Commercial Division Blog

Posted: July 20, 2017 / Categories Commercial, Arbitation, Mediation and Other ADR

Class Action Waiver Violated National Labor Relations Act

On July 18, 2017, the First Department issued a decision in Gold v. New York Life Insurance Co., 2017 NY Slip Op. 05695, holding that class action waivers in insurance agent employment agreements violated the National Labor Relations Act.

In Gold, the plaintiff insurance agent's employment contract

contained an arbitration provision requiring arbitration of any claim or dispute with NY Life, with certain exceptions that the parties do not address on this appeal. Additionally, under the arbitration provision, Kartal waived any right to a jury trial and agreed that no claim could be brought or maintained "on a class action, collective action or representative action basis either in court or arbitration." But the provision also provided that if the waiver of class, collective, or representative actions were found to be unenforceable, the class, collective, or representative claim would proceed in court.

That agent, and others, brought claims against the defendant alleging various pay-related claims. The trial court granted the defendant's motion to compel arbitration. The First Department reversed, explaining:

Courts of this State have not squarely addressed the question of whether this type of arbitration provision is enforceable. Further, there is a recent split among the Federal Circuit Courts regarding these types of clauses. Upon consideration of the matter, we conclude that the better view is that arbitration provisions such as the one in Kartal's contract, which prohibit class, collective, or representative claims, violate the National Labor Relations Act (NLRA) and thus, that those provisions are unenforceable.

In reaching this conclusion, we agree with the reasoning in Lewis v Epic Sys. Corp. (823 F3d 1147 [7th Cir 2016], cert granted __ US __, 137 S Ct 809 [2017]), the recent case from the United States Court of Appeals for the Seventh Circuit, which addressed the enforceability of arbitration agreements prohibiting collective actions. In Lewis, the plaintiff employee agreed to an arbitration agreement mandating that wage and hour claims could be brought only through individual arbitration and requiring employees to waive "the right to participate in or receive money or any other relief from any class, collective, or representative proceeding". The arbitration agreement also included a clause stating that if the waiver were unenforceable, "any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction".

. . .

The Seventh Circuit denied the employer's motion to proceed under the arbitration clause, declining to enforce a clause that precluded employees from "seeking any class, collective, or representative remedies to wage-and-hour disputes" because the clause "violate[d] Sections 7 and 8 of the NLRA". According to the Court, section 7 of the NLRA provided that employees have the right to engage in concerted activities, and concerted activities "have long been held to include resort to . . . judicial forums". The Seventh Circuit also found that a lawsuit filed "by a group of employees to achieve more favorable terms or conditions of employment" is considered to constitute "concerted activity" under section 7 of the NLRA. Accordingly, the Court held, contracts such as the one at issue were unenforceable under the NLRA because they "stipulate away employees' [s]ection 7 rights or otherwise require actions unlawful under the NRLA".

What is more, the Seventh Circuit found that the clause was also unenforceable under the Federal Arbitration Act (FAA). The Court noted that, generally, "there is no doubt that illegal promises will not be enforced in cases controlled by the federal law'". The Court noted that the FAA incorporated that principle through its saving clause, which confirmed that agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract". The Court held that because the provision at issue is unlawful under section 7 of the NLRA, it was an illegal provision, and therefore met the criteria of the FAA's saving clause for nonenforcement.

(Internal citations omitted).