ALL ABOUT ARBITRATION...facing mobilization of its workforce; Riot Games employees staged a walk out in May 2019 in response to the company’s efforts to move lawsuits brought by

2019 CORPORATE LABOR AND EMPLOYMENT COUNSEL EXCLUSIVE

OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 23-1

ALL ABOUT ARBITRATION

STRATEGIC CONSIDERATIONS AND

KEY DEVELOPMENTS

Elizabeth A. Falcone – Ogletree Deakins (Portland (OR))

John G. Harrison – Ogletree Deakins (Nashville/Dallas)

Shannon Walpole – 24 Hour Fitness USA, Inc.



Introduction. Arbitration agreements and class action waivers are all the rage. The United

States Supreme Court’s pro-employer Epic Systems decision in May 2018 resulted in a

proliferation of arbitration agreements with class action waivers targeted toward employment

related claims.1 It is estimated that over 50 percent of private sector, non-union employees are

covered by mandatory arbitration agreements, according to the Economic Policy Institute. With a

class action waiver in place, an employer can meaningfully address one of its biggest risks: the

staggering costs and disruptions associated with class or collective claims alleging systemic

discrimination or wage-hour violations. It should be no surprise that employee advocates and

plaintiffs’ class action counsel have been developing tactics to counter-punch. This paper will

address some of the most pressing issues facing employers with mandatory arbitration programs.

Consolidated Mass Individual Arbitrations. This is the most troubling action undertaken

by employee advocates, generally immediately after a court’s enforcement of the class action

waiver. Individual claimants are often solicited by class notices, by written discovery, or by

social media, and hundreds or thousands of identical demands for arbitration are filed at the same

time against one employer by the same opposing counsel. An employer is faced with the cost of

thousands of dollars of filing fees and deposits to the arbitration agencies, as well as preparation

for the defense of multiple arbitration proceedings that will go to hearing on roughly the same

schedule.

Is this development a reason to stop the use of the class action waiver or

mandatory arbitration? Most employers are sticking with the class action waivers

and mandatory arbitration despite the costs and frustrations of the mass arbitration

problem. Those who are walking away from arbitration are doing so for social

justice or public relations concerns, not because of the mass arbitrations.

Anecdotally, most companies think the benefits of the class action waiver

continue to exceed the costs of the threat (or the reality) of dealing with a wave of

individual arbitrations.

Employers must be careful not to overreact to this problem because the stated

reason for the class action waiver is to encourage the prompt resolution of

individual claims. Changes to rules and to agreements should not be seen as trying

to slow down the arbitration process or to limit the right of each individual to be

heard promptly on the merits.

How does an employer respond to this tactic? The most prevalent response to date

by employers has been the aggressive defense of the individual claims, with

coordinated attorney teams, templates for pleadings, managing attorneys to handle

arbitrator selection and discovery, and selection of the best cases to take through

hearing first. It is expensive gamesmanship (filing fees, deposits for arbitration

costs, initial defense costs). However, the disputes generally settle after the

employer has demonstrated its readiness and resolve, and they settle for less than

the original class action demand. This approach is less effective when there is risk

of liability.



NLRB Opposition to Arbitration Agreements That Limit Access to Agencies. The

National Labor Relations Board (NLRB0 and other federal and state agencies are protective of

their jurisdiction and statutory role to investigate charges. Arbitration agreements that could

reasonably be interpreted by an employee to require arbitration and prohibit the pursuit of a

charge will give rise to an unfair labor practice charge.2 In addition to defending the unfair labor

practice charge, the employer may not be successful with attempts to compel arbitration of an

agreement that is in violation of the National Labor Relations Act (NLRA).

Are any changes to arbitration agreements needed as a result of this development?

Yes. All arbitration agreements should include a prominent savings clause making

clear that the obligation to arbitrate claims or disputes does not extend to agency

charges. The NLRB upheld the following language: “Nothing in this Agreement

shall be construed to prohibit any current or former employee from filing any

charge or complaint or participating in any investigation or proceeding conducted

by an administrative agency, including the National Labor Relations Board.”

Also of concern are any statements to the effect that arbitration is the “exclusive”

forum for all arbitration claims against the employer.

Confidentiality. Arbitration has the benefit of being a non-public forum, and some

agreements add more restrictive confidentiality terms that prohibit the disclosure of additional

aspects of the proceeding, such as the nature of the claimant’s allegations, the testimony and

evidence, and the final award. In a recent opinion, an NLRB administrative law judge found that

a particularly restrictive confidentiality provision violated the NLRA because it limited the

employee’s Section 7 right to engage in concerted protected activity.3

Are all confidentiality provisions an unfair labor practice? Not necessarily.

However, it becomes difficult to draft a provision that adequately explains how an

employee’s Section 7 rights are not intended to be affected adversely.

What to do? Confidentiality provisions will be a lightning rod for challenges to

agreements and unfair labor practice charges. And they are unpopular for social

justice (#MeToo) reasons. An employer should consider deleting them and

relying on the agency’s rules (e.g., AAA Rule 23) or the inherent authority of the

arbitrator to protect any confidential issues that arise in each particular arbitration

proceeding.

Third Party Discovery. Records from third parties, such as medical records and

subsequent employment records, are often valuable evidence for employers in an arbitration

proceeding. Unfortunately, a majority of circuit courts have interpreted the Federal Arbitration

Act (FAA) so that authority of arbitrators to issue subpoenas to third parties is limited to

production by the witness at the hearing date.4 As a result, the employer is unable to obtain the

records prior to the hearing.

An employer should consider adding the following provision to its arbitration

agreement: “The arbitrator shall have the authority to issue subpoenas to third

parties to compel production of documents during discovery and to compel the



attendance of witnesses, including third parties, at the arbitration hearing and shall

do so upon reasonable request of either party. If a third party witness appears for

the hearing with documents subject to a subpoena request but not previously

disclosed, the arbitration shall adjourn the proceedings for a reasonable time to

allow the parties the opportunity to review the documents.” Such a provision may

not necessarily meet with a court’s approval,5 but it provides the employer with

some leverage to request documents prior to the hearing if the third party witness

does not want his or her testimony to be delayed.

Social Justice Issues. Opponents of class action waivers are expending significant

resources to demonstrate that arbitration is an unfair system that is rigged to favor corporations.

In September 2019, the American Association for Justice published a study concluding that

“Americans are more likely to be struck by lightning than win in forced arbitration.” The primary

author of the study is a personal injury attorney specializing in claims on behalf of consumers

and employees. The study makes some broad claims that do not appear to have undergone

rigorous statistical analysis. For example, it notes that Darden restaurants “faced 329

employment arbitrations,” and that employees “won an award in just eight cases,” but does not

state how many of the 329 cases actually proceeded to hearing on the merits, which would

provide a much more meaningful metric. The study also cites the lower awards given by

arbitrators as proof that arbitration is unfair to workers, without any consideration given to the

possibility that juries may base awards on passion, rather than on actual damages.

The idea that arbitration is unfair to workers and consumers has particularly taken off in

the tech industry in the wake of the #MeToo movement. Arbitration is perceived as permitting

wrongdoers to avoid accountability because it is not a public venue like the courts. In January

2019, thousands of Google employees walked out of work to protest mandatory arbitration of

sexual harassment claims not just at Google, but also throughout the tech industry. In response,

Google made arbitration optional for sexual harassment claims. Google is not the only company

facing mobilization of its workforce; Riot Games employees staged a walk out in May 2019 in

response to the company’s efforts to move lawsuits brought by female employees into

arbitration. Similar pressures also resulted in Uber ceasing to require arbitration for sexual

harassment and assault cases. Most employers that are not lightning rods for publicity would do

well to stay the course and maintain their arbitration programs, given the benefits in efficiency

and reducing runaway verdicts.

Hostile State and Local Statutes. A number of states have passed legislation intended to

limit or prohibit the use of mandatory arbitration in employment. A chart of these laws is

attached as Appendix A. It is generally expected that the FAA will preempt these state laws. Two

recent federal district court decisions in Washington and New York have been consistent with

this expectation. The New York decision6 has been appealed to the Second Circuit.

Given the rising tide of public disapproval for mandatory arbitration, we may see a

response from the bench. One possible precursor is Northern Kentucky Area Dev. Dist. v. Snyder

(“NKADD”)7 in which the Kentucky Supreme Court held that Kentucky Revised Statute

336.700, which states that “no employer shall require as a precondition of employment” that an

employee waive or arbitrate any claim, was not preempted. NKADD held that the statute did not



“evidenc[e] hostility to arbitration agreements,” because it “simply prevents [employers] from

conditioning employment on the employee’s agreement to arbitration.”8 NKADD also held that

the statute did not discriminate or single out arbitration clauses because an employer also may

not force an employee to waive claims. The court ultimately concluded that the statute was “not

an anti-arbitration clause provision,” but an “anti-employment discrimination provision.” A

petition for certiorari was filed in NKADD in July 2019, and was pending as of the date of

submission of this paper. In March 2019, the Kentucky legislature also amended Kentucky

Revised Statute 336.700 to permit employers to condition employment on arbitration, thereby

effectively nullifying the holding in NKADD. NKADD, although an outlier, hints that courts may

be feeling the tide of social pressure and looking for ways to invalidate arbitration agreements in

the employment context.

Due to the strength of the FAA’s protection of arbitration clauses, many state legislatures

have redirected their efforts towards confidentiality and non-disclosure agreements. California,

New York, New Jersey, Pennsylvania, and Washington have all enacted or proposed legislation

that either prohibits or creates strong disincentives for confidentiality clauses. Employers should

review whether they want their arbitration agreement to require confidentiality, or simply rely on

the arbitrator or the arbitral body’s rules to provide for confidentiality where appropriate.

Another option is to waive any confidentiality provisions in cases where there are allegations of

sexual harassment or assault.

Transportation Workers and the Section 1 Exclusion. Section 1 of the FAA excludes

from the Act’s coverage “contracts of employment of seamen, railroad employees, or any other

class of workers engaged in foreign or interstate commerce.” The breadth of that exclusion

remains an unresolved issue, with the stakes high for companies with delivery services and local

drivers. Are last-mile drivers covered? Does the employee have to transport the goods or merely

be a part of the transportation process? Does it cover both the transportation of goods and the

transportation of passengers?9

How should an employer with a significant number of drivers and transportation

workers respond? It is likely that the Section 1 exclusion will make the FAA

unavailable as the statutory basis to compel arbitration and enforce a class action

waiver as to many transportation workers. As an alternative, an employer should

consider reliance on state arbitration statutes for enforcement, possibly in a

separate arbitration agreement for drivers and transportation workers. Some state

statutes are better than others, and some are not very good at all. Such changes

should be considered based on the location of the transportation workers and

whether a choice of state law provision could reasonably be used in the arbitration

agreement.

Statutory Limits to Mandatory Arbitration. Opponents of arbitration have repeatedly

sought to limit or prohibit its use. In September, the House voted on the Forced Arbitration

Injustice Repeal Act (also known as the FAIR Act), which would modify the FAA and end

mandatory arbitration agreements in the areas of employment, consumer protection, antitrust,

and civil rights. It is unlikely to pass in the Senate. However, that will not be the end of the game



for opponents of arbitration, and employers can expect ongoing efforts at the federal level to

limit or prohibit mandatory arbitration of employment disputes.



APPENDIX A

State Date Law of Effect

Passed State Laws

Description of Law

Maryland 10/1/2018 Md. Code Labor and Employment §3-715

The act, “except as prohibited by federal law,” bars employers from requiring employees to arbitrate claims of sexual harassment.

New Jersey 3/18/2019 N.J. S.B. 121 The bill prohibits waivers of rights and remedies related to claims of discrimination, retaliation, or harassment contained in employment contracts. This purportedly includes prohibiting employers from requiring employees to sign mandatory arbitration agreements to the extent they encompass claims of discrimination, retaliation, or harassment.

New York 7/11/2018 N.Y. C.P.L.R. 7515(b)(1)

Prohibits employers from including mandatory arbitration clauses for allegations of unlawful sexual harassment. The statute also provides it does not apply “where inconsistent with federal law….”

Vermont 7/1/2018 Vt. Stat. tit. 21 § 495h(g)

Bars employers from requiring employees to sign an agreement waiving rights to remedies with respect to



sexual harassment claims.

N.B. Prior to passing this new statute, Vermont had another law that arguably prohibited arbitration agreements. See Vt. Stat. Tit. 12 § 5653(b) (“No arbitration agreement shall have the effect of preventing a person from seeking or obtaining the assistance of the courts in enforcing his or her constitutional or civil rights.”)

Washington 6/7/2018 Wash. Rev. Code § 49.44.085

Renders void and unenforceable any provision of an employment agreement that requires an employee to waive the employee’s right to publicly pursue a state or federal cause of action for discrimination or to publicly file a complaint with the appropriate state or federal agencies, or if it requires an employee to resolve claims of discrimination in a dispute resolution process that is confidential.



ENDNOTES

1 Epic Systems v. Lewis, 138 S. Ct. 1612 (2018). 2 NLRB v. Briad Wenco, NLRB No. 29-CA- 165942 (September 11, 2019). 3 Pfizer, Inc., 2019 WL 1314927 (March 21, 2019)(“I conclude that employees reasonably would view the

confidentiality clause, and its instruction to “maintain the confidential nature of the arbitration,” as binding upon

them. Further, I conclude that employees reasonably would believe that they could be subject to disciplinary action

for disclosing to the public how an arbitrator treated grievants. Likewise, they reasonably would believe that they

might be disciplined if they disclosed to the public the contents of the arbitrator’s award, even though the award

clearly would affect terms and conditions of employment”). 4 Whether third party records can be subject to an arbitrator’s subpoena prior to the hearing depends upon the federal

circuit in question. The Second, Third, Fourth, and Ninth Circuits hold that the plain language of the statute does not

give a party or an arbitrator the authority to issue third party discovery subpoenas. See, e.g., CVS Health Corp v.

Vividus, LLC, 878 F. 3d 703, 705 (9th Cir. 2017)(summarizing cases on both sides of the circuit split); Life

Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 216 (2d Cir. 2008) (“The language of section 7

[of the FAA] is straightforward and unambiguous. Documents are only discoverable in arbitration when brought

before arbitrators by a testifying witness”); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3rd Cir.

2004); COMSAT Corp. v. Nat’l Sci. Found., 190 F. 3d 269, 275 (4th Cir. 1999) (“Nowhere does the FAA grant an

arbitrator the authority to order non-parties to appear at depositions, or the authority to demand that non-parties

provide the litigating parties with documents during prehearing discovery”). The Sixth and Eighth Circuits hold

arbitrators have an implicit power to issue third party discovery subpoenas. See In re Sec. Life Ins. Co. of Am., 228

F. 3d 865, 870-871 (8th Cir. 2000); Am. Fed’n of Tel. & Radio Artists v. WJBK-TV, 164 F.3d 1004, 1009 (6th Cir.

1999) (“…the FAA’s provision authorizing an arbitrator to compel the production of documents from third parties

for purposes of an arbitration hearing has been held to implicitly include the authority to compel the production of

documents for inspection by a party prior to the hearing.”). 5 See Westlake Vinyl v. Lamorak Ins. Co., 2018 WL 4516005 (W.D.Ky. 2018). 6 Latif v. Morgan Stanley & Co., 2019 WL 2610985 (S.D.N.Y. June 26, 2019). 7 570 S.W.3d 531 (Ky. 2018). 8 570 S.W.3d at 535-536. 9 Singh v Uber Technologies, ___ F.3d ___ , 2019 WL 4282185 (3rd Cir. 2019)(“Consistent with long-standing

precedent, we hold that the residual clause of Section 1 may extend to a class of transportation workers who

transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to

be in practical effect part of it.”

1

All About Arbitration: Strategic Considerations and Key Developments

Presented by

Elizabeth A. Falcone (Portland (OR))John G. Harrison (Nashville/Dallas)Shannon Walpole, Senior Counsel, Employment, 24 Hour Fitness USA, Inc.

2

In-House Perspective: 24 Hour Fitness

One of the early adopters of arbitration; program includes an opt-out procedure

Class action waiver for employees and consumers

Battles fought at NLRB and with mass arbitration

3

Mass Arbitrations

The most troubling counter-attack

Filing fees and arbitrator deposits; shortage of qualified arbitrators

Agency responses

Stay the course?

State and Federal Statutes

Preemption in Washington and New York

Kentucky – Prohibited mandatory arbitration, then did an about-face

Efforts to amend the FAA – FAIR Act

4

Confidentiality

NLRB’s Pfizer opinion

AAA Rule 23

Truckers and Transportation Workers

Supreme Court’s New Prime decision

Last mile drivers and passengers

Reliance on state arbitration statutes

5

Contract Formation

Offer and acceptance

Company signature

Authentication of online acceptance

Third Party Discovery

Power to subpoena before hearings

Circuit split

6

Fairness and Social Justice

#MeToo

Tech industry

American Association for Justice

7

8

Questions?

9

All About Arbitration: Strategic Considerations and Key Developments

Presented by

Elizabeth A. Falcone (Portland (OR))John G. Harrison (Nashville/Dallas)Shannon Walpole, Senior Counsel, Employment, 24 Hour Fitness USA, Inc.

Elizabeth A. Falcone

Shareholder || Portland (OR)

Elizabeth Falcone is a Shareholder with Ogletree, Deakins, Nash, Smoak

& Stewart, P.C. Ms. Falcone represents private and public employers in

all aspects of employment law, including wage/hour ma�ers, wrongful

termination, discrimination, and harassment litigation. She has

experience defending class action cases, as well as single and multi-

plainti� cases. She has tried cases for employers in state and federal

courts. She also has experience in traditional labor law, including

handling grievance arbitrations and collective bargaining, as well as

advising employers with unionized workforces.

Based on the breadth of her experience and her achievements, in April

��, Law�� selected Ms. Falcone from among over �,�� nominees as

one of the top lawyers in the United States under the age of ��. She was

one of just � lawyers selected in the Employment law practice area.

Ms. Falcone has significant experience representing clients faced with

putative class actions. She has litigated class action claims in many

di�erent industries, including retail, financial services, and the

construction trades. She has experience leading class actions, and

managing every step of the process, from pre-certification discovery

involving voluminous data and documents, to se�lement. Her

experience includes defending against claims of misclassification for

purposes of exempt status, missed meal and rest periods, adequacy of

paystubs, and other wage-related claims. In one highly-publicized class

action involving tens of thousands of employees, Ms. Falcone deposed

several named plainti�s, coordinated large scale preservation of

documents and discovery, and prepared class certification opposition

and supporting papers. She also has devised and executed large-scale

discovery and declaration projects to marshal evidence for use in

opposing class certification and for beating class ma�ers on the merits.

In addition to her class action work, Ms. Falcone has represented

employers at trial in various courts in California and Oregon, and in

private arbitration. In addition to courtroom work, she has appeared

before the United States Department of Labor, the United States Equal

Employment Opportuni� Commission, the California Department of

Fair Employment and Housing, the California Division of Labor

Standards Enforcement, and the Oregon Bureau of Labor & Industries.

She also has experience litigating against government agencies,

including the EEOC and BOLI. Ms. Falcone has broad expertise in the

area of disparate treatment, harassment, retaliation, wrongful

termination, and other issues commonly raised by individual employee

litigants. She provides day-to-day advice to clients on issues including

wage and hour ma�ers, leaves of absence, accommodation of

disabilities, and risk management when making disciplinary decisions.

Ms. Falcone has represented both public and private employers in

grievance arbitrations, as well as at the bargaining table. She regularly

https://ogletree.com/locations/portland-or

tel:+15035522166

mailto:[email protected]

https://ogletree.com/wp/wp-admin/admin-post.php?action=get_vcard&pid=3906&name=elizabeth-a-falcone

https://ogletree.com/

speaks on issues including basic employment law, reasonable

accommodations, wage/hour considerations, the law of harassment

and workplace investigations.

Ms. Falcone is a member of the State Bars of California and Oregon, and

actively practices in both jurisdictions. She received her B.A., cum laude,

in English with Departmental Honors from Northwestern Universi� in

��. Ms. Falcone received her J.D. from New York Universi� School of

Law in ��. At NYU, she was a McKay Scholar, an editor of the Moot

Court Board, and was named to the Order of Barristers upon

graduation. Prior to joining Ogletree Deakins’ Portland, Oregon o�ce,

Ms. Falcone was employed for nearly ten years in the Employment Law

Department of the Los Angeles o�ce of Paul Hastings LLP. She has

received awards including the Super Lawyer – Rising Star designation

and listing in the Best Lawyers in America.

John G. Harrison

Shareholder || Nashville, Dallas

Mr. Harrison is licensed and practices in both Texas and Tennessee. He

is Board certified as a labor and employment law specialist by the Texas

Board of Legal Specialization. His practice is devoted exclusively to the

representation of employers in ma�ers of personnel policies and

practices, labor and employment litigation, wage-hour compliance and

other workplace issues.

A Phi Beta Kappa graduate of Baylor Universi�, Mr. Harrison a�ended

the Universi� of Virginia School of Law and focused his studies on

labor and employment topics. A�er graduation, he served as a law clerk

to the Hon. Sidney A. Fitzwater of the United States District Court for

the Northern District of Texas in Dallas. �erea�er, Mr. Harrison joined

McFall Law Firm, a Dallas, Texas labor law boutique that became the

Ogletree Deakins Dallas o�ce in January ��.

https://ogletree.com/locations/nashville

https://ogletree.com/locations/dallas

tel:+16156872233

mailto:[email protected]

https://ogletree.com/wp/wp-admin/admin-post.php?action=get_vcard&pid=3998&name=john-g-harrison

https://ogletree.com/

Shannon Walpole is currently the head of the Employment Law team for 24 Hour Fitness. She started her career as an employment litigator with Littler Mendelson but has spent the last 10 years in house as an employment law business partner. She has extensive experience with complex and individual employment litigation and arbitration and specializes in driving employment compliance while also enabling the business in a multi-unit environment. She has a husband, three kids, and two labs that fill most of her time. When not running to kid sporting events she enjoys hiking and cooking.