Workers’ Compensation Law Prof Blog

Epic Systems Settles In: The Question of Employee Misclassification is for the Arbitrators

Months ago, I asked the question whether arbitrators would decide the scope of the gig economy. What I was getting at was that all of the sturm und drang over the misclassification (or perhaps “malclassification”) of employees might come to naught if employers took the next (obvious) logical step of requiring, as a condition of “hire,” that disputes over employee-status be submitted to arbitration, taking that threshold legal determination out of the hands of courts.  Not unexpectedly, the reaction I got from some readers was that my concern was perhaps a bit too arcane. As you can imagine, I was not surprised to see the 9^th Circuit’s recent opinion in O’Connor v. Uber Techs, 2018 WL 4568553 (Sep. 25, 2018), a case which simultaneously denied class certification of employment law plaintiffs (in this instance, alleged violations of the California Labor Code, which, incidentally, was the statute at issue in the Dynamex case) and forced the resulting individual claims into arbitration. (I realize the reaction to my use of the word “forced” will seem to some misplaced since the theory of arbitration is that workers agreed to the process pre-hire. As a former, bona fide working person from the actual working class, I reject such silliness out of hand. Workers usually have no idea what they are signing, and wouldn’t in the typical case have a real choice but to sign if they did not what they were signing. Of course, just as was the case in my Harvard Law School contracts class, I acknowledge, as I must, that the law is what it is).

I will not dissect O’Connor here—it is one of the several predictable outcomes of Epic Systems—but I will merely point out that the case establishes the conditions for double-deference. The first act of deference by the courts is allowing an arbitrator to decide if a worker is an independent contractor (one of the three substantive issues in O'Connor). If the worker is an independent contractor, then the questions of the underlying employment law controversies are, of course, resolved: the California Labor Code does not apply (note how this completely nullifies Dynamex). But if the worker is an employee, and as a second act of deference, the arbitrator, not a court, will decide (in the case of employee classification), (1) what employee-status law applies (perhaps the arbitrator will wrongly apply Dynamex, when Borello should control); and (2) how the employment dispute will be decided under the law selected (perhaps the arbitrator will sloppily, or even inaccurately, march through the factors from the rule chosen). The most important point in discussing arbitration of employment law disputes is that “mere errors” of law or fact are not good enough reasons for setting aside an arbitration award.  The reason for this is that the scope of judicial review under the Federal Arbitration Act is incredibly narrow. An award is theoretically subject to being set aside if an arbitrator “manifestly disregards” the law, but there is a federal circuit split about what that means, and whatever it means it is clear that mere errors of law are not enough.

One of the most disturbing aspects of the emerging arbitral (not legal) world is that it will often be impossible to determine why an arbitrator found that a given individual was, or was not, found an employee (indeed, employers often insist upon confidentiality of arbitration awards). There is no readily available source of arbitration awards; and prior awards, in contrast to common law legal decisions, would in any event have no binding effect on future arbitrators. A recent story in Law 360 (paywall) adequately covers a number potential consequences flowing from O’Connor, but, to state the obvious, employers will now make more and more use of arbitration in deciding thorny legal questions. O’Connor, not Dynamex, is this year’s most important employment law decision to emerge from California.

One final point. Employers in an economy in which it is increasingly easy to classify employees as independent contractors may come to resent dusty old workers’ compensation with its insistence on actually analyzing legal questions. How long do you think it will be before pressure mounts to bring this race to the bottom to the doorstep of workers' compensation?

Michael C. Duff

New Book from the American Bar Association, Addressing Mediation, Features Workers' Compensation Chapter by Duff & Torrey

 

            Workers’ compensation practice, as in many other areas of law, has been impacted significantly by the alternative dispute resolution (ADR) movement of the last few decades. Judge David Torrey and Professor Michael Duff (writers of this blog) explore this issue in a chapter of the new ABA book, Resolving Insurance Claim Disputes Before Trial (2018) (edited by Timothy H. Penn & Judith F. Goodman).

            The chapter reviews this growth of workers’ compensation ADR, summarizes the law and practice of mediation and other ADR devices in select states, and explores practical considerations which are essential to the workers’ compensation field. The chapter concludes with a table setting forth the authorities supporting ADR in the various states.

           The authors do not, in detail, discuss the fine mechanics of ADR – as to such mechanics, the authors recommend another superlative American Bar Association book, Representing Clients in Mediation (2013), by Florida mediator Spencer Punnett.

            Of course, an irony exists in this discussion. In many respects, workers’ compensation itself represented the first national experiment in alternative dispute resolution. In the early twentieth century, of course, a broad national consensus existed that the formal tort litigation system was not working well for employees or employers. In order to address the perceived litigation dysfunction, stakeholders participated in development of a state-based no-fault workers’ compensation system as an alternative to tort litigation. That system is now roughly a century old in most states.

            Despite the noble intentions of the founders of workers’ compensation statutes, adjudication in the system has become more complex, even though the system operates primarily in state administrative agencies meant to provide simplified processes. Because of this complexity, and because of increasing costs,* workers’ compensation writ large has joined the ADR movement, and ADR structures – most prominently, mediation – have become much more prevalent than in the past.  Indeed, by 2014 the influential Chief Florida Judge, David Langham, declared, “There is a developing trend in workers’ compensation. Mediation is becoming the norm rather than the exception.” He echoed the assertions of a Washington, D.C. judge who, in 2010, authored a meticulous review of “revitalized” mediation programs in several states.  These assertions ring true, as borne out by recent events. The new Tennessee administrative court system features mandatory mediation, and Connecticut and Rhode Island have just recently instituted voluntary mediation programs as well.    

            Of course, a properly-functioning state agency has, for a century, been said to be one which is pro-active in avoiding disputes in the first place.  (The scholar Timothy Schmidle suggested this point to me at the outset of the project.)  Under this advocacy, agencies monitor carrier conduct and compliance and aggressively provide information to injured workers. Were this plan to work, both litigation and ADR (which is the subject of the Torrey & Duff chapter) could be avoided. 

            A modern classic of this advocacy is John F. Burton, Jr. & Monroe Berkowitz, Paean to an Active Workers’ Compensation Agency, John Burton’s Workers’ Compensation Monitor, p.1 (Sept.-Oct. 1989) (stating, among other things, “The prevalence of litigation … is, in our view, a reflection of how poorly the workers’ compensation agencies are doing their job.”).  Maine is a jurisdiction (among several) which maintains such a system, employing claims resolution specialists to “troubleshoot” in advance of disputes.  Pennsylvania and Wisconsin, meanwhile, maintain telephone helplines to answer injured worker and employer questions.  Kentucky, for its part, employs ombudsmen.  Texas, meanwhile, maintains an Office of Injured Employee Counsel. See https://www.oiec.texas.gov/.  

***

 

 * Writers Orin Kramer and Richard Briffault, in the insurance industry tract Workers Compensation: Strengthening the Social Compact, p.67 (I.I.I. Press 1991), encouraged state administrators to reform dispute resolution via “mandatory settlement conferences, mediation, and arbitration,” in order to reduce costs.