employment agreement containing an arbitration clause can preclude a wage-hour claim or discrimination claim from being brought in court as a collective action or class action. Employers who have been “on the fence” about whether to utilize arbitration agreements with class waiver clauses, because of the legal uncertainty about their enforceability, now have their answer. And if avoidance of class actions is a high priority for the company, now would be a good time to take action.
In Lovelace v. Van Tine, the Missouri Court of Appeals, Eastern District, applied the “intra-corporate immunity” rule, and upheld the dismissal of a defamation claim filed by a medical assistant against a physician at the hospital where both worked.
Plaintiff Lovelace worked for the Washington University School of Medicine for 12 years, but was terminated after the Defendant, Dr. Van Tine, reported to her supervisors that Lovelace said a certain job candidate should not be hired because that job candidate, as quoted in the opinion, “doesn’t like working with white people.” After being confronted by her supervisors about this allegation, Lovelace called in sick for several days, allegedly due to her distress. She was first placed on administrative leave, but her employment was later terminated. Her lawsuit against Dr. Van Tine followed, asserting that his report to her supervisors was false and defamatory.
A claim for defamation requires a Plaintiff, such as Lovelace, to plead and prove the following elements:
1) a publication,
2) of a defamatory statement,
3) that identifies the plaintiff,
4) that is false,
5) that is published with the requisite degree of fault, and
6) damages the plaintiff’s reputation.
At issue with Lovelace’s Petition was the element of “publication” -- the communication of the defamatory matter to a third person. The pivotal question was whether Dr. Van Tine’s communication was made to a third person, or whether, in the eyes of the law, it was a protected internal communication, within the hospital’s management group, and subject to intra-corporate immunity.
The idea behind this long-standing rule, as it applies to a defamation case, is that when a false statement is made and/or repeated in the context of a business, this generally does not constitute a publication when the business is merely communicating with itself.
The rule, however, does not offer protection to all communications within the corporate entity. The Missouri Supreme Court, in Rice v. Hodapp, has held that defamatory statements made by company supervisors or officers to non-supervisory employees constitute publication for purposes of a defamation action. However, communications between company supervisors or officers, or made by a non-supervisor to a supervisor or officer, are a different matter.
The public policy behind the intra-corporate immunity rule is to promote responsible reporting of issues within the work place from the bottom to the top or, in certain situations, along the same, linear supervisory lines, without fear of reprisal against the person making the report. The rule encourages reporting of inappropriate work place actions or comments to those in the business who are responsible for addressing those issues - i.e. those who handle the hiring or discipline decisions. Those who receive the reports are expected to take reasonable steps to investigate the report to ensure the report was made in good faith.
Conversely, per the Rice decision, communications made to non-supervisors - who have no need to know the information, and no responsibility for acting on inappropriate conduct – are not protected.
Without the intra-corporate immunity rule, there could be a chilling effect on responsible reporting to management by employees, for fear they could face a lawsuit for reporting the issue. However, the intra-corporate immunity rule apparently is alive and well in Missouri. Indeed, in the case of Lovelace, it was used to affirm the dismissal of a defamation complaint where the information in question was reported only to company management, and no outside publication of the alleged defamatory statement occurred.
A recent ruling by the Court of Appeals for the Eastern District of Missouri illustrates the perils of using disjunctive verdict directing instructions. In Kader v. Bd. of Regents, the court reversed a $2.5 million verdict against Harris-Stowe State University (“HSSU”) and remanded the case for a new trial based upon instructional error in the disjunctive verdict directing instruction.
Plaintiff Kader sued under the Missouri Human Rights Act, alleging that the Board of Regents of HSSU discriminated against her based upon several factors, including race and national origin, and retaliated against her for opposing the university’s discriminatory practices. Kader, originally from Egypt, came to the United States on a visa for individuals involved a work and study based program. After completing her studies, she worked at HSSU for three years under her original visa. HSSU then appointed a new dean to the program where Kader worked, and Kader alleged she received poor reviews from the new dean based upon her national origin. She reported this to the president of the university.
When Kader’s visa was about to expire, she sought assistance from HSSU to obtain a new visa. HSSU agreed to submit the paperwork she needed for this new visa and did provide the initial information needed. When Kader had not heard about whether her visa was granted, she contacted the United States Citizenship and Immigration Services and learned it had requested additional information from HSSU, but had not received a response.
When Kader contacted HSSU to inquire about the additional information requested, it denied receiving any such request. HSSU further informed Kader that her visa application had been denied and she had to leave HSSU within 30 days. Kader requested a work leave of absence, which HSSU did not provide. Three days later, Kader again requested a leave of absence from HSSU but received no response. Thereafter, Kader received a letter from HSSU that it would not appeal the denial of her visa application.
During the trial, the court gave the jury disjunctive verdict directing instructions, instructing them to rule in Kader’s favor if: (1) the jury found HSSU failed to do one or more of five listed acts, one of which was whether HSSU denied Kader a work leave of absence; (2) Kader’s national origin or complaints of discrimination were a contributing factor to HSSU’s failure to do any of those acts, and (3) such failure damaged Kader. The jury returned verdicts in Kader’s favor on her claims of national origin discrimination and retaliation.
In reversing the trial court, the appellate court relied on authority holding that “[i]n order for disjunctive verdict directing instructions to be deemed appropriate, each alternative must be supported by substantial evidence.” The court held that the denial of a work leave of absence was not supported by substantial evidence “because the record shows that, at the time she was denied leave, Dr. Kader did not have a valid visa authorizing her to work in the United States, and, therefore, HSSU could not legally employ her.” Therefore, the court declined to find that the denial of employment or a work leave of absence to one who no longer has a valid visa is discriminatory or retaliatory conduct.
“[A]s there is no way to determine upon which disjunctive theory the jury chose, we cannot rule out the possibility that the jury improperly returned its verdict upon a finding that HSSU discriminated against Dr. Kader by denying her a work leave of absence, which misdirected or confused the jury,” explained the court. Accordingly, the judgment was reversed and remanded for a new trial.
For more on this subject, see our earlier blog post titled “Employers Know That Instructions Matter.”
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The BSCR Employment Blog examines topics and developments of interest to employers, Human Resources professionals, and others with an interest in recent legal developments concerning the workplace. This blog will focus on Missouri and Kansas law, and on major developments under federal law, and at the EEOC and NLRB. Learn more about the editor, David M. Eisenberg, and our Employment & Labor practice.
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