Class Action Year in Review: Labor & Employment

Most notably, arbitration agreements can be used to curtail class and collective actions through waivers requiring all claims to be arbitrated on an individual basis only. For many employers, avoiding or limiting the risk, burden, and expense of class and collective actions is the most valuable aspect of an arbitration agreement.

Employment arbitration continued to be a hot topic throughout 2023. The myriad of laws governing employment arbitration agreements remained dynamic, and sudden changes to the contours of enforceability were not uncommon. The use of employment arbitration agreements was challenged and narrowed, with courts and legislatures alike eroding the power of such agreements. This trend is continuing into 2024. Currently, there are three employment arbitration cases pending before the US Supreme Court that will impact enforceability. Meanwhile, both state and federal legislatures continue to propose and pass bills that limit the power and scope of arbitration agreements.

This blog discusses two key developments in the employment class action space from 2023 related to arbitration agreements.

Interpretation of the Federal Arbitration Act’s Transportation Worker Exemption in 2023

The Supreme Court’s 2022 decision in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022) turned Federal Arbitration Act (FAA) jurisprudence on its head and generated more questions than it answered. In Saxon, the Supreme Court interpreted Section 1 of the FAA, which exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (emphasis added). In its ruling, the Court held that a Southwest Airlines ramp supervisor, whose job duties included helping to load baggage onto airplanes, was exempt from the FAA’s coverage under the transportation worker exemption. In reaching this conclusion, the Supreme Court applied a totality of the circumstance test that focuses largely on the employee’s job duties. Significantly, the Court held that the business of the employer was not determinative of whether an employee is a transportation worker under the FAA.

Since the Supreme Court issued its ruling, lower courts have been tasked with applying the Saxon test to determine when an employee qualifies as a worker “engaged in foreign or interstate commerce,” and as such, is exempt from arbitration under the FAA. Some trial courts navigating this framework have found workers employed in non-transportation industries to be exempt transportation workers, while others continue to focus on whether the employer is in the transportation industry. As a result, there is currently a circuit split among the US Courts of Appeal. The First and Seventh Circuits have held that the FAA exemption applies to any member of a class of workers that is engaged in foreign or interstate commerce in the same way as seamen and railroad employees. Meanwhile, the Second and Eleventh Circuits require that the employer be in the “transportation industry.”

One of the more favorable decisions on this issue for employers is the Second Circuit’s decision in Bissonnette v. LePage Bakeries Park St. LLC, 49 F.4th 655 (2d Cir. 2022). In Bissonnette, the Court of Appeal reviewed the application of the FAA Section 1 transportation worker exemption to bakery delivery drivers. In its application of Saxon, the Bissonnette court rejected the plaintiff’s invocation of the Section 1 exemption for transportation workers because the plaintiff delivered baked goods for a baking company; he was not a common carrier worker delivering goods. Thus, the court found the plaintiff was not exempt from the FAA and the arbitration agreement he had signed was enforceable. Meanwhile, other courts, including those in California, have reached contrary and less favorable conclusions in 2023. For example, in Nair v. Medline Indus., 2023 US Dist. LEXIS 50469 (E.D. Cal. Mar. 23, 2023), the court held that a warehouse worker who move pallets at a logistics company was exempted from the FAA. In so holding, the court noted: “Like the employees in Southwest Airlines, the class of workers to which plaintiff belongs loaded and unloaded goods on and off vehicles that traveled interstate.”

Every time a category of workers is held to be exempt under the FAA, the employer loses its ability to enforce their arbitration agreements, including any class or collective action waivers contained therein. This continues to be a concerning trend in the class action arena.

Some clarity may be on the horizon for employers. Bisonnette was taken up by the Supreme Court to address the circuit split, and the case will be heard in early 2024. Thus, employers can expect to gain a better understanding of the definition of a “transportation worker” and the scope of any exemption to arbitration agreements based on this definition.

Courts Interpret the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the Act) was enacted in response to the #MeToo movement to prevent the concealment of harassment in the workplace. The law gives an employee the choice to invalidate a pre-dispute arbitration agreement and class and collective waiver for sexual assault and sexual harassment “disputes.” Despite the title, the legislation was not signed into law by President Joe Biden until March 3, 2022, and only applies to disputes arising after that date (i.e., it is not retroactive). In short, the law allows employees who have signed arbitration agreements to pursue claims of sexual assault or harassment that arose after March 3, 2022, in court. This legislation was a blow to employers who were relying on their arbitration agreements to cover all employment claims, including sexual harassment.

In 2023, courts were tasked with interpreting the Act. Most notably, courts were asked to determine what constitutes a sexual harassment “dispute.” The Act defines a sexual harassment dispute as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” Because the Act focuses on alleged conduct and is not limited to causes of action for sexual assault or harassment, the breadth of the legislation is undefined. For example, does the Act apply to claims such as constructive discharge or retaliation where the employee alleges facts that could be construed as sexual harassment? The Act also does not provide guidance as to how a court should manage a case when some claims are subject to arbitration and some are covered by the Act. Courts have no procedural guidance for handling cases where the arbitrable claims are moved to arbitration and the non-arbitrable claims remain in court. Should one matter be stayed while the other is permitted to proceed? Common sense dictates a stay is the best practice, but there is no clear guidance. Cases addressing these questions are only starting to make their way through the appellate courts.

It is notable that similar legislation banning arbitration of other types of employment claims is on the horizon. In 2023, bills were proposed to limit the use of arbitration agreements with claims involving age and race, including H.R.4120 – Protecting Older Americans Act of 2023 and S. 1408 – Ending Forced Arbitration of Race Discrimination Act of 2023. Both bills are still making their way through Congress. These proposed bills continue the trend of recent attacks against employers’ use of arbitration agreements.

Looking Ahead to 2024

Employers who use arbitration agreements to limit class and collective actions must stay up to date on legal developments in the arena. We expect continued efforts at the state and federal level to present challenges to employers’ ability to use class and collective action waivers. Employers must be nimble and prepared to respond to these developments, which could include revising arbitration agreements or making operational adjustments to employees’ job duties. Employers should consult with experienced employment counsel on how to best respond to the rapidly evolving landscape surrounding the use of arbitration agreements.