Unless the U.S. Supreme Court Rules Otherwise, Waivers of Collective Actions Are Not Enforceable in New York

by Patterson Belknap Webb & Tyler LLP

On July 18, 2017, the First Department partially reversed the Commercial Division’s decision in Gold v. New York Life Insurance Company, No. 653923/12, 2017 BL 247192 (App. Div. 1st Dep’t July 18, 2017), a case that presented the issue of whether employees can be compelled to waive collective actions against their employers pursuant to an arbitration clause.  In 2015, Justice O. Peter Sherwood of the New York Commercial Division had granted a motion to compel a former insurance agent to arbitrate his wage dispute with New York Life Insurance Co. (“N.Y. Life”).[1]  In a decision by Justice Karla Moskowitz (who was a member of the Commercial Division before being appointed to the Appellate Division), the First Department answered an open issue in New York, holding that employers cannot be required to arbitrate such disputes as it “would run afoul of the National Labor Relations Act.”[2]

The plaintiffs in Gold were former insurance agents for N.Y. Life who filed a putative class action against N.Y. Life and related companies for allegedly violating overtime and minimum wage laws.[3]  The plaintiffs had signed standardized contracts, providing that they were independent contractors, and thus not employees of N.Y. Life.[4]  N.Y. Life maintained a ledger for tracking commissions payable to each agent, and charged back certain amounts depending on whether a policy was surrendered, foreclosed, or lapsed within a certain period of time.[5]   One of the plaintiffs, Kartal, signed a contract waiving any right to a jury trial and agreeing that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.”[6]  The contract also provided that if the arbitration provision was found to be unenforceable, then the class, collective or representative claim could proceed in court.

Justice Sherwood of the Commercial Division granted N.Y. Life’s motion to compel arbitration of Kartal’s claims, and separately, granted a motion for summary judgment dismissing the wage deduction, failure to pay overtime, and failure to pay minimum wage claims.[7]

On appeal, the First Department concluded that the arbitration provision in Kartal’s contract -- which prohibited class, collective, or representative claims -- violated the National Labor Relations Act (“NLRA”), 29 U.S.C.§ 151 et seq.,  and was therefore unenforceable.  The Court recognized that the issue was an open question in New York courts and that the Federal Circuit Courts were split on the point.[8]

The First Department comprehensively surveyed existing case law on the enforceability of arbitration provisions prohibiting class, collective, or representative claims in an employer-employee context.  For example, the Seventh Circuit had declined to enforce an arbitration clause that precluded employees from bringing class, collective, or representative actions because it violated the NLRA’s provisions that allow employees to organize and engage in “concerted activity.”[9]  The U.S. Supreme Court recently granted certiorari in that appeal.[10]  The Ninth Circuit followed the Seventh Circuit approach, but the Second, Fifth, and Eight Circuits have enforced arbitration provisions requiring employees to waive class or collective actions.[11]

The First Department analyzed the conflicting policy interests associated with enforcing or declining to enforce an arbitration clause in this context.  On the one hand,  the Court noted New York’s “preference for enforcing arbitration agreements” and on the other hand, the possibility that “employers will evade consequences for allegedly unfair labor practices so long as the amount owed to each individual employee is lower than the cost of litigation.”[12]

The First Department disagreed with the Fifth Circuit’s approach of extending the Supreme Court’s holding in the consumer contract context to agreements with employees.  In AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 352 (2011), the Supreme Court held that the Federal Arbitration Act (“FAA”) requires courts to enforce waivers of class arbitration in consumer contracts.   Nonetheless, the First Department could “divine no reason” why the policy imperatives of the FAA which require enforcement of arbitration contracts FAA should supersede the policies underlying the NLRA that prohibit employers from preventing collective action by employees.[13]

Recognizing that the U.S. Supreme Court would “[i]n all likelihood . . . resolve this circuit split in due course,” the First Department decided that “[i]n the meantime” it would follow the Seventh Circuit’s approach of holding waivers of collective claims unenforceable under the NLRA.[14]

The First Department’s decision went on to affirm the portions of the Commercial Division’s decision that granted summary judgment dismissing the wage deduction and minimum wage claims. 

Judges Andrias and Friedman dissented in part, noting that although the National Labor Relations Board (“NLRB”) had taken the position that arbitration agreements waiving collective actions were unenforceable under the NLRA, the NLRB has no special expertise or authority to administer the arbitration scheme set forth by the FAA.  According to the dissent, Kartal, the plaintiff, did not meet her burden of showing that Congress intended to exempt collective employment claims from the reach of the FAA.[15]  “Although the NLRA gives employees a right to bargain collectively, the statute does not expressly give employees the right to arbitrate or litigate disputes as a class or collective action, and the legislative history lacks any indication of a congressional command precluding courts from enforcing collective action waivers according to their terms.”[16]  The dissent also noted that prohibiting class arbitration waivers would likely discourage arbitration in general “to an extent that is impermissible under the FAA.”[17]

On October 2, 2017, the U.S. Supreme Court will hear oral argument on the Seventh Circuit and Ninth Circuit appeals, which have been consolidated for review.  A ruling is expected in the October 2017 Term. 



[1] Gold v. New York Life Ins. Co. No. 653923/12, 2017 BL 247192, at *1 (App. Div. 1st Dep’t July 18, 2017)

[2] Id.

[3] Id.

[4] Id.

[5] Id. at *2.

[6] Id.

[7] Id. at *3

[8] Id.

[9] Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), cert granted, 137 S. Ct. 809 (2017).

[10] Id.

[11] Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert granted, 137 S. Ct. 809 (2017); but see Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772, 775-76 (8th Cir. 2016); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 355-62 (5th Cir. 2013); Sutherland v. Ernst & Young, LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013). 

[12] Gold, 2017 BL 247192, at *5.

[13] Id. at *6.

[14] Id.

[15] Id. at *10-*11

[16] Id. at *11.

[17] Id. at *12.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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