In Gold v. New York Life Ins. Co., 2017 N. Y. App. LEXIS 5627 (1st Dep’t, July 18, 2017), the New York Appellate Division, First Department (state court covering Manhattan and the Bronx), held that an arbitration agreement prohibiting an employee’s participation in class and collective actions is unenforceable, as it violates the employees’ right to engage in concerted activity under the National Labor Relations Act (“NLRA”).

By way of background, a group of former insurance agents filed a class action lawsuit claiming that their employer violated the New York Labor Law.  One of the agents, however, had signed an agreement requiring her to arbitrate any claim or dispute with her employer.  Additionally, under the arbitration provision, the agent agreed that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.”  Despite this, all of the insurance agents nevertheless filed their claims together in court as a proposed class action.  After the defendant moved to compel arbitration, the trial court ordered that the claims of the agent who had signed the arbitration agreement must be submitted to arbitration on an individual basis.  The plaintiffs subsequently appealed.

On appeal, the First Department held that the arbitration provision precluding employees from pursuing claims on a class, collective or representative basis are unenforceable because they violate Sections 7 and 8 of the NLRA.  As the First Department explained, such waivers violate the NLRA because they interfere with employees’ right to engage in concerted activities for mutual aid and protection.  “[S]ection 7 of the NLRA provide[s] that employees have the right to engage in concerted activities, and concerted activities have long been held to include resort to . . . judicial forums.”

This decision is extremely interesting in that it directly contradicted a decision of the U.S. Court of Appeals for the Second Circuit (federal court covering New York).  Rather than following the Second Circuit’s decision in Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013), the First Department instead adopted the Seventh Circuit’s reasoning and held 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 that class action waivers are “unenforceable under the NLRA because they stipulate away employees’ [s]ection 7 rights or otherwise require actions unlawful under the NRLA.”

Additionally, the First Department determined that the waiver was also unenforceable under the Federal Arbitration Act (“FAA”), which governs the enforcement of arbitration agreements.  This is because the FAA’s “savings clause” provides 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 First Department thus found 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.”

It is therefore still unsettled in Manhattan and the Bronx whether employers must abide by the Second Circuit’s opinion in Sutherland or the First Department’s opinion in Gold.  Fortunately, the U.S. Supreme Court is soon set to hear oral arguments on this precise issue – whether class and collective action waivers are enforceable in employment-related arbitration agreements.  In fact, the First Department even recognized that “there is a recent split among the Federal Circuit Courts regarding these types of clauses” and acknowledged that “[i]n all likelihood, the United States Supreme Court will resolve this circuit split in due course.”

Until such time, the Law Office of Yuriy Moshes, P.C. recommends that all Manhattan and Bronx employees that signed class action waivers and are seeking to assert wage claims as a class should pursue their claims under the New York Labor Law in state court rather than asserting federal claims under the FLSA in federal court.

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