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April 2018

May 2018

The Supreme Court Reaffirms The Reach And Force Of The Federal Arbitration Act, This Time In Employment Cases

By Adam G. Unikowsky, Michael T. Brody, Carla J. Rozycki, Howard S. Suskin, and Gabriel K. Gillett

image from https://s3.amazonaws.com/feather-client-files-aviary-prod-us-east-1/2018-05-25/a4df9ee8-8861-4057-b0fe-9fd674c74eca.pngOn May 21, 2018, the Supreme Court issued its long-awaited decision in the consolidated cases Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP v. Morris, No. 16-300; and NLRB v. Murphy Oil USA, No. 16-307.  In a 5-4 opinion by Justice Gorsuch, the Court held that courts must enforce arbitration agreements requiring employees to bring employment-related claims in individualized arbitration proceedings, and barring them from pursuing those claims as a collective or class action.[1]  The Court explained that absent a contrary congressional directive, arbitration clauses are “valid, irrevocable, and enforceable” under the Federal Arbitration Act (FAA), which reflects “‘a liberal federal policy favoring arbitration agreements.’”[2]  The Court held that such arbitration agreements do not violate employees’ statutory right under the National Labor Relations Act (NLRA) to “engage in other concerted activities for the purpose of … mutual aid or protection.”[3]  It concluded that the National Labor Relations Board (NLRB)’s contrary conclusion was not entitled to Chevron deference.[4]  Therefore, the Court held that the provisions requiring individual arbitration of employment disputes were enforceable under the FAA.

The Epic decision represents a major victory for employers.  It allows them to avoid burdensome class actions and instead take advantage of the cost and speed of individualized arbitration.  The decision continues the Court’s longstanding practice of enforcing the FAA according to its terms. 

The Epic case began when Jacob Lewis filed a putative class and collective action in federal court against his former employer, Epic Systems Corp., alleging violations of federal and state wage-and-hour laws.[5]  Epic moved to compel individual arbitration, arguing that under the terms of an agreement that Lewis had accepted as a condition of employment, Lewis was required to bring employment-based claims through individual arbitration and not as a collective or class action.[6]  The district court held that the arbitration agreement was unenforceable, and the Seventh Circuit affirmed, deferring to the Board’s conclusion that individualized arbitration agreements violated an employee’s right to engage in concerted action under the NLRA.[7]  The Seventh Circuit’s decision conflicted with decisions from other circuits, which had held that the FAA required enforcement of such agreements according to their terms.  The Court granted Epic’s petition for certiorari, along with two other petitions raising the same question, and consolidated the three cases.[8]

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Supreme Court to Examine Cy Pres Remedy in Google Privacy Case

SCOTUSBy Olivia G. Hoffman

Last month, the Supreme Court granted certiorari to review a decision of the Ninth Circuit approving an $8.5 million class action settlement in which the majority of the settlement proceeds took the form of a cy pres award.  Cy pres—which comes from a French expression meaning “as near as possible”—is an equitable doctrine that allows a court to direct unclaimed or non-distributable funds awarded as part of a class action settlement “to an entity whose interests lie ‘as near as possible’ to that group,” i.e., to a charity that advances interests related to those pursued by the plaintiff class in the lawsuit.[1]

The case, Frank v. Gaos, No. 17-961, involves a pre-certification settlement of a class action against Google for alleged violations of the federal Stored Communications Act and California privacy laws.  The district court approved the settlement, which allocated approximately $3.2 million to the plaintiffs’ attorneys, administrative costs, and the named plaintiffs, and awarded the remaining $5.3 million to six not-for-profit cy pres recipients that had submitted proposals detailing the ways in which they planned to use the proceeds to promote internet privacy initiatives.[2]  On appeal, the Ninth Circuit affirmed the district court’s decision that the settlement was “fair, adequate, and free from collusion.”[3]  It noted that while cy pres-only settlements are “the exception, not the rule[,]” such a settlement was appropriate here, where there were approximately 129 million class members, each of whom would have been entitled to a mere 4 cents.[4]  Moreover, the panel held that the district court did not abuse its discretion by approving the selection of the cy pres recipients, notwithstanding objectors’ claims that, among other things, defendant Google and class counsel had “significant prior affiliations” with the recipient organizations.[5]  Finally, the Ninth Circuit upheld the reasonableness of the $2.125 million award to class counsel, which the district court had determined to be acceptable under either the percentage-of-recovery or lodestar method.[6]

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