Supreme Court Holds That the Federal Arbitration Act Requires an Affirmative Contractual Basis to Authorize Class Arbitration

On April 24, 2019, the U.S. Supreme Court issued a decision in Lamps Plus, Inc. v. Varela, holding that an arbitration agreement that is ambiguous as to whether it authorizes class-wide arbitration cannot provide the necessary contractual basis to conclude that the parties agreed to class arbitration. Mayer Brown successfully represented and argued Lamps Plus on behalf of the petitioner in the case.  The decision will help businesses that are parties to arbitration agreements that do not expressly authorize class arbitration, but drafters should still seek to ensure that arbitration provisions contain explicit clauses waiving class actions and class arbitrations.  (Read Mayer Brown’s Supreme Court Decision Alert on Lamps Plus.)

California Court of Appeal Enforces Arbitration Agreement Despite Employee’s Verbal Rejection

Decision: In Diaz v. Sohnen Enterprises, the California Court of Appeal (Second District, Division 7) confirmed that it is “settled” California law that “when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consented to the arbitration agreement” even if the employee declines to sign the agreement and verbally advises the employer that he or she wishes to decline to accept the arbitration agreement.

In Diaz, the defendant employer announced to its employees that it was adopting a new dispute resolution policy requiring arbitration of all claims and that continued employment by an employee who refused to sign the arbitration agreement would itself constitute acceptance of the dispute resolution agreement. The plaintiff employee declined to sign the arbitration agreement and informed the employer within two weeks of the announcement that she did not wish to sign it. In response, the employer advised the plaintiff again that continuing to work for the company constituted acceptance of the agreement. Shortly thereafter, the employee and her lawyer presented the company with a letter purporting to reject the agreement but indicating that the employee intended to continue her employment. That same day, the plaintiff filed an employment discrimination claim against the employer. The employer moved to compel arbitration. The trial court denied the motion, concluding that the arbitration agreement was a “take-it or leave-it contract [of] adhesion” and that there was “no meeting of the minds.”

In a 2 to 1 decision, the Court of Appeal held that the arbitration agreement was enforceable, ruling that the record demonstrated the employee’s implicit consent. Specifically, the court noted that the employer twice provided an express explanation that continued employment would itself be a manifestation of assent to the arbitration agreement. The court further observed that because the plaintiff was an at-will employee, her employer “could unilaterally change the terms of [her] employment agreement”—including by requiring arbitration of claims—“as long as it provided [her] notice of the change.” The court further held that that the employee had not demonstrated that the arbitration agreement was unconscionable because, even if it was adhesive in nature, “that finding, standing alone,” is not sufficient because the record contained “no evidence of surprise, nor of sharp practices demonstrating substantive unconscionability.”

Impact: Under Diaz, employers who wish to require at-will employees to arbitrate disputes as a condition of continued employment should clearly announce that they are adopting the arbitration policy, expressly advise employees that continued employment amounts to acceptance of the policy and ensure that their arbitration agreements are not substantively unconscionable (i.e., one-sided, unfair, oppressive or harsh). However, there is no guarantee that other courts in California will follow this reasoning and employers should thus consult with counsel before deciding whether to rely on Diaz.

DOL Clarifies Requirements of FMLA Leave

Opinion Letter: The U.S. Department of Labor (“DOL”) recently issued an opinion letter (FMLA2019-1-A) clarifying certain requirements of the Family and Medical Leave Act (“FMLA”). Under the FMLA, eligible employees are entitled to up to 12 weeks of unpaid job-protected leave for certain family and medical situations and up to 26 weeks to care for a covered service member with a serious injury or illness. The DOL’s opinion letter explains that employers may not delay designating an employee’s leave as FMLA leave if there is an FMLA-qualifying reason for the leave. The DOL also clarified that employers may not designate more than 12 weeks of leave (or 26 weeks in the case of military caregiver leave) as FMLA leave even if they offer their employees more generous leave benefits than is required by the FMLA. Consequently, once the employer determines that an employee’s leave is covered by the FMLA, the leave will count toward the employee’s 12 weeks (or 26 weeks) of job-protected FMLA leave.

Impact: Employers covered by the FMLA should carefully review their employee leave policies and procedures to ensure that they are complying with all aspects of the FMLA. Following the DOL’s guidance, employers must designate FMLA-qualifying leave as FMLA leave even if the employee would prefer to use other forms of paid leave before starting FMLA leave. Thus, to the extent an employer provides an employee with additional leave, the employee may only use that additional leave after exhausting the 12 weeks (or 26 weeks) of job-protected FMLA leave. Employers in the Ninth Circuit should also be aware that the DOL’s opinion letter conflicts with the Ninth Circuit’s decision in Escriba v. Foster Poultry Farms, Inc., 743 F.3d 1236 (9th Cir. 2014), which held that employees may delay the start of their FMLA leave in favor of other forms of leave even if they are taking leave for an FMLA-qualifying reason. The DOL opinion letter expressly states that it “disagrees with the Ninth Circuit’s holding that an employee may use non-FMLA leave for an FMLA-qualifying reason and decline to use FMLA leave in order to preserve FMLA leave for future use.” However, because Escriba is still binding authority in the Ninth Circuit, covered employers should closely evaluate their employee leave policies and procedures in light of both Escriba and the DOL’s opinion letter.

Sixth Circuit Holds That FLSA Fines Cannot Include Meal and Commute Time

Decision: In Secretary of Labor v. Timberline South, LLC, the Sixth Circuit recently reversed a lower court’s decision awarding overtime fines under the Fair Labor Standards Act (“FLSA”) for time spent by employees commuting to and from work and taking bona fide meal periods. The Secretary of Labor advised that such time was compensable and subject to FLSA penalties under the Portal-to-Portal Act because the employer had a practice and policy of compensating employees for such time. The Sixth Circuit disagreed, holding that under 29 C.F.R. § 785.35, ordinary home-to-work and work-to-home commutes and meal periods do not qualify as compensable worktime subject to the FLSA’s overtime requirements even if the employer generally agrees to pay for such time.

Impact: As noted by the Sixth Circuit, the issue of whether commute and meal time compensated for by the employer should be included in FLSA overtime fine calculations was a question of first impression for the circuit courts. The answer is now clear in the Sixth Circuit, and this may be an indication of how other federal circuit courts would rule as well. However, employers within and outside of the Sixth Circuit also must be cognizant of state wage and hour laws, which may be more favorable for employees on commuting and meal time issues.

New Jersey Enacts Law Prohibiting Employee Non-Disclosure Obligations Relating to Discrimination, Retaliation and Harassment Claims

On the heels of the #MeToo movement, many states have passed legislation aimed at combating sexual harassment and other forms of discrimination in the workplace. Several states (including Arizona, California, Maryland, New York, Tennessee, Vermont and Washington) have passed laws limiting or restricting the use of nondisclosure agreements in cases involving sexual harassment claims.

On March 18, 2019, New Jersey joined those states when Governor Phil Murphy signed Senate Bill 121 (S-121) into law. Effective immediately, any employment agreement or settlement agreement that includes a confidentiality provision that has the purpose or effect of concealing the details of a claim for discrimination, retaliation or harassment is rendered unenforceable against any current or former employee who is a party to the contract and is against public policy. Notably, employees can enforce such provisions against their employers provided that the employees do not publicly reveal sufficient details about the claim so that the employer is reasonably identifiable.

S-121 also requires all settlement agreements resolving claims under the NJLAD to include “a bold, prominently placed notice” stating that “although the parties may have agreed to keep the settlement and underlying facts confidential, such a provision in an agreement is unenforceable against the employer if the employee publicly reveals sufficient details of the claim so that the employer is reasonably identifiable.”

Significantly, the new law is not limited to sexual harassment claims; it governs all claims for discrimination, retaliation or harassment and applies to any settlement agreement that is “entered into, renewed, modified, or amended” on or after March 18, 2019. Employers in New Jersey—or those subject to New Jersey law—should thus carefully review their employment agreements and settlement agreements to ensure that they do not run afoul of S-121. The law expressly provides for a private right of action for violations of S-121, which are subject to a two-year statute of limitations. Furthermore, employers who attempt to enforce a provision that is deemed unenforceable and against public policy under the law can be liable for the employee’s reasonable attorneys’ fees and costs.