Trial Magazine

For over a decade, the proliferation of forced arbitration has eroded employees’ access to the courts, preventing them from litigating disputes with their employers.¹ The Federal Arbitration Act (FAA) favors enforcement of forced arbitration provisions—preempting state policies intended to protect those with less bargaining power from enforcement of “unconscionable” terms in contracts.

This preemptive effect was set forth by the U.S. Supreme Court in its ruling in AT&T Mobility LLC v. Concepcion and confirmed in later decisions.² Under the same preemption doctrine, courts have routinely enforced class/collective action waivers—though previously they were vulnerable to challenges rooted in state and federal policies that permit or even favor certain class/collective action procedures.³

As a result of Concepcion and its progeny, employees have few viable tools to challenge forced arbitration agreements and class/collective action waivers. Challenges are available under limited circumstances—namely for sexual harassment and assault claimants under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA).⁴ (For more on the EFAA, see p. 34.) And outside of the arbitral context, courts are split on whether class/collective action waivers are enforceable and what challenges may render them invalid under various state laws.⁵

However, the trend in the case law is to enforce forced arbitration terms. The reality is that attorneys representing employees need to confront such agreements at the outset of their representation—and address them in any strategic litigation plan.

The Initial Step: Does it Exist?

When taking on an employment case, determine at the earliest point possible whether a forced arbitration agreement or class/collective action waiver exists. Merely asking the client whether they ever signed or received an agreement or waiver in connection with their employment may not be sufficient. Employees may not recall exactly what documents they received during the onboarding process. Going further back in the employment lifecycle, prospective employers may have included such agreements in the application process—with candidates unable to move forward unless they consented to these restrictive agreements.⁶

Employees also may not have recognized what they received because these agreements are not necessarily called an “arbitration agreement” or “class action waiver” in the employer’s documents. They may be titled differently, as “Alternative Dispute Resolution” or “Conflict Resolution Protocols”—language that may obscure the contractual nature of the content in the document. These agreements may omit the word “agreement” entirely from the title of the document, referring to forced arbitration as a “policy” or “program” instead.

Ask clients to search for and provide copies of documents that they received in connection with their application, during hiring, or at any point in the course of their employment.

Rather than relying on the client’s memory or recognition of what may be a forced arbitration agreement, ask them to search for and provide copies of documents that they received in connection with their application, during hiring, or at any point in the course of their employment. Relevant documents include

• offer letters
• employment agreements
• employee handbooks
• policy documents.

The mere fact that an employee does not recall signing or even receiving an agreement or waiver will not thwart an employer’s ability to enforce them and compel arbitration or dismiss class/collective action claims.⁷ And an employee’s failure to sign an agreement or waiver does not necessarily impact enforceability—courts have upheld agreements so long as there is language in the document sufficiently expressing that the employee’s continued employment constitutes both consideration for and acceptance of the forced arbitration procedure or the class/collective action waiver.⁸

Beyond relying on your client’s memory or access to company documents, run a search for case law as well as a docket search of federal district courts on PACER for other employment litigation matters against the employer. See whether any actions include motions to compel arbitration or motions to enforce class/collective action waivers. Such a search may not only yield information as to whether such agreements or waivers exist, it also may reveal avenues used to challenge them and how courts treated those challenges.

Challenges to Enforceability

Once you learn of a forced arbitration agreement or class/collective action waiver, the next step is to determine whether it is enforceable—and assess the strength of any potential challenges to enforceability. First, determine which law governs the agreement—or which law governs which part of the analysis. Keep in mind that a state’s ordinary contract principles may apply to the threshold question of whether a valid contract exists, even when those principles must then take into account FAA case law that reviews the application of those principles.⁹

In many instances, the agreement itself will contain language referencing which law governs. If the agreement invokes the FAA, that will govern unless the FAA specifically excludes the parties or claims from its purview. For example, sexual harassment or assault claims are excluded under the EFAA. And in certain instances, additional claims such as retaliation claims stemming from underlying sexual harassment or assault complaints, or even unrelated claims against the same party, are also excluded so long as at least one sexual harassment or assault claim remains viable. (See p. 34.) And the FAA does not apply to the contracts of certain transportation workers “engaged in foreign or interstate commerce.”¹⁰

If the FAA does apply, courts have held that the FAA preempts conflicting federal and state laws and precludes all but “generally applicable contract defenses,” including lack of mutuality, fraud, duress, and unconscionability.¹¹ And even for traditional challenges to the enforcement of contractual terms due to ambiguity, the Supreme Court has repeatedly held that the FAA requires ambiguity be resolved in favor of enforcement—thus, in favor of forced arbitration.¹²

Also keep in mind that when the FAA does not apply, its protections are often mirrored in state arbitration laws.¹³ In states with such laws, the same heightened protection of the FAA favoring arbitration over policy interests may apply to agreements governed by state law, despite the lack of federal preemption.¹⁴

Changes While an Action is Pending

Sometimes during the course of litigation, the defendant employer may attempt to bind your client to forced arbitration of claims. Employers may do this by adopting a new policy or agreement that is a condition of the client’s continued employment—with the client’s continued employment beyond the effective date constituting acceptance of the forced arbitration term.¹⁵ Employers also may do this while offering your client a different position. Depending on the language of the agreement, the scope may apply retroactively to any disputes between the employer and the client regardless of when the dispute arose.

I advise my clients to read and provide me with copies of any new policies, programs, or agreements that their employer rolls out during the course of my representation. Otherwise, a client may not even notice a forced arbitration agreement or class/collective action waiver, particularly if they are not required to sign anything. This helps to avoid a client unwittingly consenting to forced arbitration of their pending claims. And it helps ensure you won’t be caught off-guard when an employer files a motion compelling arbitration.

New forced arbitration agreements, even as a response to the client’s pending litigation, can be valid.¹⁶ However, an employer cannot terminate the employee for refusing to sign or for objecting to the forced arbitration clause, as that termination may form the basis of a retaliation claim.¹⁷ Ultimately, the client may need to make a personal decision between preserving their right to litigate disputes against their employer in court and remaining employed when new terms would impose forced arbitration.

Forced arbitration of employees’ claims is likely to persist in the foreseeable future. However, attorneys can best protect their clients by remaining vigilant to the risks of forced arbitration and class/collective action waivers and identifying any available challenges to their enforcement.

Miriam S. Edelstein is an attorney at Costello & Mains in Mount Laurel, N.J., and can be reached at medelstein@costellomains.com.

Notes

1. Imre S. Szalai, The Widespread Use of Workplace Arbitration Among America’s Top 100 Companies, The Emp. Rights Advocacy Inst. for Law & Policy 7 (2018) (finding 80% of Fortune 100 companies in the U.S. between 2010–2018 used arbitration agreements with their employees, of which, nearly half also include class waivers).
2. 563 U.S. 333, 339 (2011). See also Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1624 (2018) (FAA preempts policy challenges to enforcement of arbitration agreements and class waivers under both the Fair Labor Standards Act and the National Labor Relations Act); Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 581 U.S. 246, 254–55 (2017) (FAA preempts state rule requiring express statement in power-of-attorney for authority to waive state-based constitutional rights to access courts and jury trials).
3. See Concepcion, 563 U.S. 333; Epic Sys. Corp., 138 S. Ct. 1612.
4. 9 U.S.C. §§401–402.
5. Compare Pace v. Hamilton Cove, 295 A.3d 1251, 1258 (N.J. Sup. Ct. App. Div. 2023), leave to appeal granted, 301 A.3d 388 (N.J. 2023) (establishing “bright line rule” under New Jersey law that class action waivers without a mandatory arbitration agreement are “unenforceable as a matter of law and public policy”), with Funding Metrics, LLC v. Letha’s Pies, LLC, 2022 WL 1042970, at *4 (Ark. Apr. 7, 2022) (reversing lower court ruling that class action waiver was unenforceable under Arkansas law without arbitration agreement).
6. See, e.g., Martindale v. Sandvik, Inc., 800 A.2d 872, 879–80 (N.J. 2002) (forced arbitration provision contained in signed employment application enforceable when supported by adequate consideration as is the forced arbitration of claims arising out of subsequent employment as an extension of the application agreement).
7. See, e.g., Brown v. St. Paul Travelers Cos., 559 F. Supp. 2d 288 (W.D.N.Y. 2008) (collecting cases and holding that employee’s lack of recall of signing policy containing forced arbitration provision did not invalidate enforceability and compelling arbitration of age discrimination claim).
8. See, e.g., Skuse v. Pfizer, Inc., 236 A.3d 939, 951–52 (N.J. 2020) (rejecting employee’s challenge to enforceability of arbitration).
9. Compare McKee v. AT & T Corp., 191 P.3d 845, 852 (Wash. 2008) (pre-Concepcion, applying Washington state law to the threshold question of validity, rather than New York law as designated by a consumer services agreement’s choice-of-law provision, in determining a class action waiver to be substantively unconscionable and unenforceable as contrary to Washington’s consumer protection law) (citing Scott v. Cingular Wireless, 161 P.3d 1000, 1006–08 (Wash. 2007) (finding class action waivers in consumer agreements unconscionable and unenforceable under Washington law)), with Coneff v. AT & T Corp., 673 F.3d 1155, 1159–60 (9th Cir. 2012) (finding Concepcion’s preemption of California’s substantive unconscionability rule effectively overruled the Washington Supreme Court’s Scott decision that heavily relied on that rule to invalidate class action waivers in context of forced arbitration governed by the FAA). See also Taylor v. Extendicare Health Facilities, Inc., 147 A.3d 490, 503–04 (Pa. 2016) (while generally applicable contract defenses under state law may still invalidate arbitration agreements governed by the FAA, under Concepcion and its progeny, “the prerogatives of state courts to regulate arbitration agreements even in accord with generally applicable contract defenses such as unconscionability have been called into question”).
10. 9 U.S.C. §1.
11. See, e.g., Concepcion, 563 U.S. at 339 (The FAA’s “saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.”) (quoting Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)).
12. Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1418–19 (2019) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)).
13. Compare the FAA with the Washington Uniform Arbitration Act (WAA), Wash. Rev. Code §7.04A.280, and the New Jersey Arbitration Act (NJAA), N.J. Stat. Ann. 2A:23B-1–36. See also, e.g., Arafa v. Health Express Corp., 233 A.3d 495, 498 (N.J. 2020) (holding that “the NJAA applies in the absence of the FAA and that the arbitration agreements at issue are enforceable under the NJAA if the FAA does not apply”); Weiss v. Lonnquist, 224 P.3d 787, 791–92 (Wash. Ct. App. 2009) (analysis of the threshold issue of arbitrability is the same under the FAA and WAA).
14. See, e.g., Atalese v. U.S. Legal Servs. Group, L.P., 99 A.3d 306, 311–12 (N.J. 2014) (explaining that, despite the applicability of federal preemption, the NJAA is “nearly identical” to the FAA and that both “enunciate federal and state policies favoring arbitration”); but see Burnett v. Pagliacci Pizza, Inc., 470 P.3d 486, 494–95 (Wash. 2020) (When the FAA does not apply, either procedural or substantive unconscionability alone may render forced arbitration agreements unenforceable under state law.).
15. See, e.g., Skuse, 236 A.3d at 950–52.
16. See Salgado v. Carrows Rests., Inc., 244 Cal. Rptr. 3d 849, 851, 854 (Cal. Ct. App. 2019) (reversing trial court order denying motion to compel arbitration when employer implemented forced arbitration agreement three months after employee filed lawsuit based on retroactive scope of claims contemplated in the agreement, but remanding to trial court for unconscionability analysis on whether the employer knew or should have known employee was represented by counsel when presented with the arbitration agreement); Durruthy v. Charter Commc’ns, LLC, 2020 WL 6871048, at *6 (S.D. Cal. Nov. 23, 2020) (forced arbitration agreement valid to compel arbitration of dispute arising during employee’s prior period of employment ending with her December 2018 termination, despite signing arbitration agreement in June 2019 only as part of application to attempt to regain employment with the employer).
17. Compare Quigley v. KPMG Peat Marwick, LLP, 749 A.2d 405, 413 (N.J. Super. Ct. App. Div. 2000) (arbitration agreement valid when the employee signed but indicated “U.D.” for “under duress” next to signature) with Ackerman v. The Money Store, 728 A.2d 873, 874–75 (N.J. Super. Ct. Law Div. 1998) (employer violated the New Jersey Law Against Discrimination by terminating employee for refusing to agree to arbitration).