Guidance for Employers Considering Mandatory Arbitration

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

Guidance for Employers Considering Mandatory

Arbitration Agreements with Class and Collective

Action Waivers

By David S. Baffa, John L. Collins, and Gerald L. Maatman, Jr.

David S. Baffa, John L. Collins, and Gerald L. Maatman, Jr. are partners at Seyfarth Shaw LLP. They may be contacted at

dbaffa@seyfarth.com, jcollins@seyfarth.com, and gmaatman@seyfarth.com.

The authors of this article discuss two recent United States Supreme Court cases that help clarify the legal landscape

pertaining to arbitration agreements. In addition, the authors provide guidance for employers considering arbitration

agreements with class and collective action waivers.

Two recent United States Supreme Court cases have helped clarify the legal landscape pertaining to arbitration agreements. It

behooves employers seeking alternatives to managing their litigation risks in employee class and collective actions to consider

anew the potential solution of rolling out mandatory workplace arbitration agreements with class and collective action

waivers.

The two questions the Supreme Court recently answered were:

• Is a class action waiver in an arbitration agreement enforceable where a plaintiff’s costs of individually arbitrating a

federal statutory claim exceed the potential recovery?

• If an arbitration agreement is silent on whether disputes may be arbitrated as class actions, and the parties leave the

issue to an arbitrator to decide, what court relief is available if the arbitrator interprets the agreement to permit class

arbitration?

Though neither arose in an employment context, both cases provide guidance to employers contemplating arbitration

agreements with their employees.

CLASS ACTION WAIVERS

In American Express Co. v. Italian Colors Restaurant, the Supreme Court ruled that class action waivers in arbitration

agreements are enforceable under the Federal Arbitration Act (FAA), even if individual arbitration is economically unfeasible,

thus effectively precluding vindication of federal statutory rights. This bears particularly on wage-hour cases, where individual

claims often are small. The AmEx decision builds upon the court’s seminal class-waiver decision, AT&T Mobility LLC v.

1 American Express Co. v. Italian Colors Restaurant, 570 U.S. ___ (June 20, 2013).

2 Oxford Health Plans LLC v. Sutter, 569 U.S. ___ (June 10, 2013).

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

Conception, which ruled that enforcement of a class arbitration waiver under the FAA trumped a California statute that

sought to preclude class waivers.

AmEx, however, did not arise in an employment context, and plaintiffs’ lawyers likely will contend that it cannot apply to

wage-hour collective actions under the Fair Labor Standards Act (FLSA), because that federal statute expressly permits

collective actions. Possibly anticipating such an argument, Justice Scalia’s AmEx opinion essentially forecloses it by relying,

among other Supreme Court precedent, on Gilmer v. Interstate/Johnson Lane Corp. There, the AmEx majority stated, “we

had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue, the Age

Discrimination in Employment Act (ADEA), expressly permitted collective actions.” This, the Court said, “brings home the

point” that collective actions are not necessary to the effective vindication of statutory rights. ADEA imports the collective

action language from the FLSA, which leads to the conclusion that this reasoning applies equally to FLSA collective actions.

SILENT ARBITRATION CLAUSE INTERPRETED BY ARBITRATOR TO PERMIT CLASS

ARBITRATION

Oxford Health Plans LLC v. Sutter involved a dispute between doctors and a health plan over reimbursement for service. The

arbitration agreement at issue stated in part that “[n]o civil action concerning any dispute arising under this Agreement shall

be instituted before any court,” but said nothing about class or collective arbitration. The parties submitted the dispute to

arbitration under American Arbitration Association rules, and the arbitrator ruled that the matter could proceed as a class

arbitration, because, in his view, the language permitted arbitration of the same “universal class of disputes,” including

class cases, that it barred the parties from bringing in court. Oxford Health argued to the Supreme Court that the arbitrator

exceeded his authority under the FAA because the agreement said nothing about class arbitration, relying heavily on the

Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. In Stolt-Nielsen the Court ruled that an arbitration panel

exceeded its powers under the FAA by imposing class arbitration where the agreement was similarly silent on whether class

arbitration was authorized.

To the surprise of many, the Court disagreed. It distinguished Stolt-Nielsen by noting that the parties in that case “had

entered into an unusual stipulation that they had never reached an agreement on class arbitration.” Thus, the Court said, the

arbitrator’s imposition of class arbitration was not based on a reading of the contract or the parties’ intent, but on a policy

choice in favor of class proceedings.

Not so in Oxford Health. Noting a “stark” contrast with the facts of Stolt-Nielsen, the Court said that the Oxford Health

arbitrator did base his decision, “through and through,” on the parties’ contract, which the parties had authorized him to

interpret. And because he “did what the parties had asked,” he could not be said to have exceeded his powers, regardless

of what the Justices may have thought about the merits of his ruling. In other words, so long as he was interpreting the

agreement, the arbitrator had the right to be wrong.

The teaching of Oxford Health is clear: employers who want to require employees to arbitrate disputes but not on a class

basis must make sure the agreement explicitly states that class or collective arbitration is not permissible. Doing so in the

employment arena, however, runs right smack into the National Labor Relations Board’s D.R. Horton decision.

D.R. HORTON – CLASS OR COLLECTIVE ACTIONS AS PROTECTED CONCERTED

ACTIVITY

Employers who have or are contemplating arbitration agreements with class or collective action waivers need to be mindful

of the NLRB’s D.R. Horton decision, currently pending on appeal before the United States Court of Appeals for the Fifth

Circuit. In contrast to the Supreme Court’s seeming endorsement of class waivers in arbitration agreements in Concepcion

and AmEx, the NLRB issued a sweeping decision in early 2012 outlawing employment agreements and policies requiring

class or collective action waivers in employment disputes as a condition of employment. In the NLRB’s view, class or collective

action waivers violate employees’ rights under Section 7 of the National Labor Relations Act to engage in concerted activities

for mutual aid and protection. The NLRB also ruled that the arbitration requirement was impermissible because it did not

explicitly carve out employees’ rights to ﬁle unfair labor practice charges with the NLRB.

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

Efforts to “draft around” Horton by letting employees “opt out” of agreements received a more recent set-back by an NLRB

Administrative Law Judge (ALJ) in Mas Tec Services Co.

Applying Horton reasoning the ALJ ruled that even an “opt-out”

provision cannot save an arbitration policy requiring waiver of class or collective actions. Although employees could opt-out

of the policy within 30 days, the ALJ concluded that “an employer may not lawfully require its employees to afﬁrmatively

act in order to obtain or maintain these [Section 7] rights [to engage in collective or class actions].” As the ALJ explained,

employees who did opt out would be precluded from engaging in protected concerted activity by virtue of their inability to

cooperate with employees who did not opt-out, and thus would be disadvantaged. Furthermore, the ALJ concluded that

employees may be reluctant to exercise their opt out rights for fear of reprisals by MasTec.

The Fifth Circuit heard argument in D. R. Horton on February 5, 2013, and a decision is expected shortly. But while many

employers rightly perceived Horton as an obstacle to implementing an arbitration procedure with class and collective action

waivers, and have been waiting to see how the Fifth Circuit will rule, a series of events have given some employers the

courage to move forward with plans even before the Fifth Circuit’s ruling.

• First, numerous federal district courts (in excess of 30 at last count) explicitly have declined to follow the Horton decision.

These courts join many others in dismissing class and collective actions, and compelling instead individual arbitration

under the parties’ arbitration agreement.

• Second, the legal validity of Horton and subsequent NLRB decisions is in substantial doubt due to decisions by two

federal appellate courts ruling that ostensible recess appointments by the President to the NLRB were constitutionally

defective because the appointments were not made while Congress was actually in recess. In Noel Canning v. NLRB,

the United States Court of Appeals for the D.C. Circuit held on January 25, 2013 that the appointments of Sharon

Block, Terence Flynn, and Richard Grifﬁn to the Board on January 4, 2012 were not valid “recess” appointments

under the Constitution, because Congress was not in recess when the appointments were made, and the vacancies

did not “happen” while Congress was in recess, as required by the Constitution. Subsequently, on May 16, 2013, the

Third Circuit Court of Appeals held in NLRB v. New Vista Nursing & Rehabilitation, that Member Becker’s intrasession

appointment by President Obama in 2010 violated the Constitution’s “Recess Appointments Clause.” By ruling that

Member Becker’s appointment was invalid, the Third Circuit’s decision expands the scope of controversial Board case law

(including D.R. Horton, among others) that may be challenged on the grounds that it was not issued by a panel of three

properly appointed members.

• Third, many see the Supreme Court’s decision in AmEx as setting the stage for the rejection of the NLRB’s theory

in Horton, long believed by many in the management community to be wrongly decided and politically motivated.

In holding that Federal Rule of Civil Procedure 23 does not establish an “entitlement” to class proceedings for the

vindication of federal statutory rights, the Supreme Court noted:

One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by

satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But

we have already rejected that proposition in AT&T Mobility.

This same “opportunity” to assert Section 7 rights by way of a class or collective action underpins the NLRB’s reasoning in

Horton, and the Court’s ultimate ruling upholding an arbitration agreement under the FAA even if it prevents “effective

vindication” of a federal statutory right, seemingly portends the rejection of Horton. The legal uncertainty as to arbitration

class and collective action waivers in the employment context will remain until the appeals are exhausted. Clearly, however,

the judicial trend has been strongly in favor of enforcement of such waivers.

3 Case No. 16-CA-086102 (June 3, 2013).

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

PROS AND CONS OF IMMEDIATELY IMPLEMENTING AN ALTERNATIVE DISPUTE

RESOLUTION POLICY THAT INCLUDES NON-CLASS FINAL AND BINDING

ARBITRATION

Pros

• The potential elimination of private employment class actions for wage-and-hour, employment discrimination, and other

labor and employment claims, resulting in a signiﬁcant reduction in risk.

• A reduction in the number of claims ﬁled – as a signiﬁcant incentive for employees and former employees (and their

attorneys) to ﬁle certain claims is eliminated by restricting claims to bi-lateral (as opposed to class) resolution.

• A reduction in employment practice insurance premiums relating to class actions and individual claims corresponding to

an overall reduction in the number of both types of claims and litigation fees relating to an arbitration proceeding of an

individual claims versus civil litigation (on a class or individual claim).

• Because arbitration agreements – when implemented correctly – constitute individual agreements between an employer

and employee, the employer may selectively choose to enforce or not enforce the agreement based on individual

circumstances, without creating a precedent or jeopardizing the enforceability of other agreements.

• Generally, lower arbitration litigation costs as compared to civil litigation costs for the same matter.

• A more streamlined system for the resolution of employment claims than traditional civil litigation in the federal and

state court system.

• A reduction in the cost and man hours spent in discovery through limited discovery under the express terms of an

arbitration policy.

• A reduced risk for a “runaway” verdict that might be awarded by a jury.

• A more conﬁdential forum that generally provides private proceedings with less publicity than court proceedings.

• A quicker more deﬁnitive resolution for employment claims, given more streamlined proceedings and the limited

grounds available to appeal the arbitrator’s decision.

• More ﬂexible scheduling of witnesses than would be permitted by a court.

Cons

• If D. R. Horton is upheld, employers may mandate arbitration of most employment disputes, but cannot preclude class or

collective arbitration.

• Possible challenges may remain regarding whether FLSA collective action waivers are unenforceable under the theory

that the right to bring a collective action is a substantive right under the FLSA, and thus, like other provisions of the

statute, cannot be waived. At least one Federal judge in the Southern District of New York had determined that a class

or collective action waiver was unenforceable as to FLSA collective actions, but that decision, Rainere v. Citigroup, Inc.,

was recently reversed on appeal following the reasoning of the Supreme Court’s AmEx decision (which was also a

Second Circuit case). Although the Second Circuit is now aligned with the decisions of many other courts and several

other Circuits, further appeals or challenges may remain.

• Notwithstanding the presence of a mandatory, binding arbitration agreement, some employees will ﬁle a lawsuit directly

in court. In this situation, enforcing an arbitration agreement in court adds a procedural step that may increase litigation

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

costs related to pre-trial motion practice. In addition, courts may refuse to compel arbitration based on state laws

regarding contract formation, including claims of insufﬁcient consideration, illusory promises, unconscionability, or other

grounds. In some cases, challenges to the enforceability of an arbitration clause proceed to the appellate court level,

generating signiﬁcant legal fees prior to reaching the merits of the dispute.

• Although many federal district courts in California have upheld arbitration agreements and dismissed class and

collective actions, state courts in California are split on how to balance the FAA against California public policies and

statutory schemes providing for class and collective actions, and continue to invalidate arbitration agreements on

unconscionability grounds. While it is possible to draft arbitration programs that will satisfy challenges under California

law, the area remains unsettled until the California Supreme Court provides clarity. In this regard, all eyes are on the

Iskanian v. CLS Transport case, where the California Supreme Court is expected to rule on whether state public policy

and statutory schemes (such as the Private Attorney General Act) are trumped by the FAA. No less than 14 amici briefs

have been received by the court, and a ruling is expected this year.

• With regard to individual disputes, from an employee perspective, arbitration is easy, fast and cheap. As a result, more

employees pursue arbitration on a pro se than might consider doing so in a more complicated, expensive court setting.

• An arbitration policy generally will be ineffective and unenforceable with regard to the ﬁling of administrative charges,

and cannot prevent the United States Department of Labor, the Equal Employment Opportunity Commission, or similar

agencies from bringing suit, including class and collective actions on behalf of employees.

• In order to avoid claims that arbitration agreements are illusory, employers should limit their right to change, alter or

terminate arbitration agreements, and put restrictions in place that would prevent retroactive changes to agreements

and allow ample notice before changes are implemented.

• For arbitration agreements to pass muster, particularly in California, there must be true mutuality of obligation. This

means that employers may not be able to carve out fully claims for injunctive relief for violations of trade secrets,

restrictive covenants, or other instances when they may wish to resort to a court instead of arbitration.

• A new arbitration agreement would obviously be ineffective against former employees that were never party to the

agreement, such that conceivably an employer could end up in two forums – litigating a class or collective action against

former employees while simultaneously or successfully arbitrating individual claims with current employees.

• Arbitrators are paid by the hour or by the day and administrative costs can be considerable for hearings lasting more

than one to three days (i.e., arbitration administrative ﬁling fees as well as meeting room, arbitrator and court reporter

fees in arbitration versus only requested transcript fees from court proceedings).

• Arbitration proceedings are less likely to be decided by a dispositive motion than are court proceedings. Generally, there

is a greater likelihood of a trial on the merits, which means greater frequency for the possibility of an unfavorable result

simply by virtue of the increased number of trials.

• Arbitrators are less likely to accept procedural defenses.

• Arbitrators are more likely to allow hearsay and irrelevant witnesses and generally allow a fuller record than might be

appropriate.

• Arbitrators typically are more prone to issue poorly reasoned (or poorly written) decisions. In addition, some feel pressure

to “even the scorecard” to appear more neutral statistically, or are inclined to “split the baby” notwithstanding the law.

• As demonstrated by the Supreme Court in Oxford Health, judicial review is extremely limited, and courts are not likely to

disturb an arbitrator’s decision and award if based on the contract between the parties, even if it is erroneous based on

the facts or the law.

• Some employees may perceive that mandatory arbitration has minimized or infringed upon their rights.

• Implementing a Dispute Resolution Policy that includes arbitration can be time-consuming and costly.

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

• Some well-capitalized plaintiffs’ counsel may relish the opportunity to bring a large number of individual FLSA cases to

arbitration, recognizing that such a tactic may impose more settlement pressure than one collective action.

EMPLOYER CONSIDERATIONS

In deciding whether to pursue arbitration that includes a class or collective action waiver as a general policy, an employer

should consider the following:

• Current NLRB law prohibits class or collective action waivers. While the law applies to union and non-union employers

alike, employers that are particularly vulnerable to union organizing, or that may be facing challenges from unions and

employee advocacy groups, may wish to wait until the NLRB’s decision in D.R. Horton is overturned before proceeding

with implementation plans.

• Has your company been sued in a class or collective action, and do you consider your organization at risk for additional

lawsuits? In the wake of AmEx and Concepcion, the possible avoidance of class or collective actions in the future may

outweigh the above-noted risks attendant to arbitration.

• Are there any class or collective actions pending now, at the pre-certiﬁcation stage? It may be possible to enter into

arbitration agreements with putative class members that include class action waivers (both in court and in arbitration)

even with regard to an existing class action.

• With regard to non-class cases, how many employment-related lawsuits do you expect in a year? As the number of

claims rises, the likelihood that your overall employment litigation costs will be reduced through arbitration increases.

• What is your organization’s philosophy with regard to defending employment-related lawsuits? If you are committed to

taking certain cases to judgment, rather than seeking settlement, the advantages of arbitration are magniﬁed.

• In what jurisdictions are you generally sued by your employees? Some court jurisdictions are not employer-friendly, while

others offer a signiﬁcant opportunity for a favorable and cost effective result on summary judgment.

• Does arbitration make sense for all employees at all levels of your organization? Arbitration provisions may make sense

for particular groups of employees, but not for others.

• How does arbitration ﬁt within your overall employee relations strategy? The implementation of an arbitration policy may

result in push back from employees. Thus, you should consider whether such a policy is in line with the organization’s

employee relations goals and philosophy.

• Should your arbitration program include an “opt-out” provision that allows employees to opt-out within a certain period

of time after hiring? Such an approach, though apparently unhelpful to overcome an NLRB challenge, may help avoid

successful challenges in California.

ELEMENTS OF AN ENFORCEABLE ARBITRATION PROGRAM

Formation & Consideration

Formation and consideration issues are controlled by state contract law, and proof generally requires demonstration of

an offer, an acceptance and supporting consideration. The signature of the employee on the arbitration agreement (or an

electronic acknowledgment of having reviewed and accepted the agreement’s terms) generally is sufﬁcient to satisfy the

offer and acceptance requirement.

The existence of supporting consideration is more likely to be contested. For example, some states do not recognize

continued employment as sufﬁcient consideration to support an agreement to arbitrate future disputes. Thus, where current

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

employees (as opposed to new hires) are asked to sign an arbitration agreement, additional consideration may be required.

Making the duty to arbitrate employment-related disputes binding on both employee and employer, however, often can

solve consideration issues. Where both parties agree to arbitrate any future claims, the employers and employees mutual

forbearance of the right to proceed in court acts as consideration to support the arbitration agreement. Making the duty

to arbitrate employment-related claims mutual is required in California.

Some states ﬁnd that continued employment is

sufﬁcient consideration; others do not.

Employers should be cautious regarding language that reserves the right to modify, amend, or revoke the policy at any time

with or without notice as such agreements have been attacked on the ground that the contract to arbitrate is illusory. This

argument has some traction in various states, such as Ohio and Maryland, that continue to require mutuality of obligation

to support contract formation. A policy instead should include a notice period and other processes that place limits on the

timing and method for modifying the arbitration agreement.

Fairness

For an employer that operates in multiple jurisdictions, an effective arbitration policy must pass judicial muster in each such

jurisdiction, or at least in those where a signiﬁcant number of claims might reasonably be anticipated.

An arbitration agreement must clearly specify what claims are covered, the statute of limitations or time allowed to assert a

claim, and the process to be followed to resolve a claim. In addition, the arbitration process itself must be considered “fair.”

The California Supreme Court has spoken most clearly on what safeguards a pre-dispute employment arbitration provision or

policy that is a condition of employment must provide to be enforceable under California law.

In Armendariz v. Foundation

Health, the California Supreme Court embraced the principles set forth in an earlier decision from the D.C. Circuit, Cole v.

Burns International Security Services, Inc.,

in requiring that certain safeguards be present before the right to a jury trial

under California’s anti-discrimination statute could be effectively waived. In short, both courts held that an enforceable

policy, at a minimum, must:

• Provide for the selection of a neutral arbitrator;

• Provide for meaningful (albeit limited) discovery;

• Allow for the recovery of all types of relief that would otherwise be available in court;

• Provide that the employer will pay substantially all of the forum costs (including the fees of the arbitrator); and

• Require a written award to allow for adequate judicial review.

In essence, California requires that the arbitral forum provide sufﬁcient due process to allow reasonable access to a fair

hearing and to allow for full redress of statutory claims. Additionally, California requires that the obligation to arbitrate be

mutual, meaning that the employer must agree to arbitrate its claims against the employee. While other jurisdictions have

enforced arbitration policies lacking some of these attributes, policies or provisions lacking these due process attributes are

frequently challenged.

More recent California decisions also provide a roadmap for navigating around enforcement challenges. For example,

agreements should be drafted to:

• Be signed by both the employer and the employee;

• Not unreasonably minimize available discovery tools;

• Include a copy of all the applicable arbitration rules;

• Avoid language preserving the employer’s right to amend, modify or cancel the agreement, in favor of language

disallowing retroactive changes and providing 60- or 90-day notice periods before future changes are effective;

4 See Armendariz v. Foundation Health, 24 Cal. 4th 83, 6 P.3d 669 (2000).

5 See Armendariz, 24 Cal. 4th 83, 6 P.3d 669.

6 105 F.3d 1465 (D.C. Cir. 1997).

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

• Preserve all applicable statutes of limitations; and

• Avoid conﬁdentiality language that could be interpreted as restricting an employee’s ability to build his or her case by

talking with co-workers or seeking witness participation.

Class Action Waivers

Employers who choose to implement a class or collective action waiver, notwithstanding current NLRB law, should be certain

that such a waiver is clear and conspicuous and includes class, collective, or other representative action claims. The policy

should not only waive such actions ﬁled in court, but also make clear that such actions may also not be brought before the

arbitrator. The agreement should explicitly prohibit the arbitrator from presiding over class, collective or other representative

claims. We recommend that employers considering such waivers also include clear language carving out the right of

employees to ﬁle charges with administrative agencies (such as the NLRB). In addition, we recommend that employers include

a disclaimer clarifying that employees, notwithstanding their waiver, have a right to ﬁle a class or collective action under the

NLRA without fear of retaliation by the employer, and even though the employer has a right to enforce the waiver in court

and compel arbitration. For example:

Notwithstanding the waiver of an employee’s right to bring or participate in a class, collective or other representative

proceeding, employees may have a statutory right (for example, under the National Labor Relations Act) to act concertedly

on behalf of themselves and others to challenge this Policy in any forum, and if an employee acts concertedly to pursue any

such proceeding, Company will not retaliate against an employee for doing so. Company is entitled, however, to enforce this

Policy, including employee’s agreement to arbitrate all claims and to forego pursuing any covered dispute on a class, collective

or representative basis, and is entitled to seek dismissal of any such class, collective or representative action and otherwise

assert this Policy as a defense in any proceeding.

Finally, employers should include speciﬁc severability language, making clear that in the event a waiver of class, collective or

representative actions is found to be unlawful or enforceable, then the only forum for such an action would be court, not

arbitration. Generally, most employers seek to avoid litigating class actions in the arbitral forum. While it was believed that

the Supreme Court, in Stolt-Nielsen, provided clear support for the notion that class arbitration should only occur when the

parties have clearly and explicitly contracted for that forum, the Court’s more recent decision in Oxford Health clariﬁes that

silence on that question may vest the arbitrator with discretion to decide whether class arbitration is appropriate, and courts

should leave an arbitrator’s decision to conduct class arbitration undisturbed.

Other Exclusions and Carve-Outs

To maximize the likelihood that an arbitration agreement will survive judicial or administrative challenge, the following

exclusions and carve-outs should be considered:

• The right to ﬁle a workers’ compensation or unemployment compensation claim.

• The right to ﬁle an administrative charge before a governmental agency, such as the EEOC, NLRB, or DOL, should be

carved out of the agreement.

• Under the Department of Defense (DoD) Appropriations Act of 2010, federal contractors with contracts with the DoD

in excess of $1 million are required to exclude from arbitration policies any claims under Title VII of the Civil Rights Act

of 1964, or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional

inﬂiction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention. Such contractors also

must certify that they have required the same from their subcontractors. Some exceptions apply, such as contractors that

are merely providing commercially available “off-the-shelf” items.

• Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain types of whistleblower claims may

not be subject to mandatory pre-dispute arbitration.

Attorney Advertising. This One Minute Memo is a periodical publication of Seyfarth Shaw LLP and should not be construed as legal advice or a legal opinion on any speciﬁc facts

or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any speciﬁc legal

questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the

purpose of avoiding tax penalties that may be imposed on the taxpayer. (The foregoing legend has been afﬁxed pursuant to U.S. Treasury Regulations governing tax practice.)

www.seyfarth.com

Seyfarth Shaw LLP

December 2013

not guarantee a similar outcome.

An employer may also wish to carve-out certain types of actions for strategic reasons. For example, certain limited types

of emergency or temporary injunctive relief in court, as long as it can preserve mutuality. Also, an employer may maintain

different types of plans – such as Severance Pay Plans, Short-Term Disability Plans, or other ERISA plans – that call for different

types of dispute resolution procedures and that should be carved out of the arbitration policy.

Finally, while employers had contemplated carve-outs for cases that can be brought in small claims court as a way to respond

to concerns that the arbitration policy inhibits the ability to pursue low-dollar-value claims, the Supreme Court’s decision in

AmEx appears to take this issue off the table. Based on the Court’s ruling, the fact that arbitration agreement may make

it impractical or even foolish to pursue a small-dollar claim on an individual basis is, in the words of Justice Kagan in the

dissenting opinion, “too darn bad.”

OTHER DISPUTE RESOLUTION PROGRAMS

When considering an arbitration policy, it is important to keep in mind other types of dispute resolution procedures that

may be used together with arbitration, or as an alternative approach. Many employers conclude that such a pre-arbitration

dispute resolution process – even if only voluntary – helps improve employee acceptance of mandatory arbitration as part of

an overall alternative dispute resolution package. While certain states may allow for such pre-arbitration dispute resolution

programs to be “mandatory,” or a prerequisite to ﬁling a demand for arbitration, California and other states would consider

the imposition of a mandatory pre-ﬁling process to be unconscionable. Examples of pre-arbitration dispute resolution

procedures include:

• Establishing a formal internal dispute resolution procedure that allows for multiple steps of review and ﬁnal appeal to a

high-ranking member of management or a corporate ofﬁcer.

• Establishing a binding “peer review board” that would provide a forum to employees to resolve disputes and issues. In

our experience, peer review boards are surprisingly effective – peers can be tough on one another.

• Establishing and making more formal the “open door” policies and providing hot-line numbers and more open channels

of communication.

• Developing an Ombudsman program for the receipt, investigation and review of complaints.

• Developing a “pre-termination” review process that includes multiple sign-offs, and an opportunity for internal “appeal”

before ﬁnal decisions are made.

• Providing an “appeal” process as part of employee feedback, evaluations, or disciplinary processes.

These types of programs speak more directly to issues of employee empowerment, open communication and “fairness,” and

avoid many of the trappings of a mandatory arbitration program. These types of programs can be implemented in lieu of

mandatory arbitration, or may coexist with mandatory arbitration, serving as earlier steps in a multi-step dispute resolution

process.

Reprinted with permission from the Winter 2013 issue of the Employee Relations Law Journal.