Paul Millus Authors, "Employment Disputes: Fox News and the Effort to Upend Mandatory Arbitration" for the New York Law Journal

On July 6, 2016, former Fox News Anchor Gretchen Carlson sued in Superior Court in New Jersey naming former Fox News Chairman, Roger Ailes, as the lone defendant in a NYC Human Rights Law case alleging sexual harassment at the hands of Ailes. By not naming Fox News, Carlson hoped to avoid the imposition of mandatory arbitration. On July 8, 2016, Ailes filed a Notice of Removal to the U.S. District Court in New Jersey, a motion to stay all proceedings in New Jersey and to compel arbitration. A week later, Ailes filed a Petition in the Southern District of New York to arbitrate all matters involving Carlson. Ailes v. Carlson, 16-cv-05671 (S.D.N.Y. 2016). On July 21, 2016 Ailes resigned from Fox, and by Sept. 6, 2016 the parties filed a Voluntary Order of Dismissal, reportedly settling her case for $20 million, without any court ever weighing the arbitrability of Carlson's claims.

Conversely, on Aug. 22, 2016, former Fox News Anchor Andrea Tantaros sued several individual defendants, including Ailes and Fox News, also claiming, in part, discrimination based on sex. She too argued that the arbitration provision did not apply to her claims against the individual defendants. Tantaros v. Fox News Network, New York County Supreme Court, Index No. 157054/2016. Fox filed a motion to stay the action and compel arbitration seven days later. The result there was that on Feb. 15, 2017, Justice David Cohen ruled from the bench granting the motion to compel arbitration after oral argument. The difference in terms of the outcome in each case was based on nothing more than timing.

Would Carlson's case have been forced to arbitration if the court was required to make a decision? The answer is most assuredly "yes" based on the prevailing law, which is clearly more arbitration friendly, and it is expected that this circumstance will continue despite pushback from employment rights advocates. As recently as May 15, 2017, the U.S. Supreme Court has reiterated its long-standing doctrine that arbitration agreements must be placed on an equal plane with other contracts under the Federal Arbitration Act (FAA). Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421. In a concise opinion, Justice Elena Kagen made it abundantly clear 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 establishes an "equal-treatment principle" such that a court may not invalidate an arbitration agreement based on legal rules that "apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." AT&T Mobility v. Concepcion, 131 S.Ct. 1740, 1746 (2011).

The Supreme Court has not wavered in its holding that the FAA "preempts any state rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements." Kindred Nursing Centers Ltd. Partnership, 137 S.Ct, at 1423). In DIRECTV v. Imburgia, 136 S.Ct. 463 (2015) the Supreme Court, in a 6-3 decision, reversed the California Court of Appeals which had determined, essentially, that it could apply a prior California law which made a class-arbitration waiver in an employment setting unenforceable.

Against this backdrop, much has been made of the impact of mandatory arbitration clauses in employment agreements and handbooks which critics contend prevent transparency, limit the employee's choice of forum, and often result in lower recoveries than were possible if their claims were tried by a jury. They are correct on each account as a general rule, but it begs the question: Is that not the whole point of employer's requiring arbitration rather than permitting litigation in the first place? Employers will cite to the fact that arbitration maintains confidentiality which, from a business standpoint, is important. They would also cite to decreased costs, although any practitioner who arbitrates and litigates in court might not be convinced that the costs associated with arbitration are less than what would have been expended in court. Finally, to the extent arbitration does keep damage awards down, that is exactly what the employer is hoping to do when faced with any legal claim. Yet, the question is still asked: Should mandatory arbitration clauses bar a litigant's claims that the employer violated state or federal law as opposed to applying solely other contractual conditions of employment? In 2016, a ground swell began to form to limit mandatory arbitration as far as employment was concerned. That year, Sens. Al Franken and Patrick Leahy reintroduced a bill that proposes that any claim that violates state or federal law would automatically bypass any arbitration clause and be permitted to proceed to the courts. A number of states also began proposing similar litigation. In light of present political circumstances, however, it is unlikely that any such legislation will ever be passed.

In New York, the Second Circuit has made it clear that the court must address three primary issues: (1) whether the parties agreed to arbitrate; (2) the scope of that agreement; (3) if federal statutory claims are asserted, whether Congress intended those claims to be nonarbitrable. SDD99 v. ASA Int'l, 2007 WL 952046, at *5 (W.D.N.Y. 2007) (citing JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163 (2d Cir. 2004); Oldroyd v. Elmira Sav. Bank, 134 F.3d 72, 75-76 (2d Cir. 1998). In regard to the first issue, it is not enough to claim that the employee was forced to enter into the arbitration agreement as a condition of employment. "Even if the Agreement was a form contract offered on a 'take-it-or-leave-it' basis and [the party] refused to negotiate the Arbitration Provision, this is not sufficient under New York law to render the provision procedurally unconscionable." Nayal v. HIP Network Servs. IPA, 620 F. Supp. 2d 566, 571 (S.D.N.Y. 2009); Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 33, 111 S.Ct. 1647 (1991) ("[m]ere inequality in bargaining power … is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context").

As for any overbreadth argument, the scope of most arbitration agreements is purposefully broad. A broad arbitration clause "creates a presumption of arbitrability which is only overcome if 'it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that [it] covers the asserted dispute.'" WorldCrisa v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997) citing Collins & Aikman Prod. Co. v. Building Systems, 58 F.3d 16, 20 (2d Cir. 1995) ("submitting to arbitration '[a]ny claim or controversy arising out of or relating to th[e] agreement,' is the paradigm of a broad clause"); Tong v. S.A.C. Capital Management, 52 A.D.3d 386, 387 (1st Dep't 2008).

In regard to the third issue, there is little doubt that claims under Title VII and the NYSHRL are arbitrable. See, e.g., Desiderio v. Nat'l Ass'n of Sec. Dealers, 191 F.3d 198, 206 (2d Cir. 1999) (discussing purpose and history of Title VII and concluding Congress did not intend to preclude arbitrability); Johnson v. Tishman Speyer Properties, L.P., 2009 WL 3364038, at *3 (citing Fletcher v. Kidder, Peabody & Co., 81 N.Y.2d 623 (1993) (race discrimination claims under the NYSHRL are arbitrable)).

So how would Carlson's argument have fared that, since Ailes was not a signatory to the arbitration agreement, a claim against him solely was not subject to mandatory arbitration? Well, if Justice Cohen's decision in Tantaros's case is of any guidance, probably not well. In his decision on the record, Justice Cohen was not moved by the argument that the agreement containing the arbitration clause was non-assignable and excluded third party beneficiaries. In the end, Justice Cohen's determination that, even though not signatories to the arbitration agreement, the individual defendants could invoke the arbitration clause and compel arbitration, is wholly consistent with Second Circuit law. Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir. 1993) ("Courts in this and other circuits consistently have held that employees or disclosed agents of an entity that is a party to an arbitration agreement are protected by that agreement"); Tracinda v. DaimlerChrysler AG, 502 F.3d 212 (3d Cir. 2007) ("The Pritzker rule—that non-signatory agents may invoke a valid arbitration agreement entered into by their principal—is well-settled and supported by other decisions of this Court.").

While there can be no doubt that employees would rather, if possible, have their claims heard by a jury of their peers rather than an arbitrator (depending on the jurisdiction), the status of the law, at least for the foreseeable future, seems strongly in favor of the employers' use of arbitration to resolve workplace disputes of all manner and kind. As for Tantaros, in litigation, as in life, sometimes timing is everything.

Reprinted with permission from the June 20, 2017 issue of New York Law Journal. 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.