ContractsProf Blog

Training Repayment Agreements in the News

Just yesterday, we posted about the debate over the FTC's plans to rein in non-competes.  One response has been Training Repayment Agreements (TRAs) or better still, Training Repayment Agreement Provisions (TRAPs). Thanks to guest contributions from Jonathan Harris (below left) here and here, as well as Miriam Cherry's review of Jonathan's work over at Jotwell, we have already been able to introduce readers to the topic.  Last week, H. Claire Brown published an article in The New York Times indicating how TRAPs work.

The article begins with an illustration.  A physician assistant signed a TRAP when she began work, as part of the first day of work ritual at which your employer presents you with the take-it-or-be-unemployed terms of your employment.  The TRAP provided that she would be required to reimburse her employer $50,000 for on-the-job trainings she received if she left the job before 2025.  She left, providing four-months notice, and her former employer sued, seeking to recover $38,000 in training fees (a ridiculous valuation for the training the employee received) plus $100,000 (a suspiciously round and therefore almost certainly made-up number) supposedly representing loss of business.   One wonders on what theory they think they can recover such lost profits.

In a second illustration, we learn of another medical professional who took a job that paid $35,000/year.  After more than two years on the job, she tried to leave, and her employer sued her for $30,000 in training costs.

According to The Times, nearly 40% of nurses who joined the profession in the last decade have to sign a TRAP.  In California, TRAPs are already unenforceable if they amount to an attempt to shift training costs to employees.  They are only enforceable if designed to allow employees to improve their skills sets in ways that will benefit them throughout their careers.  Even so, The Times notes, the FTC has proposed rules that will ban TRAPs to the extent that they function as non-compete clauses.    Some states have already banned TRAPs.  

Jonathan Harris's spidey sense must have been tingling, because he just shared with us news of this story about the National Labor Relations Board suing an employer that allegedly subjects its employees to unlawful confidentiality, non-disparagement, non-compete, no-solicitation, and training repayment provisions.

The Short and and the Long of the Debate on Non-Competes

The Federal Trade Commission has proposed a ban on virtually all non-compete agreements.  Similarly bans are already in effect in California and other states.  Back in January, Rachel Arnow-Richman (left) and Orly Lobel (right) published The Business Case for a Nationwide Ban on Noncompetes in The Hill.  The piece is now available on SSRN, and that's how I got wind of it. 

As their title suggests, Professors Arnow-Richman and Lobel argue that non-competes are bad for business. They cite to a decade's worth of empirical evidence to back their claim. Noncompetes suppress wages and exacerbate pay gaps based on race and gender.  But they are not just bad for workers; non-competes also stifle entrepreneurship and innovation.  It is no coincidence that Silicon Valley, a center for economic dynamism and technological innovation, is located in California, which bans non-competes.  Eliminating non-competes can be especially helpful as we emerge from the Great Resignation associated with the COVID economy.  Medical professionals in particular need to have the ability to offer their services where those services are needed, notwithstanding competition with past employers. 

That is the short.  Now for the long.  

Alan J. Meese (right) has posted on SSRN his 136-page article, Are Employee Noncompete Agreements Coercive? Why the FTC's Wrong Answer Disqualifies It from Rulemaking (For Now).  I will not attempt to summarize his work.  Here is the abstract: 

The Federal Trade Commission recently proposed a rule banning nearly all employee noncompete agreement (“NCAs”) as unfair methods of competition under Section 5 of the Federal Trade Commission Act. The proposed rule reflects two complementary pillars of an aggressive new enforcement agenda championed by Commission Chair Lina Khan, a leading voice in the NeoBrandeisian antitrust movement. First, such a rule depends on the assumption, rejected by most prior Commissions, that the Act empowers the Commission to issue legislative rules. Proceeding by rulemaking is essential, the Commission has said, to fight a “hyperconcentrated economy” that injures employees and consumers alike. Second, the content of the rule reflects the Commission’s repudiation of consumer welfare and the Sherman Act’s Rule of Reason as guides to implementing Section 5.

Affected parties will no doubt challenge the Commission’s assertion of authority to issue legislative rules. This article assumes for the sake of argument that the Commission possesses the authority to issue such rules enforcing Section 5. Still, prudence can counsel that an agency refrain from issuing rules before it has fully educated itself about the nature of the economic phenomena it hopes to regulate. Such prudence seems particularly appropriate when the Commission has very recently adopted an entirely new substantive standard governing such conduct. Deferring a rulemaking does not mean inaction. The Commission could develop competition policy regarding NCAs the old-fashioned way, investigating and challenging such agreements on a case-by-case basis.

The Commission rejected these prudential concerns and proceeded to ban nearly all NCAs, assuring the public that it had educated itself sufficiently about the origin and impact of NCAs to conduct a global assessment of such agreements. The Notice of Proposed Rulemaking (“NPRM”) offered three rationales for the proposed rule, drawn from a late 2022 Statement of Section 5 Enforcement Policy. First, the Commission opined that NCAs are “restrictive” because they prevent employees from selling their labor to other employers or starting their own business in competition with their employer. Second, NCAs result from procedural coercion, because employers use a “particularly acute bargaining advantage” to impose such agreements. Third, NCAs are substantively coercive, because they burden the employee’s right to quit and pursue a more lucrative opportunity.

The first rationale applied to all NCAs. The second and third applied to all NCAs except those binding senior executives. Such executives, the Commission said, bargain for such agreements with the assistance of counsel and presumably receive higher salary and/or more generous severance in return for entering such NCAs. Because NCAs also have a “negative impact on competitive conditions,” the NPRM also concluded that they are presumptively unfair methods of competition.

The Commission conceded that NCAs can create cognizable benefits. Nonetheless, the Commission concluded that such benefits do not justify NCAs, for two reasons. First, less restrictive means can “reasonably achieve” such benefits. Second, such benefits do not exceed the harms that NCAs produce.

The Commission also rejected the alternative remedy of mandatory precontractual disclosure of NCAs for two interrelated reasons. First, such disclosure would not prevent employers from using overwhelming bargaining power to impose such restraints. Second, disclosure would not alter the number or scope of NCAs and thus would not reduce their aggregate negative economic impact.

The procedural coercion rationale played an outsized role in the Commission’s Section 5 analysis, informing the findings that NCAs are also “restrictive” and substantively coercive. Moreover, the outsized emphasis on procedural coercion dovetailed nicely with the NeoBrandeisian claim that ordinary Americans are routinely helpless before large concentrations of private economic power. Indeed, when the Commission released the NPRM, Chair Khan separately tweeted that NCAs reduced core economic liberties.

Still, the Commission offered no definition of “coercion” or explanation of how to determine whether employers have used coercion to impose NCAs on employees. Instead, the Commission articulated several subsidiary determinations regarding the characteristics of employers and employees that, taken together, established that employers always possess and use an acutely overwhelming bargaining advantage to impose nonexecutive NCAs. Thus, the Commission emphasized that labor market power is widespread, due in part to labor market concentration, most employees are unaware of NCAs before they enter such agreements, NCAs generally appear in standard form contracts, employees rarely bargain over such agreements, most employees live paycheck-to-paycheck and thus have no choice but to accept NCAs, and individuals negotiating over terms of employment discount or ignore the possibility that they will depart from the job they are about to accept and thus downplay the potential impact of an NCA on their future employment autonomy.

This article contends that the Commission’s procedural coercion rationale for condemning nonexecutive NCAs does not withstand analysis. In particular, the Commission’s various subsidiary determinations that support the procedural coercion rationale have no basis in the evidence before the Commission, contradict such evidence and/or disregard modern economic theory regarding contract formation. For instance, a recent study by two Department of Labor economists finds that the average Herfindahl-Hirschman Index in American labor markets is 333, the equivalent of 30 equally-sized firms, each with a 3.33 percent market share, competing for labor in the same market. A previous version of the study was published on the Department of Labor’s website several months before the Commission issued the proposed rule. The NPRM offers no contrary evidence regarding the proportion of labor markets that are concentrated. “Hyperconcentration of labor markets” is apparently a myth.

Moreover, the NPRM ignores record evidence that 61 percent of employees know of NCAs before they accept the offer of employment. The NPRM’s failure to address these data is particularly strange, insofar as the NPRM cites the very same page of the academic article where these data appear three different times for other propositions. The Commission also erred when it assumed that employers with labor market power will use such power coercively to impose even beneficial NCAs. This assumption would have made perfect sense in 1965. However, since the 1980s, scholars practicing Transaction Cost Economics have explained how firms with market power, including labor market power, will not use that power to impose beneficial nonstandard agreements, including NCAs. The Commission was apparently unaware of this literature.

Nor does the lack of individualized bargaining and reliance on form contracts suggest that employers use power coercively to impose NCAs. Form contracts often arise in competitive markets and reduce transaction costs. Background rules governing contract formation, robust state court review of NCAs and exit by potential employees can constrain employers’ ability to obtain unreasonable provisions and induce employers to pay premium wages to compensate employees for agreeing to NCAs. These considerations may explain why a majority of employees who had advanced knowledge of NCAs considered the agreements reasonable, a finding the NPRM ignores.

Nor does it matter that most employees work paycheck-to-paycheck. The Commission ignored the possibility that such individuals may be employed when seeking a new job, bargain from a position of relative security and can thus “walk away” from onerous NCAs. The Commission also ignored economic literature establishing that the presence of some such individuals in a labor market can ensure that employers offer reasonable terms to all potential employees, including unemployed job seekers.

Refutation of the procedural coercion rationale for banning nonexecutive NCAs requires reconsideration of the other two rationales as well. For instance, nonexecutive NCAs are the result of voluntary integration and thus not procedurally coercive or substantively coercive, either. Moreover, because some nonexecutive NCAs are voluntary, the Commission must abandon its erroneous assumption that the beneficial impacts of NCAs necessarily coexist with coercive harms. Proper assessment of business justifications requires the Commission to ascertain the proportion of NCAs that constitute voluntary integration, revise downward its estimate of coercive harms and reassess NCAs’ relative harms and benefits. This revision could result in a determination that NCAs’ benefits in fact exceed their harms. Finally, recognition that beneficial NCAs are the result of voluntary integration requires the Commission to reconsider the mandatory disclosure remedy, which the Commission rejected based on the erroneous belief that employers use bargaining power to impose even fully-disclosed and beneficial NCAs. Such reconsideration could of course lead to revising the scope of the proposed ban or rejection of any ban.

The Commission may well be entirely capable of assessing the global impact of NCAs on economic variables such as price, output, and wages. However, the Commission rejected such a rule of reason approach in favor of a standard that turns in part on the process of contract formation. Thus, the Commission necessarily took on the task of gathering information regarding the process of forming NCAs and of assessing that data in light of applicable economic theory. The Commission’s demonstrably poor execution of this task reveals that it lacks the capacity to conduct a generalized assessment of NCAs under a governing standard that treats procedural coercion as legally significant.

Because it lacks the capacity to assess the process of forming nonexecutive NCAs, the Commission should withdraw the NPRM and start over. There are two alternative paths the Commission may take to develop well-considered competition policy governing NCAs. First, the Commission could revert to the rule of reason approach it rejected in 2021. The Commission could draw upon its considerable study of the impact of NCAs on wages, prices and employee training and promulgate a rule that bans those agreements the Commission believes produce net harm, after reconsidering regulatory alternatives such as mandatory disclosure.

Second, the Commission could continue to embrace its new Section 5 standard but take an “adjudication only” approach to implementation. The Commission could simultaneously take other steps through various forms of public engagement to educate itself about contract formation in general and the formation of NCAs in particular. The Commission could build on data it has to this point ignored regarding various attributes of employers, employees and labor markets more generally. Adjudication and self-education could be mutually reinforcing. Self-education could inform the Commission’s determination of which NCAs to challenge, while information generated in adjudication could improve the Commission’s knowledge base about NCAs. Ultimately this two-track approach could generate sufficient information to justify a well-considered rule governing NCAs.

The SAG-AFTRA Strike

We wrote last week about the auto workers strike.  We have been remiss in not having covered the strike of the Screen Actors Guild and American Federation of Television and Radio Artists (SAG-AFTRA) against the Alliance of Motion Picture and Television Producers (AMPTP), and the related strike of the Writers Guild of America (WGA) that began in May and just concluded this week. 

Although when I first drafted this post, there was no hint that the WGA strike was about to end, I will not claim that I alone fixed it. 

But did I?  I'm just asking questions.

In any case, it is time to catch up.

The WGA strike was the longest work-stoppage involving that group since 1988.  One of the main issues in the strike was the writers' access to residuals from streaming media.  Writers, like all of us, are also concerned that the studios might replace them with some new version of artificial intelligence.   The parties started off pretty far apart, with the WGA saying that its proposals would yield benefits of $429 million a year; the AMPTP's offer would yield $86 million. For months, there seemed to be no prospect of a resolution.  This month, negotiations seemed to make promising progress.

Suddenly, over the weekend, there was a breakthrough.  A tentative deal has been signed and, as Brooks Barnes of The New York Times reports, writers began returning to work this week.  The parties are expected to enter into a new three-year agreement, and most reporting suggests that the writers got most of what they were seeking, including 

• a 76% increase in residuals payments;
• a bonus to writers from streaming services; 
• guarantees of minimal staffing; and 
• no AI encroachment on writers' credits and compensation.

So now the writers can write.  But who will perform what they have written?

SAG-AFTRA joined the strike in July.  This is the first such industry strike since the actors' strike in 1980, and it is the first time writers and actors have gone on strike simultaneously since 1960.  The actors' concerns are similar to those of the writers.  They seek residuals from broadcasts over streaming services, and they too have worries about being replaced through artificial intelligence.

\According to Wikipedia, actors can still appear on podcasts, micro-budget independent films, student films, unscripted television work such as game shows, reality competition shows, documentaries, and talk shows.  This might be a boon to podcasts, and I assume that if the casts of Oppenheimer and Barbie want to make a video appearance on this blog, that would be no problem.  

So, for example, there has been at least one positive externality of all of this.  Jeri Ryan, unable to work due to the strike, has more time to spend on social media.  Two weeks ago, she used some of that time to like something I posted on BlueSky.  

I have followed Ms. Ryan's career since getting to know her as 7 of 9 on Star Trek Voyager.   Let's just say I am a fan.  I wanted to name my daughter "Seven," but my wife, also a fan, won that battle.  Still, twenty years later, one "like" from Jeri Ryan was mind blowing.  I asked my Associate Dean if I could cancel class due to being on Cloud 7 of 9.  She suggested that I instead share my joy with my students.  Which I did.  They had no idea who Jeri Ryan is, but that is their loss.  Also, as Seven would say, irrelevant.

Edited with helpful corrections from David August.

Strike!

"Stike," by Theodor Kittelsen

Remember the days when Henry Ford stiffed his investors so that he could reduce the price of his cars and pay his workers a living wage (and also deprive the Dodge brothers of capital they could use to  start a rival company)?  A very different ethos inspires the managerial class at the Big Three automakers these days. 

According to Adam S. Hersh, writing for the Economic Policy Institute, profits at the Big Three have increased 92% over the past decade and are expected to be over $30 billion in 2023.  CEO pay is up 40% over the same period, and the companies have paid out $66 billion in dividends and stock buy-backs.  Worker pay, by contrast, adjusted for inflation, has decreased over 19% over the same period.  Unions made concessions to save the industry during the 2008 crisis.  The government bailed out the companies and their shareholders, but workers were expected to believe that keeping their jobs was benefit enough.

However, as Jack Ewing reports in The New York Times, unions sometimes bump up against structural economic changes, including new groups, such as immigrants, people of color, and women, joining the labor force, mechanization, and in this case, the shift to electric vehicles (EVs).  EVs have much simpler engines, which require fewer workers to build.  Moreover, Tesla, a leading EV manufacturer, has fiercely resisted unionization and has labor costs far below those of the Big Three.  Management is trying to frame the issue as pitting the unions against the drive to develop cars that contribute less to global climate change.  The reality is more complicated.  The Biden Administration is providing economic incentives for the shift to EVs, so the money that the Big Three spends on those efforts is partly provided through government subsidies.  

The unions are concerned about the shutdown of plants in the Midwest dedicated to the production of components for internal combustion engines.  Workers could shift to battery manufacturing plants, but those tend to be located in so-called "right-to-work" states where union organizing is much more difficult.  

The timing of the strike seems very well-chosen.  Despite their profits, the Big Three cannot afford a prolonged shutdown.  They run the risk of losing market share to other manufacturers of EVs.  Tesla continues to grow, as do new boutique start-ups that specialize in electric pick-up trucks and SUVs.  And then there are the foreign manufactures that have long located their factories in the U.S. South, where unions are scarce.  

As Michael D. Shear reports in The New York Times, President Biden has backed the union, but he is caught between his gut support for workers' rights and his environmental policies.  The White House has sent mediators hoping to avert a prolonged strike.  There is a lot at stake here, not only for workers and the automobile industry.  Mr. Biden must be aware that his re-election chances are linked to the state of the economy, and a significant strike at the Big Three could have national economic ramifications.

Yesterday, we blogged about Taylor Swift's impact on the fortunes of movie theaters.  Let us hope that a new contract for the autoworkers' unions will provide similar benefits for the rest of the economy.

Tamar Meshel on the Revisions to the FAA

We are delighted to welcome Tamar Meshel (right) back as a guest blogger!

Dr. Tamar Meshel is an Associate Professor at the University of Alberta Faculty of Law. She researches, teaches, and consults primarily in the areas of domestic and international arbitration and her work has been cited by the Supreme Court of Canada, the Supreme Court of Israel, and the Delaware Court of Chancery, as well as by numerous scholars.

The New Chapter in the Life of the FAA

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (aka EFASASHA, EFASA, or EFAA)—codified at 9 U.S.C. §§ 401–02 (Chapter 4 of the FAA)—came into effect on March 3, 2022. It is the first substantive limit placed by Congress on the scope of the FAA since the statute was enacted nearly 100 years ago. The Act provides that “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute . . . no predispute arbitration agreement . . . shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute” (§ 402(a)).

The Act also renders three arbitration principles inapplicable in sexual assault and sexual harassment disputes. First, it permits the unilateral revocation of a “joint, class, or collective action” waiver (§ 402(a)), which would otherwise be enforceable pursuant to AT&T Mobility LLC v. Concepcion. Second, it requires courts to decide the validity and enforceability of an arbitration agreement even where a party challenges the underlying contract rather than the arbitration clause (§ 402(b)), a challenge that would otherwise be decided by the arbitrator pursuant to the severability principle and Prima Paint Corp. v. Flood & Conklin Mfg. Co. Third, it requires courts to decide the validity and enforceability of an arbitration agreement even where the parties intended to delegate this determination to the arbitrator (§ 402(b)), a delegation that would otherwise be enforced pursuant to Rent-A-Center, West, Inc. v. Jackson.

At the same time, the Act gives rise to many questions that courts must now grapple with:

1. Chapter 4’s application to non-employment disputes

The most obvious context to which Chapter 4 applies is employment. Indeed, out of about two dozen cases that have considered Chapter 4 (that I’ve examined), all but two were in the employment context. In the two non-employment cases the plaintiffs were a patient in a care facility (Ferrell v. Imperial Care Center LLC) and a college student. In the former the court explicitly held that Chapter 4 applies to sexual assault/harassment claims that are not work-related or that do not arise from employment contracts. In the latter the court did not consider this question, because it found Chapter 4 temporally inapplicable (see below).

While the congressional record suggests a focus on employment disputes, nothing in the language of Chapter 4 restricts it to that context. So it is likely to be applicable in any case involving a sexual assault and/or sexual harassment dispute.

2. Chapter 4’s temporal application

Section 3 of the Act provides that it “shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act,” which is March 3, 2022. The courts have unanimously interpreted this provision to mean that Chapter 4 does not apply retroactively. Creative attempts to establish an “accrual” date post-March 3, 2022—for instance, when the defendant filed its motion to compel arbitration or when the Equal Employment Opportunity Commission issued a notice of right to sue—have failed. Courts have also rejected the following arguments: 1) that Chapter 4 eliminates the FAA’s pre-emption of state law that prohibits arbitration of sexual assault/harassment claims even if these “accrued” prior to March 3, 2022; 2) that Chapter 4 evidences a public policy that disfavours arbitration of sexual harassment/assault claims accruing before this date; 3) that Chapter 4 renders agreements to arbitrate such claims per se unconscionable; and 4) that individual claims accruing before March 3, 2022 may be saved by asserting class-wide claims on behalf of potential plaintiffs who may have been harmed after that date.

However, there is disagreement over when would be latest “accrual” date possible for the purpose of applying Chapter 4. Some courts have found the latest possible date to be when the plaintiff filed the lawsuit, while others have found that date to be when the alleged conduct occurred. In one case, Chapter 4 was found applicable to an alleged continuing violation (hostile work environment and retaliatory conduct) that spanned both before and after March 3, 2022. The U.S. District Court of the Eastern District of New York held that pursuant to the “continuing violation” doctrine, the plaintiff’s claims “accrue on the day of the last act in furtherance of the violation,” which in the context of the hostile work environment and retaliatory conduct claims continued after March 3, 2022.   

It also remains unclear what, if any, is the difference between a “dispute” and a “claim” and between “arises” and “accrues” in § 3. For instance, the U.S. District Court for the Southern District of New York found no meaningful difference and suggested that the Act refers to both “claims” and “disputes” simply “in order encompass various kinds of proceedings.” The U.S. District Court for the Southern District of Florida (in Hodgin v. Intensive Care Consortium Inc.) disagreed and separately considered whether the plaintiff’s “claim” had “accrued” (meaning she had a “complete and present cause of action”) before March 3, 2022 and whether her “dispute” had “arisen” (meaning there was a “disagreement, not just the existence of an injury) before that date.

While the “accrual” date has been hotly contested in the courts, as time passes this issue will become less relevant to the application of Chapter 4.

3. Standard for pleading a sexual assault/harassment dispute

In three cases, the U.S. District Court for the Southern District of New York has considered the standard that a plaintiff must meet in order for § 402(a) to invalidate an arbitration agreement. The court in some of these cases also considered whether meeting this standard should prohibit arbitration of the entire “case” or only of the sexual assault/harassment claims.  

Johnson v. Everyrealm and Yost v. Everyrealm involved claims brought by two former employees against the same employer for sexual harassment under the New York State Human Rights Law and the New York City Human Rights Law (which the court found to qualify as “state law” under § 402(a)), as well as for whistleblower retaliation and intentional infliction of emotional distress. Mera v. SA Hospitality Group involved claims for sexual harassment under the same New York laws as well as wage and hour claims brought under the Fair Labor Standards Act and the New York Labor Law on behalf of a group of employees.   

In all three cases, the district court held that the plaintiffs were required to meet the FRCP Rule 12(b)(6) standard of plausibility with respect to their sexual harassment claims, and that once that standard was met, all “related” claims in the action would also be non-arbitrable.

In Johnson, Judge Engelmayer held that the plaintiff had plausibly pled a claim of sexual harassment under the New York City Human Rights Law and therefore Chapter 4 applied. Judge Engelmayer acknowledged that the FAA permits the splitting of arbitrable from non-arbitrable claims. Yet he also found a “contrary congressional command” in § 402(a), which makes a pre-dispute arbitration agreement invalid and unenforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to the ... sexual harassment dispute.” Therefore, Judge Engelmayer concluded that a well-pled sexual harassment claim makes an arbitration clause unenforceable “as to the other claims in the case.” He noted, however, that because the plaintiff’s claims all arose from his employment, he was not considering whether “claim(s) far afield might be found to have been improperly joined with a claim within the EFAA so as to enable them to elude a binding arbitration agreement.”   

Applying these principles in Yost, Judge Engelmayer found that the plaintiff’s factual allegations in support of a claim of sexual harassment were “threadbare” and failed to allege a “plausible claim” of sexual harassment under the New York City Human Rights Law. Judge Engelmayer therefore dismissed the plaintiff’s sexual harassment claims. He then held that, as a result, Chapter 4 could not prevent the arbitration of the remaining claims.  

Finally, in Mera, Judge Aaron found that the plaintiff had plausibly pled a claim of sexual harassment under the New York State Human Rights Law, and therefore that claim could not be arbitrated. However, he found that § 402(a) rendered arbitration agreements unenforceable “only with respect to the claims in the case that relate to the sexual harassment dispute.” Unlike in Johnson, the plaintiff’s wage and hour claims in Mera did not “relate in any way to the sexual harassment dispute.” Therefore, the plaintiff was compelled to arbitrate those claims. The action was stayed with respect to the wage and hour claims pending arbitration, while the sexual harassment claims proceeded in court.

The fate of claims joined with a sexual assault/harassment dispute may thus turn on how “related” they are to that dispute. This means that claims that are not directly sexual assault/harassment claims but are related to the underlying conduct may become non-arbitrable as long as the sexual assault/harassment claims are plausibly plead in the same “case”. In contrast, plaintiffs may not be able to easily bootstrap claims that are entirely unrelated to the underlying conduct or to the plaintiff’s sexual assault/harassment dispute in order to render them non-arbitrable.

These are still early days for FAA Chapter 4, and some of the cases discussed above are currently pending appeal. It is also important to note that neither the Act nor Chapter 4 of the FAA address other mechanisms that are used to avoid the litigation and/or the publication of conduct underlying sexual assault/harassment disputes, such as settlement agreements, confidentiality agreements, and NDAs.

Fourth Circuit Reverses Arbitral Award Because Award "Failed to Draw Its Essence" from the Arbitration Agreement

Sarah Black, a union-represented employee, worked at a nursing care facility for military veterans operated by plaintiff Advantage Veterans Services of Walterboro (AVSW).  AVSW terminated Black for discrimination, harassment, or bullying, and for falsifying records.  The union protested on Black's behalf, and the dispute was sent to arbitration.  The arbitration was governed by a collective bargaining agreement (CBA), Article 13 of which provided that in “all discipline cases, the arbitrator shall determine whether AVSW had a reasonable basis for concluding that the employee engaged in the conduct for which he/she is being disciplined.”

In Advantage Veterans Services of Walterboro v. Industrial and Service Workers Int'l, Local 7898, the Fourth Circuit referred to this language as requiting a "reasonable basis determination."  The arbiter interpreted Article 14 of the CBA to require "strong, convincing evidence" of the violation.  The arbiter determined that this standard was not met and that AVSW had failed to provide the required notice to Ms. Black.  The arbiter ordered that Black be reinstated.

AVSW brought suit in District Court pursuant to the federal Labor Management Act seeking to vacate the award on the ground that the arbiter had failed to apply the appropriate "reasonable basis" standard and thus its award was not consistent with the CBA.  The District Court upheld the award, finding that the standard had been properly applied, and even if it had not been, review of arbitral awards was limited.  It was enough that that the arbiter's reading of what the CBA required was plausible.  

While the Fourth Circuit noted the narrow scope of review of an arbitral award in the labor law context, an award is illegitimate if it “fails to draw its essence” from the agreement.  Although the arbiter recited facts relevant to assessment of whether AVSW had a reasonable basis for its action, and although arbiters are not required to provide the reasoning for their decisions, the Fourth Circuit nonetheless found that found that the arbiter never made the required reasonable basis determination, and thus her ruling failed to draw its essence from the CBA.    

This was no mere procedural hiccup.  Rather, the arbiter ignored the substantive rules that were to govern her analysis.  It would be paradoxical, the court noted, to use the highly deferential standard of review, which is rooted in principles of contract, "to look past the arbitrator’s failure to follow contractually agreed-upon procedural rules for the arbitration."  If this goes back to the same arbiter, it is hard to imagine a different conclusion on the merits.

Human Beings Are Still Better than Bots

Two weeks ago, I reported on a decision by the National Eating Disorders Association (NEDA) to replace its Helpline, staffed by actual human beings, including six recently-unionized workers, with an AI bot named Tessa. 

Tessa has been unplugged.

As Chris Morris reports in Fortune, NEDA took down the bot after receiving complaints that it was responding in ways that promote eating disorders.  NEDA, which really needs to do some soul-searching, first responded by claiming on social media that the reports were a lie.  However, once it saw evidence of the "lie" in the form of screenshots, it shut down the bot and launched an investigation -- or so it says.  I'll have to see screenshots to believe it.  

In related news, today I beat the Wordle Bot.  It's a sore loser and protests that my third guess was lucky.  Hey, Wordle Bot, you have ONE JOB!

Ninth Circuit Affirms District Court's Denial of Amazon's Attempt to Compel Arbitration

Amazon Flex drivers make deliveries of food and other goods, using their own vehicles, for Amazon.com.  In February 2021, Drickey Jackson sued Amazon, seeking to represent a class of Amazon Flex drivers and alleging privacy violations.  He claimed that Amazon wiretapped and monitored off-hours conversations among the drivers in private Facebook chat groups.  The District Court held that, because the drivers did not have adequate notice of a 2019 update to Amazon Flex's terms of service (ToS), the parties were bound by the 2016 ToS.  The arbitration provision in the 2016 ToS do not cover this dispute, and so the District Court denied Amazon Flex's motion to compel arbitration.  In Jackson v. Amazon.com, Inc., the Ninth Circuit affirmed.

The 2016 ToS provided that Amazon Flex could modify the terms at any point simply by giving notice to drivers that it was doing so.  By continuing to serve as drivers, the drivers accepted new terms. 

Amazon may modify this Agreement, including the Program Policies, at any time by providing notice to you through the Amazon Flex app or otherwise providing notice to you . . . . If you continue to perform the Services or access Licensed Materials (including accessing the Amazon Flex app) after the effective date of any modification to this Agreement, you agree to be bound by such modifications.

The most relevant difference between the 2019 ToS and the 2016 ToS is that the former provided that questions of arbitrability were to be determined by the arbiter.  Because Amazon provided neither the e-mail that purported to alert Mr. Jackson to the new ToS nor evidence that it was delivered to Mr. Jackson, the District Court held that the 2016 ToS applied.  Amazon had the burden of showing that Mr. Jackson had assented to the new terms, and it did not meet its burden.  The Ninth Circuit agreed. 

The Ninth Circuit, per Senior Judge Schroeder (left), also rejected Amazon's alternative argument that Mr. Jackson was bound because the new ToS were on the Amazon Flex app, and he was obligated under the 2016 ToS to check the app for updates.  Citing the new Restatement of Consumer Contracts Law and its prior decisions, the Ninth Circuit  noted that assent requires both reasonable notice of a term and a reasonable opportunity to reject.  Generalized notice that new terms might be coming are not enough.  This is the first citation to the new Restatement that I have seen, and it is exciting to see it!

The District Court then determined that the conduct alleged was not covered by the arbitration provision, which covered that "any dispute or claim . . . arising out of or relating in any way to this Agreement, including . . . participation in the program or . . . performance of services."  The Ninth Circuit again agreed.  

If first noted that the complaint did not make any claims relating to the drivers' contractual relationship with Amazon.  Rather, it alleged violations of federal and state law.  Attentive readers might here be expecting a reference to  David Horton and his article, Infinite Arbitration Clauses, which, as we noted, was relevant to the Southern District's decision in Davitashvili v. Grubhub.  You will be disappointed.  C'mon Ninth Circuit, he's in your jurisdiction!  Nevertheless, the same reasoning applies.  Even when an arbitration provision is very broad, in order to be applicable, the factual allegations of the complaint must "touch matters covered by the contract containing the arbitration clause."  Here they don't.  People who were not Amazon Flex drivers were allowed to join the Facebook groups.  According to the complaint, Amazon violated those non-drivers' state and federal privacy rights as well.  The factual allegations do not relate to the contract that contains the ToS.

Image by Fmuzzio, CC BY-SA 4.0, via Wikimedia Commons

Senior Judge Graber (right) who was born in Oklahoma City dissented from the denial of the motion to compel arbitration, arguing that the broad arbitration clause in the 2016 ToS did indeed cover the dispute.  In her view, the only requirement is that the dispute "touch matters" covered by the 2016 agreement.  According to the complaint, Amazon was motivated by its desire to monitor its drivers and to learn what it could about their conversations relating to work conditions, unionizing, and strikes, among other things.  The dissent does not seem to believe that anybody other than drivers were able to access the chat group and dismisses as speculative the idea that non-driver union officials or spouses might have been on the chat.  The majority responds that this reasoning confuses Amazon's motives with the nature of plaintiffs' claims. 

Moreover, it is not entirely clear to Judge Graber that the claims do not raise claims of contractual interpretation.  It is entirely possible that the ToS entail some sort of consent that Amazon engage in some monitoring of its drivers .  As creepy and unsettling as she acknowledges the alleged conduct is, Judge Graber would dismiss the suit and compel arbitration.

Glacier Northwest: Why Did SCOTUS Bother to Issue an Opinion?

Back in January, I provided a preview of Glacier Northwest v. International Brotherhood of Teamsters.  The Court granted cert in order to address whether the National Labor Relations Act (NLRA) preempts a state tort claim against a union for failing to take reasonable precautions to prevent the destruction of an employer’s property in the course of a labor dispute?  In an 8-1 opinion authored by Justice Barrett (right), the Court decided . . . . well, not very much actually.

The applicable standard is that, in order to avail itself of what is called "Garmon preemption," the union must undertake reasonable precautions to protect the employer's property from foreseeable harm.  If Garmon preemption applies, the state proceedings are stayed pending a determination by the National Labor Relations Board (NLRB) of whether the union activity is permissible under the National Labor Relations Act (NLRA). 

The company alleged that the workers had gone on strike without notice, leaving cement in trucks.  Although the company could not claim that any trucks were  damaged, it did allege that at least some of the cement dried and became unusable.  Accepting the facts as alleged in the employer's complaint, the majority found that the workers had not taken the necessary reasonable precautions, and thus the company's state tort claim was not subject to Garmon preemption.

Big whoop.  Why decide this case?  When the case goes back down, the facts as alleged in the complaint may not be provable.  And then what do we have?  We have a spot of mischief: a SCOTUS opinion that offers employers the possibility of holding unions responsible for economic harms attendant to a strike, based on mere allegations.  Justice Barrett's majority opinion adopts the complaint's tone of moral outrage before the veracity of any of the facts of the complaint have been established.  So the entire case is a hypo.  Sounds a lot like an advisory opinion.

Justice Barrett has advice for the unions about how to take reasonable precautions:

It could have initiated the strike before Glacier’s trucks were full of wet concrete—say, by instructing drivers to refuse to load their trucks in the first place.  Once the strike was underway, nine of the Union’s drivers abandoned their fully loaded trucks without telling anyone—which left the trucks on a path to destruction unless Glacier saw them in time to unload the concrete. Yet the Union did not take the simple step of alerting Glacier that these trucks had been returned. Nor, after the trucks were in the yard, did the Union direct its drivers to follow Glacier’s instructions to facilitate a safe transfer of equipment. 

In short, the union, which had no legal obligation to provide notice to the company of its strike, is here expected not to take "reasonable precautions" but to take every precaution, including instructing striking workers to follow the employer's instructions.  It's almost as if none of the Justices who joined in the judgment have ever been in a union.

Justice Kagan, who joined the majority for reasons about which I speculate below, was persuasive on this issue during oral argument.

. . . [W]orkers unions do things all the time intentionally to maximize economic harm. You know that if there is a seasonal component of a business, workers will try to time their strike in order to maximize the economic harm because, you know, more of the business is conducted in the summer than in the winter and things like that, that there are all kinds of things which are perfectly intentional to maximize economic harm. . . . 

The point of a strike is to bring economic pressure to bear on the company so as to induce a settlement.  Allowing tort cases against unions seeking to recover the economic costs of the strike shifts the balance of power in the bargaining relationship.   As Jenny Hunter explained on this week's Strict Scrutiny podcast, the Court's approach is not even-handed.  Labor law permits employers to lock out workers.  The issue was not raised in this case but it is hard to imagine the Court imposing a reciprocal duty on employers to take "reasonable precautions" to insure that the timing of a lockout does not have foreseeable negative economic consequences for the workers and their families.  

The majority opinion does significantly less harm than it might have done.  It is incredibly narrow and fact-specific.  It expressly does not hold that workers can be liable whenever the strike will foreseeably cause harm to perishable goods.  It acknowledges that workers are not legally obligated to provide notice of a strike.  It acknowledges that workers may sometimes elect to strike during the workday.  Most importantly, the majority dodges the administrative law question raised by the case.  Because the Court found that the conduct alleged was not subject to Garmon preemption, it did not address whether the National Labor Relations Board or the state courts should decide the tort issue in the first instance.

Justice Thomas, joined by Justice Gorsuch, concurred to signal their hostility to the scope of Garmon preemption, which pauses state tort claims whenever union activities are arguably protected under the NLRA.  That, the concurring Justices signal, is too much preemption.  Justice Alito, joined by Justices Thomas and Gorsuch concurred to emphasize that the conduct alleged clearly was not protected under Garmon.  I thought that's what the Justice Barrett's opinion said, but whatever.

Frankly, the whole case should have been dismissed because the petition was improvidently granted.  The Court likely took cert. because there were at least four Justices who do not like Garmon and wanted to make it easier for state courts to rule on tort claims in connection with union activities rather than allowing a federal agency, with relevant expertise, to address such claims.  But the posture is inopportune.  All we have are allegations, and it makes no sense for SCOTUS to rule on this case before the facts are fully developed.  That is especially so in this case because, as Justice Jacksons dissent rightly emphasizes, the NLRB's general counsel filed a complaint alleging that the NLRA does indeed protect that union activities at issue here.   Justice Alito's concurring opinion includes a footnote in which he states that if the Washington state courts were to adopt Justice Jackson's view of Garmon on remand, he would vote to hear the case again, presumably so that he and his like-minded colleagues could summarily reverse.

Justice Jackson (right) also points out that what the other opinions all cass "Garmon preemption" is really just a hiatus.  State tort claims are suspended until the NLRB makes a determination on the facts.  If the NLRB determines Garmon is not implicated, the case proceeds.  In this case, Justice Jackson seems confident that if one looks beyond the facts as alleged in the company's complaint, the allegedly tortious union activities were likely protected strike activities.

In this context, I think it makes sense that Justices Kagan and Sotomayor joined Justice Barrett's very narrow opinion rather than writing with Justice Jackson.  Justice Jackson's dissent makes clear that Garmon was implicated in this case, because the NLRB action against Glacier means that the union's challenged activities clearly met the standard of being "arguably protected."  If Justice Kagan and Sotomayor had joined Justice Jackson, the conservative Justices might have felt compelled to address Garmon, and I'm pretty sure they would have killed it in favor of letting state courts rule on tort issues in the first instance.  Justices Kagan and Sotomayor may have elected to join Justice Barrett's opinion because that opinion allowed Garmon to live to fight another day.  

AI Assists in Union Busting

As we noted last August, 2022 saw a dramatic uptick in unionization in the United States.  Not surprisingly, for every action, there is a dastardly corporate reaction.  But this is pretty extraordinary.  

According to Britney Nguyen, writing in The Business Insider, the National Eating Disorder Association (NEDA) is shutting down its human-run helpline and replacing it with an artificial intelligence program called Tessa.  Staff members who worked on the hotline were recognized as part of a labor union on March 17th.  Two weeks later, NEDA announced that it was firing its employees and replacing them with a chatbot, effective June 1st.  The human hotline was staffed by six paid workers and 200 volunteers.  If you call it now, you receive an automated message that advises people in need of human contact to use the Crisis Text Line. 

Kate Wells of National Public Radio reported that nearly 70,000 people called the Helpline in 2022, double the number who called before the COVID pandemic.  NEDA notes that the Helpline is overburdened, and people often have to wait before they can talk to someone.  A NEDA spokesperson noted that the Helpline was staffed with volunteers who were not trained to deal with crisis situations. 

Guess what the unionizing workers wanted.  More money?  No.  More training and more staff!  

The creator of Tessa, Ellen Fitzsimmons-Craft, speaking to NPR, acknowledged that the program is not capable of the kind of empathy that comes from an actual human being, but it beats just being put on a waitlist.  Okay.  That sounds like there could be a role for Tessa.  Still, Tessa is no panacea.  According to Dr. Fitzsimmons-Craft, Tessa is "really a tool in its current form that's going to help you learn and use some strategies to address your disordered eating and your body image."  But she does not represent Tessa as a substitute for the helpline.  "It's not an open-ended tool for you to talk to and feel like you're just going to have access to kind of a listening ear, maybe like the helpline was."

But I'm no expert on the AI potential for helping people with eating disorders, so I asked my good friend ChatGPT whether is it a good idea to replace an eating disorder helpline with AI.

Here is ChatGPT's response

Replacing an eating disorder helpline with AI alone may not be a comprehensive or effective solution. While AI can provide certain benefits in the field of mental health, it is important to consider the limitations and potential risks involved.

Here are a few points to consider:

1. Emotional support: Eating disorders are complex mental health issues that often require empathy, understanding, and emotional support. Human helpline operators, who are trained professionals, can provide a compassionate and empathetic response, which is crucial for individuals struggling with eating disorders. AI, on the other hand, may lack the emotional intelligence and sensitivity needed to address the nuanced needs of those seeking help.

2. Personalization: Each individual's experience with an eating disorder is unique. Human helpline operators can tailor their responses to the specific needs of the caller, providing personalized advice and guidance. AI, while capable of processing large amounts of data, may struggle to offer the same level of personalization and individualized care.

3. Ethical considerations: Privacy and confidentiality are of utmost importance when dealing with mental health issues. AI systems need to ensure the protection of personal information and adhere to ethical guidelines. However, concerns about data security and privacy breaches remain, potentially leading to trust issues and reluctance among individuals to seek help.

4. Diagnostic accuracy: Eating disorders require careful assessment and diagnosis. Qualified professionals are trained to recognize the signs and symptoms, conduct assessments, and make appropriate referrals. While AI can assist in providing information and resources, it may not possess the same level of accuracy and clinical judgment as human experts.

However, it's worth noting that incorporating AI into existing helpline services can be beneficial. AI can augment human operators by providing additional resources, information, and tools that can enhance the quality and efficiency of the service. For example, AI can help automate administrative tasks, offer educational materials, or provide self-help resources.

In conclusion, while AI can play a supportive role in eating disorder helplines, completely replacing human operators with AI may not be ideal. A combination of human expertise and AI technology can provide a more comprehensive and effective solution, ensuring that individuals receive the necessary emotional support and personalized care.

LPE Project on Religious Accommodations for Postal Workers

We have been posting occasionally on the intersection of contracts rights and the First Amendment, with special focus on SCOTUS cases on that subject.  Links to various posts are provided in this post on Orin Kerr's work on contracts and the Fourth Amendment.  

But James D. Nelson, Elizabeth Sepper, & Kate Redburn have done us one better posting How the Court is Pitting Workers Against Each Other on the Law & Political Economy Projects Blog.  The post anticipates what might lie ahead in the aftermath of a case, Groff v. Dejoy, that SCOTUS is due to hear next week.  The case addresses the rights of postal workers to accommodations for their religious beliefs.

Plaintiff Groff was a mail carrier working for the U.S. Postal Service (USPS).  USPS entered into an agreement with Amazon to provide delivery services, including on Sundays.  As an evangelical Christian, Mr. Groff requested an accommodation, but USPS could not always find other postal carriers to take his shift, and on more than twenty Sundays, he was expected to work.  He refused to do so and eventually quit in order to avoid being fired.  He claims that USPS violated his right to a reasonable accommodation under Title VII of the Civil Rights Act.

While Groff seems to offer the possibility of interest conversion between people seeking religious accommodations and workers' rights, the blog post points out that the cost of the reasonable accommodation of Mr. Groff's religious interest will fall on other workers, who will have to give up their Sundays to cover Mr. Groff's shifts.  As the LPE authors put it:

Interpreting Title VII to require employers to impose hardships on other workers to accommodate religion would threaten the preconditions for viable collective action. Workplaces and unions rely on a sense of reciprocity, mutual support, or solidarity. And labor agreements reflect that spirit of shared interest and mutual compromise among workers. But a religious accommodation doctrine that lets some employees foist the cost of their religious exercise onto others threatens to tip these delicate balances, cutting against worker interests rather than in their favor.

And once the door is open to requiring businesses to accommodate religious employees even if that accommodation comes at the expense of other employees, the authors predict that more cases will follow that will erode protections for vulnerable minorities both as customers and as employees.  Their focus is more on the broader societal impact of religious accommodations than on the intersection between employment law and First Amendment rights.

The post notes that the old standard under Trans World Airlines, Inc. v. Hardison called for accommodation of religious observance only if the accommodation does not impose an undue hardship on the employer.  An undue hardship could be anything more than a de minimis cost imposed on an employer or a union.  The post concedes that the Hardison standard does not provide adequate protections for employees seeking accommodations.  It provides no clear guidance as to how to accommodate religious observance without eroding workplace solidarity.

I wonder if there is not a way to preserve the part of Hardison that calls for imposing no more than a de minimis cost on other workers or on unions.  The employer itself could reasonably be expected to bear a cost that is greater than de minimis.  In this case, for example, USPS might hire additional workers for Sunday shifts so as to accommodate Mr. Groff's religious beliefs while not eroding worker solidarity.  In the alternative, the employer could be required to pay additional compensation (or grant extended vacation time) to workers willing to work Sundays up to the point where all the shifts are taken, so long as doing so does not eliminate the advantages of the contract with Amazon.

Jonathan Harris on How to Get out of TRAPs with Consumer Law as Work Law

We've talked about Training Repayment Agreement Provisions or (TRAPs) recently here.  Over on the Law and Political Economy Project Blog, Jonathan Harris has a new post on the subject.  He tells the story of Breanne Scally and her class-action lawsuit against PetSmart, who worked briefly as a pet groomer and then was charged $5500 under a TRAP when she quit before the TRAP's two year term had expired.

Jonathan also has a forthcoming article, Consumer Law as Work Law (forthcoming Calif. L. Rev. 2024), about how consumer law encompasses protecting employees from TRAPs and other unfair and deceptive acts and practices.

From the Frying Pan of Non-Competes into the Fire of TRAs/TRAPs

We wrote about non-competes as recently as Monday.  Previously, we featured a guest post by Jonathan Harris (left) about news ways employers are finding to bind workers to their positions without non-competes.*   Now, Karla L. Miller of The Washington Post has also got wind of Jonathan's work, and she's written about it here (if you don't subscribe, you can do the next best thing and follow her Twitter feed here).

The story focuses on a dog-trainer.  She learns how to train work detection dogs that can sniff out drugs, bombs, or bedbugs.  Bedbugs?!?  In order to get what seemed like a fun job, the trainer had to sign on for three years.  If she quits before her three-year term is up, she has to pay the company $35,000 to reimburse it for the training she has received.  The is a Training Repayment Agreement (TRA), also known as a Training Repayment Agreement Provision (TRAP).  The "training" consists of her employers treating her shabbily and yelling at her for every mistake.  She is miserable and wants to leave but cannot afford to do so.  According to Jonathan Harris, TRAPs are on the rise in many categories of high-turnover, low-pay jobs, including transportation, health-care, retail, construction, and service industries.

The article also quotes from Rachel Dempsey (right), an attorney with Towards Justice, which together with the Student Borrower Protection Center, is representing workers subject to TRAPs.  The employers who are the targets of these lawsuits are charging workers for training that the companies themselves provide.  It is not as if the workers are getting degrees or certificates that would be valuable to them in seeking future employment.  The dollar value of on-the-job training is likely minimal and certainly well shy of the $5000-$35,000 that employers seek to claw back from departing employees. 

Moreover, the commitment is one-sided.  Employees have to pay if they leave -- and in some cases, even if they are fired -- but employers are under no obligation to retain employees until the end of their term of indentured servitude.  Unconscionability perhaps?  The circumstances under which employees agree to TRAPs have some indicia of procedural unconscionability.   The one-sidedness of the provisions suggests substantive unconscionability.  Rachel Dempsey points out that TRAPs may also violate state or federal statutes.

California and Connecticut already impose limits on the enforceability of TRAPs.  The new FTC rules on non-competes might also cover schemes like TRAPs that have the same effect, and the CFPB is also considering regulation in this area.  

* Via SSRN, I just learned of this nifty short piece that Jonathan published in the Northwestern University Law Review's blog, Of Note.

The Roberts Court Can Hit Two Birds (Unions and Agencies) in One Blow

The Roberts Court, led by Justice Alito, has pursued an aggressive anti-union agenda.  For example, in Janus v. American Federation (2018), in a 5-4 decision, the Court found that a 41-year-old precedent (Abood) which permitted public-sector unions to collect dues for the purposes of collective bargaining, contract administration, and grievances, violated the free-expression rights of workers who preferred not to be represented by the union.  This creates a huge free-rider problem for the unions and restricts their ability to collect the dues they need, for example, to create reserves that they need to provide benefits to workers in case of a strike.  That is awesome for industrial business entities.  Three years later, in Cedar Point Nursery v. Hassid (2021), in a 6-3 decision, the Court ruled that a 44-year old California regulation that allowed labor union representatives to enter private farms for the purpose of union organizing effected an unconstitutional taking.  Absent this regulation, there is simply no convenient mechanism that allows unions to recruit farm workers.  That is awesome for agricultural business entities.  This term, the Court will decide another union case, and the prospects for the unions are not good.  

In his 2021 article, How the Roberts Court Has Changed Labor and Employment Law, Scott Budow looked at the two cases discussed above and thirteen others.  Here is what he found: 

Supreme Court justices collectively cast 134 votes in the 15 cases discussed in this article. Those cases spanned civil procedure, constitutional law, and statutory interpretation. There is no unifying judicial philosophy—such as originalism or textualism—that neatly explains why conservative justices would reliably vote in one manner and liberal justices in the opposite manner for these cases. Yet, if all one knew was that conservative justices favor employers and liberal justices favor workers, that person would have correctly predicted 132 of the 134 votes cast (98.5%).

The new case is Glacier Northwest v. International Brotherhood of Teamsters.  The facts are as follows:  workers struck at a factory in Washington State.  The company alleged that the workers caused intentional harm by leaving cement to harden in mixers.  The trial court dismissed the suit, pending a determination by the National Labor Relation Board (NLRB) on whether the union's conduct was protected under the National Labor Relations Act (NLRA).  

One issue in the case is the extent to which state tort actions are pre-empted under federal law in this area.  According to Sharon Block writing on ScotusBlog, this area of law is governed by something called Garmon pre-emption.  Justice Gorsuch wanted to know the size of the "penumbra" around such pre-emption. I don't think this court is particularly find of penumbras, regardless of their size.

All of the Justices were engaged in the second issue, which involved a discussion of whether there is some way to reasonably cabin the limitations on the unions' potential liability for damage to company property.  Common sense would seem to dictate that unions should not be liable for incidental harms that occur during a strike but that they ought to be liable for intentional harm to company property.  However, as the good people at the Strict Scrutiny podcast point out, the whole point of a strike is to do intentional harm to the corporation.  Justice Kagan explained this during oral argument:

What I hear you saying is that the focus on intent is wrong because workers unions do things all the time intentionally to maximize economic harm. You know that if there is a seasonal component of a business, workers will try to time their strike in order to maximize the economic harm because, you know, more of the business is conducted in the summer than in the winter and things like that, that there are all kinds of things which are perfectly intentional to maximize economic harm. And so you’re saying that when we start focusing on intent without more it it it pulls in pretty much, you know, every strategic decision that a union makes as to when to conduct a work stoppage.

Workers might, as they did in Washington, walk out without first emptying the cement mixers because when you go on strike, you stop working, and emptying the cement mixers is, . . . well, . . .  you know,  . . . work.  But none of those actions by the unions would effect any harm to the company if the company would strike a deal with the workers so that they could return to work.  And so pinning all of the liability for the effects of a strike on the workers tilts the balance of justice in favor of employers.

Unions engage in asymmetrical warfare.  Corporations are extremely powerful.  Anybody who has ever been confronted with a business entity's contract of adhesion (that is, everybody) knows that, faced with that power, individual workers do not have the means protect their interests.  Only if they have a union can they negotiate with their employers from something like a position of equal bargaining power.  But still, the workers have limited tools, the most powerful of which is the strike, and the very purpose of the strike is to effect or threaten to effect economic harm in order to get the company to agree to terms.  If the Court adopts a rule that will make the unions pay for that harm, the unions' most effective tool is blunted into uselessness. 

The final issue was whether the legal issues in the case ought to be decided in the first instance by state courts of by a the NLRB.  As the Strict Scrutiny crew was quick to point out, being able to limit the power of both unions and executive agencies in one case while also taking a swipe at federal pre-emption is a doctrinal turducken of a feast for the YOLO court.  Noel Francisco tried to argue that whether these cases start in the state courts or in the agency, it's six of one, half a dozen of the other in terms of their ability to reach the right conclusion, but he made very clear  the corporation's antipathy for legal proceedings in the agencies.  As Mr. Francisco put it, "We’d prefer not to be before an administrative agency where the agency is the judge, jury, and executioner.  We prefer to be in a court system where we have a neutral judge and the potential for a jury.” 

The counterargument is that the NLRB, with specialized expertise and the experience of doing nothing but addressing labor disputes and interpreting the NLRA, is far more likely to reach the correct conclusion than is a state court of general jurisdiction that hears a labor dispute only every once in a while and is not immersed in the relevant sources of law.  Moreover, as Justice Jackson pointed out, Congress seems to have wanted the NLRB to have the primary role here.  And yet, the Biden administration also argued that the case should be sent back down to the state court.

Sharon Block reports that the conservative Justices were relatively quiet during oral argument.  Nonetheless, if form holds, we can predict with 98.5% certainty that the union will lose 6-3.

Burger King Employee Plaintiffs Have Alleged Non-Compete Clause Is an Anti-Trust Violation

In a witty and engaging opinion that begins with a seeming tangent about pro football, Judge Rosenbaum of the 11th Circuit (left) reinstated the anti-trust claims of plaintiff Burger King (BK) employees.  The case is Arrington v. Burger King Worldwide.  After her football intro, Judge Rosenbaum begins by explaining that 99% of BK restaurants are independently owned franchises.  Nonetheless, BK and its franchisees include in their employment agreements a "no-hire agreement" which provides that no BK franchisee can hire a BK employee from another franchise for six months after the employee leaves employment at another franchise. 

The main sticking point was "concerted action."  BK claimed that it and its franchisees were a single economic enterprise incapable of concerted action.  Judge Rosenbaum and the rest of the 11th Circuit panel disagreed. 

The no-hire agreement in question has been in effect since 2010.  It is nasty.  If it is violated, the franchisee who poaches workers must pay all costs and attorneys fees incurred in an action to enforce the provision.  That franchisee may also soon lose its franchise.  Although BK stopped insisting on the provision in new franchise agreements entered into after 2018, it is still in effect for older franchises.  The District Court had dismissed the complaint on the ground that BK is a single economic enterprise and ruled that amendment of the complaint would be futile.

Judge Rosenbaum lays out the structure of BK's franchise system and walks through Section 1 of the Sherman Act.  Arguing by analogy to the 201o Supreme Court case American Needle, Judge Rosenbaum found concerted action.  In that case, the 32 NFL teams gave Reebok an exclusive license to sell team headgear.  The Court there specified that the "concerted action" inquiry is tailored to the facts of the case.  The question is not whether the defendants engage in concerted activities for all purposes but whether they did so in connection with the action or actions at issue. 

When football teams market their own teams' garb, they are not furthering the common interest of the NFL.  On the contrary, they are competing against one another.  As Judge Rosenbaum notes, "No self-respecting Dolphins fan would ever buy a Jets or Patriots hat (at least not for herself). And Jets and Patriots fans are pretty unlikely to purchase Dolphins garb (though they are missing the boat on that one)."  As the spouse of a proud Buffalonian, I can attest that my in-laws would at best take a "hate the sin, love the sinner" approach if I were to show up at a family gathering in aqua and orange, and a costume change would be in order.   

The syllogism then quickly arrives at its conclusion: "So too here. Burger King and its franchisees, though they certainly have some economic interests in common, each separately pursue their own economic interests when hiring employees."  BK still argued that the restraint on trade involved was not unreasonable.  Judge Rosenbaum would not bite on that one, remanding the issue back to the District Court.  When it gets there, I hope the plaintiffs' attorney will ask in voice dripping with sarcasm and innuendo, "If it was so 'reasonable' [using air quote hands here], why did not you take it out of your franchise agreements in 2018?"

Dramatic Uptick in Unionization

This article from Robert Combs on Bloomberg Law shows striking growth in unionization.  The growth outpaces last year's growth, even if one does not count all unionizing efforts at  Starbucks shops, a topic about which we have already posted here and here.  Unionization at Starbucks seems to account for something like 1/3 of all votes in favor of unionization thus far in 2022.  However, because those are small shops, Starbucks workers account for only about 5300 of the nearly 45,000 new union workers.  Unionization efforts at Amazon have generated over 8300 new union workers.  Unionization at MIT accounts for nearly 4000 new union workers.

In short, I think the story here is that Starbucks is a big story, but it's just one story, and there are some other big ones that help us understand the dramatic uptick in unionization after about 15 years of lower rates of new union creation.  As Robert Combs concludes,

Based on these findings, it would be short-sighted for management lawyers to presume that labor’s recent resurgence is limited to any one company—even one as high-profile as Starbucks.

Unionization at Starbucks also might be less significant because its effects might be short term.  It's hard to know how sticky unionization will be at Starbucks outlets, but I'm guessing that there is a lot of turnover.  I don't expect many Starbucks employees consider it a long-term career option.  If they do, they will become managers, and the reporting I've seen is that the managers tend to oppose the unions very actively.  By contrast, employees at MIT, Kaiser Permanente, and Stanford Health Care seem more likely to be at their current jobs long-term.

In general, the uptick in unionization seems like a predictable response to a saturated job market, especially in a time of relatively high inflation, exacerbated by dramatic inflation in the housing market.  Even if your employer offers you pay increases, inflation eats away at such gains, and you still can't find decent housing in an urban setting on $15/hour.  So called "cost of living increases" are not coming close to keeping up with inflation. For once, workers have leverage because the national "great resignation" has employers scrambling for warm bodies. Training costs are high, especially when one is trying to maintain a brand that involves knowing how to quickly make an iced brown-sugar-oat-milk espresso.

Lauren Bobert thinks this will not be a problem, because universities are churning out graduates who major in lesbian dance theory and that for such people, work at Starbucks may be the best option.  Ouch.  As the father of a daughter majoring in theater, that cuts me pretty close.  But this chart of current majors tells a different story.

As does this one:

Does the "W" in Walmart Stand for "Woke"?

As Emma Goldberg reports in The New York Times, our nation's #1 employer is offering abortion coverage, including travel expenses in its healthcare package for employees.  The travel coverage is necessary because Walmart's home state, Arkansas, has adopted a strict abortion law that does not include exceptions for rape of incest.  

According to a memo from Walmarts "chief people officer" [?], the policy covers abortions related to “health risk to the mother, rape or incest, ectopic pregnancy, miscarriage or lack of fetal viability."  Travel funds are available if the nearest abortion provider is not within 100 miles of the employee's home.  

When the Supreme Court overturned Roe and Casey in the Dobbs opinion, the Justices said that they were simply returning the issue to the states.  Perhaps they should have said that they are returning the issue to the states and the major corporations within those states.  Lately, such corporate measures are met with legislative countermeasures.  Does the Arkansas legislature want to take on Walmart the way Florida took on Disney?  Stay tuned.

The New York Times on Worker Productivity Scores

Over at The New York Times, you can test your worker productivity score in a piece written by Jodi Kantor and Arya Sundaram and produced by Aliza Aufrichtig and Rumsey Taylor.  It is pretty disturbing.  

The page tracks you as you read an article about being tracked at work.  It's fun, because it's not the real deal, but apparently, many workers are now being tracked all the time, and for some, pay, promotion, and even keeping one's job depends on how well one does working while being tracked.  Holy panopticon, Batman!

How it started: 

Yesterday, I blogged about unionization efforts at Starbucks, and that topic seems relevant here.  Workers hate being tracked, not only because none of us operate at peak efficiency but also because some of the things we do are productive in ways that cannot be tracked.  According to The Times, Amazon pulled back on some of its worker productivity measures in response to unionization.  Workers who are unionized can fight back against the crapification of work.  They don't focus exclusively on pay and benefits.

Efficiency is now a value in many work spaces where efficiency should not be a primary value.  The article spends a lot of time on pastors working in hospice settings being tracked for their efficiency.  That's sick, and not in a good way. 

Lots of workers complain that they are being penalized for "idling" when they are in fact thinking, working out problems with pen and paper, consulting with colleagues, or pausing to reflect on things.  Workers are having to explain dips in their productivity by telling their managers that sometimes they have to use the toilet.  

How it's going:

I am so grateful to be an academic!  So much of what I do is not productive in any way that can be measured.  I clear my head by walking around my building, talking to colleagues or students.  I work through my ideas by talking to them.  I socialize with my co-workers because I like to get to know the people I work with.  I blog.  I surf the Internet looking for images to put in my PowerPoint presentations.  In the interest of full disclosure, once I'm surfing, I get curious about things and read stuff on the Internet.  Some of it may be relevant to teaching or scholarship; some of it isn't.  I often don't know until I've finished reading something whether it will be relevant to my work.  What would tracking technology know of that? 

While I was reading the Times article and hyper-conscious of being tracked, a student poked his head in to say hello.  It was a student who had me for contracts last year but who will not be taking classes with me this year.  The efficient thing to do would be to tell him I was in the midst of reading an article and I couldn't spare the time to chat.  I didn't do the efficient thing and I hope I never have to.

Unique Unionization Efforts at Starbucks

We have posted before about the changing fortunes of labor unions in this country, focusing on successful organizing campaigns at Starbucks. As reported in The New Yorker by E. Tammy Kim here, Starbucks' workers have come up with something even bolder than charging $3 for a cup of coffee!  

Rather than outsourcing recruiting to union professionals, the baristas are recruiting their own to join Starbucks Workers United, and their efforts have been quite successful, according to Ms. Kim's reporting.  Even at the 15,000 square-foot Reserve Roastery in Seattle, some baristas have joined the union, citing "concerns over chronic understaffing, race discrimination in promotions, mistreatment by managers, and low pay."  Fifteen dollars an hour doesn't go very far towards rent in an urban setting.  

It can be a tough sell.  Management discourages employees from unionizing, and there are instances of claimed retaliation against workers for union activities.  Fortunately, the union baristas know how to work under cover.  They pretend to be ordinary Starbucks customers, even going so far as to order "iced brown-sugar-oat-milk espressos."  Then they give the frazzled barista a flyer as he toggles between the walk-up window and the drive-through window.  The organizers sometimes come up against management in stores, but they give their pitch to managers as well, who say that they are not interested.  Reifications of false consciousness all.  Then employees suddenly realize that it is time to take out the trash, and they sneak out to grab a flyer from the organizers.

Another interesting theme in Ms. Kim's article is the role of LGBTQ+ employees in union organizing.  I don't usually get my coffee from Starbucks, but when I travel, I am grateful for the company's market saturation.  I know that I can get drinkable caffeinated beverages on the road, pretty much no matter where I travel.  I noticed last year on a trip to the Ozarks that I was seeing a much higher percentage of out LGBTQ+ people serving me beverages than I saw in other venues in Arkansas.  Back in the day, the rainbow masks were a definite tell.  It turns out, once you have the activism bug, it translates across subject matters.  One Seattle protest adopted the the slogan "Be Gay! Do Strikes!"  

[Sidebar: I expect better slogans from LGBTQ+ folks.  A friend from grad school was an early participant in ACTUP!  When police came to clear them out of a building, the police wore gloves so that they wouldn't catch anything from these terrifying gay men.   The media showed up, and the ACTUP men started chanting "Your gloves don't match your shoes!  You'll see it on the news!"  Zing.]

The workers and Starbucks are now locked in a war of attrition.  Howard Schultz (right, at a 2014 book signing), Starbucks' CEO (for the third time) is adamantly anti-union, as Ms. Kim describes, but the company has a reputation as a progressive force and so it will only issue mealy-mouthed statements about its willingness to negotiate.  Negotiations have yet to begin, notwithstanding a request from 32 unionized locations.  The company is actively seeking to shut down unionized locations.  It has been especially aggressive in Seattle, the company's corporate home.   By the way, if you are in my home city of Oklahoma City and are looking for a cold brew or an iced chai latte, the unionized locations are at 36th & May and 23rd & Robinson.  It sounds like they could use the support.

Meanwhile, Starbucks workers and Amazon workers are changing the make-up of the union movement, as young people join in numbers the union movement has not seen in decades.  Starbucks and Amazon are among the country's top ten employers.  Union movements at those two companies can have a huge impact.  The National Labor Relations Board can only do so much to help.  Starbucks' anti-union strategy has precedents in the conduct of companies like Walmart, Boeing, and Chipotle, all of which shut down venues or departments or moved production to escape unionization.  The NLRB has its own problems: having been gutted during the Trump administration, its workload has now doubled.  The ability of a federal agency to stand up for American workers is yet another matter that will turn on the 2024 elections.  

In the meantime, unionization efforts are giving participants much more than work experience.  They are gaining self-confidence, empowerment, and a sense of community, belonging, and purpose.  Expect great things from these young people, who will contribute to our economy and to our political life much more than they would have done if their Starbucks experience were just about earning $15/hour.  That is, so long as their efforts are not crushed.

The Future of Unions

Although this blog has a category called "Labor Contracts," we rarely use it.  Labor unions have long been in decline, and there just haven't been many labor contracts to discuss outside of the context of collective bargaining in professional sports.  Perhaps the tide has turned.

Over the weekend, The New York Times featured a story about Jaz Brisack, a Rhodes Scholar who decided that the best use of her time and talents was to become a union organizer and so she took a job as a Starbuck's barista.  Hers was the first Starbucks-owned store to unionize; 150 others have since followed suit, and 275 have filed paperwork to hold elections.   The are two unionized Starbucks shops in my fair city, Oklahoma City!  I don't always drink Starbuck's Coffee, but when I do, I will henceforth prefer to purchase it at 36th & May or 23rd and Robinson!

It is such a great story, and it is an exciting moment in the history of the labor movement. The long slide in the percentage of the work force in labor unions seems to have stalled.  There are even some signs of growth, such as this story about the first Apple Store to unionize.  

Let us hope for a future when Americans are outraged that there are billionaires and not by a mandatory living wage for hourly workers.