Five Key Labor And Employment Issues Hospitality Employers Need To Be Aware Of This Quarter

DOL Releases New H-2B Program Regulations That Will Cause Headaches For Hospitality Employers

National Restaurant Association Files Amicus Brief in Supreme Court Health Care Reform Case

Recent Cases May Lead to More Hospitality Union "Negotiation" Through Local Legislation

Hospitality Industry Be Warned: OFCCP Proposed Disability Regulations will be a "Game-Changer"

Arbitration Agreements and Class Action Waivers: A Leaky Bucket That May Yet Hold Water

Hospitality Team Updates

DOL Releases New H-2B Program Regulations That Will Cause Headaches For Hospitality Employers

By: Leon R. Sequeira

The Department of Labor recently published new regulations that will substantially increase the complexity and cost associated with the H-2B temporary worker visa program. These regulatory changes follow DOL's effort last year to change the methodology for setting wages in the H-2B program.

As a result of the latest regulations published on February 21 and set to take effect on April 23, employers that have traditionally relied on workers with H-2B visas to supplement their domestic workforce will now be required to navigate additional bureaucratic and compliance challenges in order to continue using the program.

Overview of Significant Requirements

Registration and Temporary Need

The new program regulations impose significant new obligations on employers and change several longstanding elements of the program. DOL has created a new multi-step application process that first requires employers to register with DOL and prove a temporary need before the employer is permitted to file an application for labor certification.
Under the new regulations, an employer's "temporary or seasonal need" can only last for a maximum of 9 months, unlike the current regulations which permit a temporary or seasonal need to last up to 10 months. An employer's registration with DOL will be valid for 3 years, during which time the employer will presumably not be required to re-prove temporary need, provided that the employer does not increase its request for workers by more than 20% (or more than 50% if requesting fewer than 10 workers).

Application Process and Recruiting

DOL has changed numerous elements of the application process, including requiring employers to file their application for labor certification 75-90 days before the date on which they will need the workers. In the future, employers will recruit US workers after filing their application with DOL, rather than before. The State Workforce Agency will keep an employer's "job order" open and active until just 21 days before the employer's date of need for workers. This is a particularly significant change because the employer will be obligated to hire additional U.S. applicants even though DOL will have already approved the Labor Certification and the employer will have spent significant time, effort, and money arranging for H-2B workers to come to the job site.

As part of the recruiting obligations, an employer may also be required to undertake additional undefined recruiting "as directed" by DOL. The State Workforce Agency will also notify labor unions of the employer's job opening and have the job opening posted on DOL's national registry of H-2B available positions.

Wage Rates and Pay Requirements

The regulations that will take effect on April 23 do not contain any changes to the calculation of wage rates in the H-2B program. DOL issued new regulations in 2011 to fundamentally change the wages required in the H-2B program, but Congress has blocked those rules from taking effect before October 1, 2012. In addition, H-2B employers and trade associations have filed two federal lawsuits challenging the Department's wage methodology regulations.

The new regulations, however, do contain important changes relating to the payment of H-2B workers. DOL will in the future require that as part of the H-2B program all visa and related expenses be reimbursed to workers in the first workweek. DOL also will require employers to provide a worker with a pay statement on payday, provide advance notice of all deductions, and be paid at least once every two weeks. The most significant change relating to pay is a new "three-fourths guarantee." Employers will be required to guarantee that an H-2B worker will receive pay for at least three-fourths of the hours described in the job order over every 12-week period. If the term of work is 16 weeks or less, the guarantee applies every 6 weeks. When that provision is combined with the new requirement that H-2B workers be provided at least 35 hours of work per week, many employers could see significantly higher labor costs associated with H-2B workers.

Corresponding Employment

In what is perhaps the most far-reaching and expensive change in the new rule, DOL has imposed wide-ranging new obligations on employers with workers in so-called "corresponding employment." This concept, which is borrowed from the H-2A agricultural program, requires employers to extend the DOL-mandated wages, benefits, and working conditions for H-2B workers to non-H-2B workers (existing or newly hired U.S. workers) that perform the "substantially the same work" as an H-2B worker.

Because the hospitality industry utilizes the H-2B program to supplement its U.S. workforce during seasonal periods of increased business, virtually all employers will have other U.S. workers performing substantially the same work as H-2B workers. Indeed, the hospitality industry utilizes H-2B workers in a number of positions where U.S. workers are also present, including housekeepers, wait staff, dining room attendants, and kitchen staff. As a result, employers may now find that scores of U.S. workers must be provided a guaranteed number of hours and other additional benefits. This requirement will decrease an employer's ability to respond to changes business volume over the course of a season and is likely to create significant accounting, management and financial challenges.

Outlook

DOL's new H-2B regulations are set to become effective on April 23. Importantly, the new requirements will apply only to applications submitted on or after that date. Therefore, any H-2B labor certification application submitted to DOL before April 23, that is subsequently approved, will be governed by regulations currently in effect, rather than the new regulations. With litigation over DOL's 2011 H-2B wage regulations continuing in two federal courts, however, it is possible that these new comprehensive H-2B program regulations will also be challenged before they take effect. Thus, hospitality employers that need to supplement their domestic workforce with the H-2B program face a great deal of uncertainty in the immediate future and will need to carefully monitor their compliance with these new regulations - should they take effect.

Note: Leon R. Sequeira, Senior Counsel in Seyfarth Shaw's Washington D.C. office, assisted the National Restaurant Association in preparation of their comments opposing DOL's proposed changes to the H-2B program. To review those coments, please click here. (Please note date on attached should state 2011 and not 2010)

National Restaurant Association Files Amicus Brief in Supreme Court Health Care Reform Case

By: Jennifer Kraft

Numerous legal challenges to the Patient Protection and Affordable Care Act (PPACA) have been filed since the health care reform law was enacted in March, 2010 arguing that Congress exceeded its Constitutional authority in adopting the law. This Constitutional challenge has finally worked its way up to the United States Supreme Court. On January 6, 2012, The National Restaurant Association, in an amicus brief prepared by Seyfarth Shaw, has urged the Supreme Court that if it finds PPACA's individual mandate to be unconstitutional, the entire statute should be struck down.

The PPACA includes a minimum coverage provision, referred to as the individual mandate, which requires most individuals to maintain a minimum level of health insurance coverage beginning in 2014. Those individuals who fail to maintain this coverage would be required to pay a penalty under the law. The lawsuits brought challenging PPACA argue that Congress exceeded its authority under the Constitution's Commerce Clause in enacting this individual mandate.

Under the Commerce Clause, Congress can regulate any economic activity that is in the stream of or substantially affects interstate commerce. The PPACA challengers argue that a decision to not purchase health insurance constitutes inactivity, not activity and that Congress has no Constitutional authority to regulate inactivity. In defending PPACA, the federal government has argued that because everyone will need health care at some point in their lives, and hospitals may not turn away people in need of emergency care, the cost of health care for uninsured people is shifted to individuals who currently have health care through increased costs and premiums. As a result, the federal government argues, individuals' decisions to not purchase health insurance places a substantial burden on interstate commerce. Therefore, the federal government reasons, enacting PPACA was within Congress's Constitutional authority under the Commerce Clause.

In the consolidated cases currently on appeal before the Supreme Court, the district court held that Congress did, in fact, exceed its Constitutional authority in adopting the individual mandate in PPACA. The district court also found that as the individual mandate was central to the enactment of PPACA, it could not be severed from the rest of the act, and all of PPACA must be struck down. On appeal, the Eleventh Circuit Court of Appeals agreed that Congress exceeded its Constitutional authority in enacting the individual mandate under PPACA, but disagreed with the district court's decision regarding severability. The Eleventh Circuit Court of Appeals instead ruled that the individual mandate could be severed from the rest of PPACA such that only the individual mandate would be struck down.

If the Supreme Court agreed with the Eleventh Circuit, the individual mandate would be struck down, but the rest of PPACA, including the provisions applicable to employers such as the employer "pay or play" mandate, and the elimination of pre-existing condition exclusions and lifetime limits in employer health plans would remain in effect.

The National Restaurant Association's amicus brief does not take a position as to whether or not the individual mandate was Constitutional. The brief argues, however, that if the individual mandate is found to be unconstitutional, then it cannot be severed from the rest of the Act and all of PPACA must be struck down.

Generally speaking, when courts find a provision of a law unconstitutional, they try to limit the solution to striking down as little of the law as possible. The National Restaurant Association brief argues that this rule is not absolute, and that determining whether an unconstitutional provision can be severed from the remainder of the statute hinges on whether the provisions that would remain can function "in a manner consistent with the intent of Congress" in passing the act. The brief argues that PPACA was designed and intended by Congress as an integrated remedy to the shortcomings of the national health care coverage system. As such, congressional intent would not be served by severing the individual mandate and leaving in place the remainder of Act such as the employer mandate.

In fact, the brief argues, if the other provisions of PPACA remain in effect without the individual mandate, the Act would actually exacerbate many of the very problems Congress sought to ameliorate, and the cost of health care coverage would significantly increase. The brief highlights particular features of PPACA, such as the ban on preexisting condition exclusions, the ban on lifetime and annual limits, and the requirement for coverage of adult children that would, in the absence of the individual mandate, result in increased health insurance costs for employers and individuals seeking insurance coverage. As a result, the brief reasons, many restaurant industry employers would no longer be able to afford to provide any health care coverage to their employees, forcing those employees to seek coverage from government-subsidized sources, which will increase the burden on federal and state taxpayers, and undermine the private employer-based health insurance system.

Rather than the Supreme Court attempting to determine congressional intent with regard to whether each particular provision of PPACA could stand without the individual mandate in place, the National Restaurant Association brief argues the entire interrelated Act should be invalidated, so that Congress may exercise its proper role and determine whether any of the remaining provisions should be enacted absent the individual mandate. Click here to read the brief.

The Supreme Court will hear six hours of oral arguments on these cases on March 26th through March 28th. Seyfarth Shaw will be hosting a webinar on Thursday, March 29, 2012 to provide a debriefing of the oral arguments themselves. To register for the webinar, click here.

Recent Cases May Lead to More Hospitality Union "Negotiation" Through Local Legislation

By: Ron Kramer

In the past few months two decisions have issued that could incentivize unions that cannot achieve their demands at the bargaining table to get them through local, industry-specific legislation instead. This is not a new phenomena, but every court decision that supports such an action only will encourage it.

On December 2, 2011, in Rhode Island Hospitality Association v. City of Providence, 2011 U.S. App. LEXIS 23915 (1st Cir. 2011), the First Circuit Court of Appeals upheld a Providence ordinance that requires companies that acquire, lease, or take over the management of hotels to employ the predecessor's employees for the first three months of operations. The new company need not hire everyone if it does not need the assistance, can still fire employees for just cause, and also is entitled to set initial terms and conditions of employment. Nevertheless, the ordinance basically insures that, for the first three months, the successor employer's workforce will consist of the predecessor employer's employees. The City adopted this ordinance on the theory that transfers of hotel operations in New England had caused "immeasurable damage to the reputation of the tourist industry," and that the law was needed "to promote the stability of Providence's hospitality and tourism business." One can only assume a driving force behind the legislation was organized labor's goal of protecting the jobs of existing employees and forcing successor employers into a position of having to recognize any existing unions.

The local hotel association and two local hotels sued, claiming that this ordinance was unlawful for a variety of reasons, including in particular that it was preempted by the National Labor Relations Act on Machinists preemption grounds. Under Machinists preemption, courts will exclude state regulation of conduct neither arguably protected nor arguably prohibited under the National Labor Relations Act (NLRA), but nevertheless intended by Congress to be left unregulated so that it may be controlled by the free play of economic forces. Plaintiffs argued the ordinance was preempted for three reasons, each of which the court rejected.

First, plaintiffs argued that the ordinance creates the risk that a new employer taking over the operation of a hotel will be considered to be a legal successor under the NLRA, such that it would have to recognize and bargain with the union representing the predecessor's employees. By forcing new employers to hire most, if not all, of their staff from the predecessor's operations, a key factor in the successorship test, the ordinance had an impermissible impact on the successorship doctrine. The court disagreed, primarily because it understood the successorship doctrine to be based upon a conscious, voluntary decision of the new employer to maintain the same business and to hire a majority of its employees from the predecessor. As such, the court did not believe that a ordinance mandating employment could trigger the successorship doctrine. The court also cited to an administrative law judge's decision, M&M Parkside Towers LLC, 2007 WL 313429 (NLRB ALJ 1/30/2007), finding, in the case of a similar ninety-day hire ordinance, that the appropriate time to make the successorship determination was at the time employment decisions are made sometime after the expiration of the ninety-day period. The court acknowledged that, were the National Labor Relations Board (NLRB) to apply the successorship doctrine in a way that the ordinance would impact the decision, preemption could be a defense -- and the concurring judge declared that such a claim would prevail.

Second, plaintiffs argued that, by providing employees with benefits for which they would otherwise have to bargain, the ordinance impermissibly, enhanced employee and union bargaining power. The court rejected that argument, as the Supreme Court has recognized that states and local governments can adopt minimum labor standards that are not inconsistent with the general legislative goals of the NLRA. Although this ordinance applied only to one industry, the court did not see that as sufficient to raise preemption concerns. The court distinguished this ordinance, which covered all employees in a particular industry, from 520 S. Mich. Ave. Assocs. v. Shannon, 549 F.3d 1119, 1130 (7th Cir. 2008). In Shannon, the Seventh Circuit found an Illinois state mandatory break statute preempted where it only applied to housekeepers in Cook County (Chicago). The First Circuit distinguished Shannon as a situation where the law was to apply only to one occupation, in one industry, in one county.

Third, plaintiffs argued that the Machinists doctrine protects a new employer's "right" to make hiring and firing decisions free of state interference. The court found nothing in the Machinists preemption doctrine or federal labor law to indicate such a right existed. Indeed, the NLRA limits employer rights to refuse to hire or to fire for discriminatory purposes, and courts have upheld ordinances and laws placing restrictions on an employer's ability to fire employees. After rejecting the Plaintiffs' other arguments as well, the court upheld the ordinance.

While this was only an appellate court decision, the U.S. Supreme Court on January 23, 2012, declined to take up a similar challenge to a Los Angeles ordinance that required the purchaser of grocery stores to employ the predecessor's workers for ninety-days. In so doing, the Court let stand a California Supreme Court decision upholding the ordinance and rejecting plaintiffs' preemption claims. California Grocers Ass'n v. City of Los Angeles, 52 Cal. 4th 177, 127 Cal. Rptr. 3d 726, 254 P.3d 1019 (July 18, 2011), cert. denied, January 23, 2012. As did the First Circuit, the California Supreme Court: (1) did not believe successorship could be based upon the involuntary retention of employees pursuant to an ordinance; (2) rejected the theory that the ordinance impermissibly interfered with an employer's right under the NLRA to, in a nondiscriminatory fashion, refuse to hire a predecessor employer's employees (a theory accepted by the state appellate court); and (3) believed that single industry legislation could qualify as a generally applicable employment standard, for there was nothing that would indicate Congress intended to prevent states and localities from attacking employment problems industry by industry.

While Providence and Los Angeles were not the first cities to impose such "successor hire" ordinances, Rhode Island Hospitality and California Grocers give unions and local governments significant legal precedent to support the adoption of these ordinances across the country. Hospitality employers must be cognizant of the possibility of such ordinances when acquiring, leasing or taking over the management of properties. From a practical standpoint, the impact of these ordinances, depending upon how written, may be minimal. Most employers taking over an existing operation hire a majority of the predecessor's employees and become a successor under the NLRA anyway. For those employers wishing to come in and start anew, however, that will be difficult. While, in theory, compliance with such ordinances will not make an employer a successor under the NLRA, it will be difficult for an employer at the end of the ninety-day time period to justify firing most if not all of its staff, many of whom no doubt have performed well, simply because it never wanted to hire any of the old employees anyway.

Perhaps a greater concern with these decisions is the apparent willingness of the courts to accept with little debate the idea that single industry legislation is not preempted. No doubt certain industries have particular employment issues (e.g., mining) for which industry-specific legislation is completely appropriate. But were these two ordinances really designed to address an industry-specific issue, or were they designed to "fix" in one industry for bargaining leverage purposes a common issue general to all industries? If so, how is this any different from the mandatory Cook County-only housekeeper-only break law held preempted by the Seventh Circuit? The courts may not have heard the end of this issue.

In the meantime, hospitality employers should expect and be prepared to fight more attempts at industry specific legislation at the state and local level to basically set a new floor for collective bargaining on various terms and conditions of employment.

Hospitality Industry Be Warned: OFCCP Proposed Disability Regulations will be a "Game-Changer"

By: Christine Hendrickson

The tens of thousands of hospitality employers who provide a threshold amount of goods or services to the government are under the jurisdiction of the Office of Federal Contract Compliance Programs (OFCCP), the division of the Department of Labor responsible for federal contractors and subcontractors. On December 9, 2011, the OFCCP delivered proposed revisions to the OFCCP's regulations addressing affirmative action for individuals with disabilities (the "Section 503" regulations). OFCCP Director Patricia Shiu warned the contractor community last summer that these new Section 503 regulations would be a "game-changer" and indeed they are, especially for hospitality industry employers who are frequently the target of compliance evaluations and audits. Some of the biggest changes are outlined below.

Hospitality Employers Would be Responsible for Ensuring that 7% of its Workforces are People with Disabilities

One of the biggest "game-changers" in the proposed rule is the establishment of workforce composition goals. The OFCCP proposes that all employers, in all industries, and nationwide adopt a goal that 7 percent of its workforce be composed of individuals with disabilities. This 7 percent utilization goal would apply uniformly to each job group; the calculation cannot be aggregated across job groups.

Must Solicit Information from Applicants and Employees with Disabilities Early and Often

The proposed regulations make significant, substantive changes to a contractor's responsibilities and the process through which applicants are invited to voluntarily self-identify as an individual with a disability. The proposed rule requires that contractors ask applicants to voluntarily self-identify their disability status both pre- and post-offer; the current regulations only require contractors to solicit disability status post-offer. The proposed rule also adds a new requirement that contractors annually survey their employees' disability status, permitting employees who are, or subsequently become, an individual with a disability to voluntarily self-identify as such in an anonymous manner. This will also put particular burden on hospitality industry employers who often hire in large numbers, and seasonally, making the additional solicitation requirements additionally burdensome.

Over One Million Additional Individuals with Disabilities Could be Covered

The proposed regulations adopt the ADA Amendments Act's (ADAAA's) very broad definition of who is considered to be a person with a disability. This will greatly increase the number of individuals with disabilities who are covered by the OFCCP's mandate. Even utilizing the EEOC's conservative estimate, over one million more Americans will meet the definition of disability because of the ADAAA.

More, More, More: More Data Collection, More Analysis and More Recordkeeping

If the proposed rule is implemented in its current form, all contractors, including those in the hospitality industry, will be required to conduct a significant number of statistical analyses, far more than currently required by Section 503 and even more than currently required by Executive Order 11246, which covers women and people of color. Contractors will also be required to keep this information for five years.

For example, contractors would be required to engage in an annual review of "personnel processes" and identify the vacancies and training programs for which applicants and employees with disabilities are considered; provide a statement of reasons explaining the circumstances for rejecting any individual with a disability for any vacancy or training program; and describe the nature and type of accommodations for individuals with disabilities who were selected for hire, promotion, or training programs. Contractors will also be required to analyze the total number of referrals from state employment services and other organization with whom the contractor has linkage agreements and track the total number of applicants for employment, the number of applicants who are known to be individuals with disabilities, and the "applicant ratio" of known applicants with disabilities to total applicants. Then contractors will be required to develop a report showing the total number of job openings, the number of jobs filled, the number of known individuals with disabilities hired, and the "hiring ratio" of hires with known disabilities to total hires.

The burden of this requirement is staggering for all employers. It is particularly burdensome for hospitality industry clients that operate in multiple locations, as they will be required to track and organize this information for each linkage agreement at each establishment.

Reasonable Accommodation Procedures Must be Specific and Well-Documented and Accommodations Must be Processed Quickly

Another of the biggest "game-changers" in the proposed regulations is the imposition of significant additional obligations on federal contractors with respect to the procedures for providing reasonable accommodations to applicants and employees with disabilities. Unlike most EEO regulations, these proposed regulations require not only that contractors comply with the equal employment, nondiscrimination, and affirmative action requirements but that they do so in a specific way. This will require most hospitality industry contractors to scrap their reasonable accommodation process and adopt the OFCCP's new process, which will include a requirement that most reasonable accommodation requests be processed within 5 to 10 business days! This will be especially burdensome on smaller hospitality employers with limited human resources staff.

What Should Hospitality Industry Employers Do Now

Complying with the regulations, as proposed, would require contractors to engage in a major alteration of their outreach and recruiting activities; human resources policies, procedures and systems; referral and applicant tracking processes and systems; promotion and training practices and recordkeeping; self-audit processes; documentation practices; record retention policies and practices; and substantial revision of their Section 503 affirmative action plan. Some smaller hospitality employers may opt not to be a federal contractor. Those that plan to remain a federal contractor should start preparing now. We are here to help.

It is critical to be aware that a contractor's failure to have accurate and complete data, documents and records of its efforts and other activities can be misinterpreted by the OFCCP to be discrimination and can result in very expensive litigation and/or settlements. These new proposed requirements present a host of opportunities for the OFCCP to find "discrimination," when the issue may simply be a failure to maintain adequate data (such as applicant tracking), documents and other records.

Arbitration Agreements and Class Action Waivers: A Leaky Bucket That May Yet Hold Water

By: Dave Baffa

Many hospitality employers have long considered implementing arbitration programs as a means for resolving workplace disputes. For years, the effectiveness of arbitration programs against class and collective action lawsuits, however, was an area of uncertainty in many states -- especially California. While the possibility of obtaining a waiver of class or collective actions in court has existed for years, the possibility of ending up with a class action in an arbitral forum was a risk most employers were unwilling to take.

In the wake of the Supreme Court's decisions in 2010 and 2011 -- Stolt-Nielsen v. AnimalFeeds and AT&T Mobility v. Concepcion -- arbitration has re-emerged a possible way for employers to insulate themselves against employment-related class and collective actions in any forum throughout the United States, including California.

The prospect of avoiding class or collective actions has sparked employer interest. As of October 2011, based on a survey conducted by Seyfarth Shaw among retail and hospitality employers, roughly 40% of respondents indicated that they are considering seriously the implementation of mandatory arbitration with class action waivers in the wake of Concepcion, and many more have since given thought to such a program.

The decision to implement such a program is not an easy one, and employers must understand the advantages and disadvantages -- both real and perceived. In addition, employers must understand where the mines are buried, and understand the various ways in which mandatory arbitration may come under attack.

It has been nearly a year since Concepcion, and the vast majority of courts that have applied Concepcion to arbitration agreements containing a class or collective action waiver have enforced those agreements and compelled arbitration. Selected courts, however, continue to find arbitration clauses unenforceable, particularly when attempting to reconcile the FAA with federal statutes that arguably give rise to substantive right to proceed on collective basis. For example, federal judges in the Southern District of New York are split as to the enforceability of collective action waivers under the Fair Labor Standards Act ("FLSA"). Federal and state courts in California differ as to the ability to waive the right to file claims under the Private Attorney General's Act ("PAGA").

Perhaps the biggest post-Concepcion obstacle to class and collective action waivers was erected in January 2012 by the National Labor Relations Board. The Board in D.R. Horton ruled that a mandatory class and collective action waiver imposed by an employer is illegal and unenforceable under the National Labor Relations Act ("NLRA") because -- in the Board's view -- class or collective actions constitute "protected concerted activity" within the meaning of Section 7 of the NLRA. Many of these decisions are currently subject to appeal, and many employers are eagerly waiting and hoping for reversal.

As employers await the appeal of these decisions, they must also predict the upcoming political landscape, including the threat of legislative action, as well as other challenges to arbitration agreements based on generally applicable contract defenses. Despite the challenges, however, employers remain interested in mandatory arbitration and class action waivers as a means for potentially staving off the threat of class and collective actions.

The Supreme Court's Strong Support of Mandatory Arbitration

One thing is clear: The Supreme Court of the United States has long interpreted the Federal Arbitration Act (FAA) to require courts to honor the parties' expectations and enforce arbitration agreements according to their terms. A string of decisions -- starting with Gilmer v. Interstate/Johnson Lane (1991) and continuing most recently in CompuCredit Corp. v. Greenwood (2012) and Marmet Health Care Center v. Brown (2012), have emphasized that under the FAA, arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. This, according to the Court in Marmet and Concepcion, reflects an "emphatic federal policy in favor of arbitral dispute resolution." State laws, the Court made clear, that seek to prohibit outright the arbitration of a particular type of claim "[are] displaced by the FAA." Likewise, in CompuCredit, the Court made clear that even when federal statutory claims are at issue, arbitration agreements must be enforced by their terms.

State Laws Prohibiting Class Action Waivers Clearly Preempted by the FAA

Since Concepcion, a string of federal courts have routinely struck down state laws that seek to prohibit class action waivers in arbitration agreements. Most recently, on March 14, 2012, the Third Circuit in Quilloin v. Tenet Healthsystem Philadelphia, overturned a district court decision and noted that while Pennsylvania law may find class action waivers to be unconscionable, such law is "surely preempted by the FAA under Concepcion." In 2011, the Third Circuit also held a similar New Jersey law to be preempted by the FAA, in Litman v. Cellco P'ship. Even the Ninth Circuit has followed suit, holding most recently on March 7, 2012 in Kilgore v. KeyBank, that even claims solely for injunctive relief under California's Unfair Competition Law may be preempted by an arbitration agreement, because California's law prohibiting arbitration of injunctive relief claims is preempted by the FAA under Concepcion.

Not all courts, however, have fully given over to this position. Specifically, California state courts -- even post Concepcion -- have continued to suggest that the arbitration of certain state law claims is prohibited. Notably, the California Court of Appeal in Brown v. Ralph's Grocery held that claims under California's Private Attorney General Act ("PAGA") may not be compelled to arbitration. Unfortunately, the California Supreme Court declined to review Brown. Several California federal district courts, however -- notably Quvedo v. Macy's (C.D. Cal) and Grabowski v. CH Robinson (S.D. Cal) -- have explicitly held that Brown got it wrong, and found that PAGA claims may be compelled to arbitration. The Ninth Circuit, based on its decision in Kilgore, presumably would agree.

Conflicting Federal Rights to Proceed Collectively or as a Class

The National Labor Relations Act. Perhaps the biggest setback for employers post-Concepcion was dealt in January, 2012, by the Board in D.R. Horton. In a closely watched decision ultimately penned by Member Craig Becker, the Board held that class action waivers are a per se violation of Section 7 of the National Labor Relations Act, and therefore unlawful. The Board argued that employees' rights to engage in concerted activity includes the right both to file and to pursue a class action, and that an arbitration agreement that disallowed such activity unlawfully chilled employees' Section 7 rights. The Board's order is before the Fifth Circuit Court of Appeals, which will be a closely watched decision in the coming months. Unless it is reversed, this decision presents a challenge for employers looking to implement a new program because of the ease with which an employee can challenge implementation by filing a charge with the NLRB.

The FLSA. While the preemptive effect of the FAA vis-à-vis state law prohibitions of class action waivers is reasonably clear, a more recent and troubling trend is the proper balancing of arguably conflicting federal substantive rights to proceed on a class or collective basis. Chief among these, of course, is the Fair Labor Standards Act, which at least according to one Federal District Court Judge in the Southern District of New York -- in Ranieri v. CitiGroup -- includes the substantive right to proceed collectively. Accordingly, according to the court in Ranieri, FLSA collective action claims cannot be compelled to individual arbitration.

The Ranieri decision, however, is an outlier. Every other district court to consider the issue has held that FLSA claims and collective actions may be compelled to single-plaintiff arbitration. Indeed, even a sister court in the Southern District of New York, in LaVoice v. UBS, expressly declined to follow Ranieri (or, for that matter, the NLRB's decision in D.R. Horton). The Ranieri decision, which has been appealed and briefed before the Second Circuit, is another decision-to-watch for employers.

EEOC Pattern and Practice Claims. Another decision out of the Southern District of New York -- Chen Oster v. Goldman Sachs -- adopts a similar view, arguing that the right to proceed as a class or group is so inherently bound up in Title VII that such claims may not be compelled to single-plaintiff arbitration, notwithstanding the FAA. Perhaps unsurprisingly, the EEOC also shares this view.

Unconscionability Challenges

While courts generally have adopted a broad view of Concepcion, and have preempted any state law and most federal laws prohibiting arbitration, agreements are still subject to challenge. The Supreme Court specifically noted that the FAA "permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability."

Accordingly, several courts have analyzed arbitration agreements with class action waivers and refused to enforce them as unconscionable, despite Concepcion. The most common reasons that agreements are found to be unconscionable include:

• Providing that the prevailing party must pay the other sides' attorneys fees, or refusing to permit attorneys fees to shift, as compared to the fee-shifting that would be available to a prevailing plaintiff in an employment lawsuit in court. See, for example, In Re Checking Account Overdraft Litigation (S.D. Florida); Mayer v. Volt Mgmt (Ct. App. Cal. - 4th Dist.)
   
• Shortening the statute of limitations as compared to what would be available by statute. See, for example, Kanbar v. O'Melveny & Myers (N.D. California)
   
• Failing to make the arbitration rules clear, most notably by failing to include a clear reference to the applicable rules and a copy of the applicable rules. Mayer v. Volt Mgmt (Ct. App. Cal. - 4th Dist.)

Other Issues and Carve-Outs

Employers who are considering implementation of mandatory arbitration should consider other important potentially applicable carve-outs. For example, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, certain types of whistleblower claims may not subject to mandatory pre-dispute arbitration.

Strategic carve-outs should also be considered, such as reserving the right to seek emergency or temporary injunctive relief in court for disclosure of trade secrets. Another example of a strategic carve-out would be situations in which an employer maintains different types of ERISA plans -- such as Severance Pay Plans or Short-Term Disability Plans -- that call for different types of dispute resolution procedures.

Wait-And-See

Many companies view Concepcion as a way to avoid costly class actions by implementing arbitration agreements that include class action waivers. While the D.R. Horton decision works its way through the Fifth Circuit, and employers await and hope for the reversal of the Ranieri decision in the Second Circuit, many employers are continuing to design mandatory arbitration programs with class and collective action waivers, so they can be ready to implement. For many employers, the prospect of avoiding even one class or collective action is well worth the risk.

Hospitality Team Updates

Jennifer Kraft and David Weiner of our Chicago office and Leon Sequeira of our Washington, D.C. office were retained by the National Restaurant Association to submit an amicus brief in the health care reform appeal in the U.S. Supreme Court (National Federation of Independent Business v. Sebelius and Florida, et al., v. Health & Human Services Department). The brief focuses on the burden on employers, and those employers in the restaurant industry in particular, if they are required to comply with all the health care reform provisions without the individual mandate being in effect. The brief argues that if the individual mandate is unconstitutional then it cannot be severed from the rest of the Act and the entire law must be invalidated. Click here to read the brief.

Ron Kramer, Molly Eastman and Isabel Lazar of the Chicago Office along with Jack Toner from the DC Office presented a webinar entitled "The Year That Was And Will Be: National Labor Relations Board Update For Hospitality Employers" on January 18, 2012. If you are interested in a copy of the webinar, please click here.

We want to hear from you! Do you want to know more about these or any other topics? Want to see something reported on? Have an idea for an article or webinar? Looking for a speaker for your group? Please feel free to contact your Seyfarth attorney.