New York Court Rules that Class-Action Waivers Are Unenforceable

While pundits and practitioners eagerly await the U.S. Supreme Court's looming decision on whether class-action waivers in employment-related agreements violate the National Labor Relations Act (NLRA)—a decision that will not be issued until 2018—one New York state court has decided to wade into the fracas.

On July 18, a New York state appellate court,  whose jurisdiction covers Manhattan and the Bronx, concluded in Gold v. N.Y. Life Insurance Co. that contract clauses barring employees from commencing class, collective and other representative actions against their employers are unenforceable and do indeed violate the NLRA.

In Gold, the appellate court examined the question of whether an employer can force its employees to sign an agreement requiring that all legal claims against the employer be brought only through arbitration and, perhaps more importantly, only on an individual basis and in separate proceedings. After recognizing that "there is a recent split among the federal circuit courts regarding these types of clauses," the court answered this question with a resounding "no."

As a result, employers with operations in Manhattan and the Bronx will need to review their arbitration agreements to ensure compliance with all procedural and substantive fairness requirements—including but not necessarily limited to class waivers.

Concerted Activities

In the underlying case, a group of former New York Life Insurance Company agents filed a class-action lawsuit claiming that the agency took illegal wage deductions and committed assorted violations of the state minimum-wage and overtime laws. One of the agents, however, had signed an agreement upon joining New York Life requiring her to arbitrate any claim or dispute with the insurance agency. Additionally, under the arbitration provision, the agent agreed that no claim could be brought or maintained "on a class action, collective action or representative action basis either in court or arbitration." Despite this, the insurance agents nevertheless filed their wage case together in court and as a proposed class action. After New York Life moved to compel arbitration, the claims of the agent who had signed the arbitration agreement were ordered to be submitted to arbitration on an individual basis. The plaintiffs subsequently appealed.

On appeal, the court examined the class-action waiver and determined that interference with employees' right to pursue work-related legal claims together, whether in arbitration or other legal proceedings, violates Sections 7 and 8 of the NLRA. In explaining its rationale, the court relied chiefly on a recent decision by a federal appeals court in Chicago that likewise invalidated a class waiver. As the New York court explained, such waivers violate the NLRA because they interfere with employees' "right to engage in concerted activities for mutual aid and protection, and [are] therefore unenforceable …. [S]ection 7 of the NLRA provide[s] that employees have the right to engage in concerted activities, and concerted activities 'have long been held to include resort to … judicial forums.' " Additionally, the court determined that the waiver was unenforceable under the Federal Arbitration Act.

Consequently, the court concluded that the plaintiffs had the right to proceed with their claims on a class-action basis (although, after deciding on this issue, the court did dismiss most of the plaintiffs' substantive wage and hour claims). This is the first time that a New York state appellate court has directly ruled on this particular issue, and the decision aligns the court with the three federal appeals courts that previously reached similar conclusions.

Practical Considerations

In light of this ruling, and until the U.S. Supreme Court provides more definitive guidance, employers in Manhattan and the Bronx may see additional challenges to their arbitration agreements—particularly agreements with class-action waivers.

Therefore, employers should take a careful look at those agreements.

First, and perhaps most obviously, if the agreement includes a class-action waiver, employers should consider removing the waiver until the U.S. Supreme Court weighs in on this issue, particularly if they operate in a jurisdiction where such waivers have been deemed unenforceable.

[SHRM members-only multistate coverage: Multistate Employer Resources] 

Second, employers should confirm that the agreement complies with the procedural and substantive fairness requirements of the jurisdiction(s) in which the business operates. This may mean, for instance, removing clauses that make it financially burdensome for employees to arbitrate. And for companies with operations in multiple locations, this may mean having different arbitration agreements based on region. Businesses should also consider specifying whether the arbitrator will have the authority to determine issues of arbitrability.

Third, for companies that require employees to electronically sign arbitration agreements, ensure that signature receipts are retained—both during the employee's employment and for several years thereafter—and that they conform with any jurisdictional requirements.

Fourth and finally, the arbitration agreement should carve out any legal remedies that are not subject to arbitration. Likewise, the agreement should make clear that the employee is not barred from filing claims with certain agencies, such as the Equal Employment Opportunity Commission or the National Labor Relations Board. The document should also specify the forum in which the employee must bring any claims he or she chooses to pursue following the exhaustion or completion of the administrative process.

As the focus on potential wage and hour violations in the workforce continues to increase, now is also a good time for employers to review their wage and hour practices to minimize potential exposure to employment class actions in this area.

Cindy Schmitt Minniti and Mark. S. Goldstein are attorneys with Reed Smith in New York City.

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