5th Circuit: Arbitration Agreement Unenforceable Because Employer Reserved Right to Modify It

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Several companies have mandatory arbitration programs, pursuant to which every employee must sign an agreement promising to submit every possible claim they might want to assert against the company to mandatory and binding arbitration. Much ink has been spilled in various court decisions concerning the circumstances pursuant to which these these types of agreements are enforceable.

But though the law on this issue can vary significantly from state to state, there is at least one universal principle that, one would think, should be pretty obvious: it must be an agreement.  A real, honest-to-goodness contract.

Which brings us to the Fifth Circuit’s new opinion in Carey v. 24 Hour Fitness USA, Inc.  Apparently, someone at 24 Hour Fitness thought that parachuting a mandatory arbitration “clause” in their handbook (but only the handbook) was a good idea, and that trying to enforce it against some employee who had the nerve to show up in court was an even better idea. The problem is that 24 Hour Fitness’s handbook – like most handbooks – had a disclaimer which emphasized that the handbook isn’t an “agreement” at all, and that the company is always free to change it:

I acknowledge that, except for the at-will employment, [the Company] has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO …

Every first year law student knows that you can’t have a true contract if one of the parties isn’t really agreeing to anything–that’s called an “illusory” bargain. And that was the problem with this “agreement.”  24 Hour Fitness was trying to reserve for itself the right to monkey with the handbook (including the arbitration clause), even on a retroactive basis, while at the same time pointing to the arbitration clause as a binding, enforceable “contract.”

The Fifth Circuit was having none of it:

the fundamental concern … is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it. Requiring notice alone does not fully address this concern: … this [notice of modification] could still arguably allow [the company] to avoid its promise to arbitrate as to claims that were already in progress, unless there were some provision preventing changes from applying to in-progress disputes.

The Fifth Circuit did note a Texas Supreme Court case from 2002 (In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002)), where that Court had enforced an arbitration agreement which also allowed the company to modify the deal–but that other arbitration agreement contained a “savings clause” which essentially allowed only prospective changes to the agreement, and banned the company from changing the rules concerning claims that had already matured or had been asserted by the time of the change. No such savings clause was present in this case.  Whoops.

Image: savit keawtavee / FreeDigitalPhotos.net

NLRB Clicks “Like” Button on Two Employer Social Media Policies, Rejects Many Others

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Lafe Solomon, Acting General Counsel of the National Labor Relations Board, issued a new report yesterday describing various social media-related cases that the Board has handled during the preceding year. The report, which is 35 pages long, is interesting reading. But the most interesting thing is that nearly all of the employer social media policies mentioned were found to be unlawful to some extent. Specifically, the NLRB found all of the following policies and policy language to be violations of Section 8(a)(1):

  • A requirement that employees “avoid identifying themselves as [company] employees, unless there was a legitimate business need to do so,” and to only discuss terms and conditions of employment “in an appropriate manner.”
  • A ban on “unprofessional communication that could negatively impact the [company's] reputation or interfere with [its] mission.”
  • A ban on “unprofessional/inappropriate communication regarding members of the [company's] community.”
  • A ban on “disclosing or communicating information of a confidential, sensitive, or non-public information concerning the company on or through company property to anyone outside the company without prior approval of senior management or the law department.”
  • A ban on “use of the company’s name or service marks outside the course of business without prior approval of the law department.”
  • A ban on “publishing any representation about the company without prior approval by senior management and the law department.”
  • A requirement that employees obtain prior management approval before they could “identify themselves as the Employer’s employees” (and then they had to “expressly state that their comments are their personal opinions and do not necessarily reflect the Employer’s opinions”).
  • A requirement that all “social networking site communications be made in an honest, professional, and appropriate manner, without defamatory or inflammatory comments regarding the employer and its subsidiaries, and their shareholders, officers, employees, customers, suppliers, contractors, and patients.”
  • A ban on “discriminatory, defamatory, or harassing web entries about specific employees, work environment, or work-related issues on social media sites.

Common problems with the above requirements and prohibitions, according to the Board, is that they either chill, or burden, or flat out prohibit the exercise of employees’ Section 7 rights to engage in collective discussion on Facebook (and elsewhere) about workplace-related issues.  Several of the policy provisions (such as the bans on defamation and disclosing “confidential” information, or the requirement that things be discussed in an “appropriate” manner) failed in the Board’s eyes because no examples or context were offered to the employee, and an employee reading the provision would understand his or her Section 7 rights being limited. (Or at least, so sayeth the Board.)

Of all of the policies that the Board discussed in the memo, it pushed the “Like” button on just two:

  • An employer’s prohibition on any “post or display comments about coworkers or supervisors or the Employer that [is] vulgar, obscene, threatening, intimidating, harassing, or a violation of the Employer’s workplace policies against discrimination, harassment, or hostility on account of age, race, religion, sex, ethnicity, nationality, disability, or other protected class, status, or characteristic.” (This prohibition was actually an updated version of the last bullet item listed above – the Board found this employer had corrected the Board’s concerns about the word “defamatory”.)
  • An employer’s policy that banned “using or disclosing confidential and/or proprietary information, including personal health information about customers or patients, and it also prohibited employees from discussing in any form of social media “embargoed information,” such as launch and release dates and pending reorganizations, and that prohibited employees from referring to the company “by name,” “publishing any promotional content,” and requiring employees employees, “while engaging in social networking activities for personal purposes, [to] indicate that their views were their own and did not reflect those of their employer.” (The latter provisions the Board found OK because they were found only in a section of the policy called “Promotional Content,” and that as a result, “employees could not reasonably construe the rule to apply to their communications regarding working conditions, as they would not consider those communications to promote or advertise on behalf of the Employer.”)

And for those employers who have a boilerplate “savings clause” in their social media policies (something like: “this policy should not be interpreted or applied so as to interfere with employee rights to self-organize, form, join, or assist labor organizations, to bargain collectively through representatives of their choosing, or to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, or to refrain from engaging in such activities“), nice try. The NLRB held that this exact savings clause did not salvage the company’s otherwise-unlawful policy, essentially because the Board concluded that the average employee reading the savings clause would have no idea what it meant (“an employee could not reasonably be expected to know that this [savings clause] language encompasses discussions the Employer deems
‘inappropriate’“).

Much of the above guidance is not new — though I do admit that it is nice for once to see examples (if only just a few) of policies that the Board actually finds to pass muster under Section 8(a)(1).

Image: Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net

California Court: Recruiters Qualified for “Commissioned Salesperson” Exemption in Wage Order 7

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A California Court has held that a group of recruiters qualified for California’s commissioned salesperson exemption.

Here’s how the court described what these recruiters did to earn their keep:

Appellants’ primary job duty was to recruit “candidates” for employer “clients.” Surrex’s clients would place “job orders” with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various “on-line job boards.” Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit.

The recruiters sued their employer, arguing that they were owed unpaid overtime. However, these particular employees were subject to IWC Wage Order 7, and under that Order, you don’t get overtime if you’re a bona fide “commissioned salesperson.” The company argued that these recruiters were commissioned salespersons, and the trial court agreed, throwing the claim out. The Court of Appeals has now affirmed that result.

Under California law, you don’t qualify for the commissioned salesperson from overtime unless – get this – you’re a salesperson and you get paid on commission.

The court held that these recruiters were indeed principally engaged in selling a service by scrounging up job candidates and convincing them to come work for the company’s clients:

appellants’ job, reduced to its essence, was to offer a candidate employee’s services to a client in exchange for a payment of money from the client to Surrex. Offering a candidate’s employment services in exchange for money meets the ordinary definition of the word “sell”… Further, Surrex presented evidence and testimony that appellants engaged in what is commonly thought of as sales-related activity — that is, they attempted “to persuade or influence [clients] to a course of action or to the acceptance of something.” [Citation]. Finally, it is undisputed that Surrex did not obtain any revenue unless and until an employer client selected a candidate proffered by a consulting services member. Thus, it was only upon the successful placement of a candidate that Surrex recorded a sale, and that a Surrex client became a paying client.

The court nixed the recruiter’s counter-argument that tasks such as trolling the Internet for potential job candidates, reviewing resumes, etc., shouldn’t count as time spent “selling”:

This argument perceives the word sales in a vacuum contrary to the job description of any salesman. The whole point of these activities, including online search for candidates, resume reviews, unsolicited (cold) calls, etc., are the essential prerequisites necessary to accomplishing the sale.

Finally, the court concluded that these recruiters were indeed paid a bona fide commission. The recruiters received a percentage of the money paid by the company’s clients for candidates – but this percentage was then run through a mathematical formula based on the company’s “adjusted gross profit” relative to the sale. In essence, the lower the company’s costs associated with the sale, the higher a percentage of that sale the recruiter would receive as payment. The recruiters objected, claiming that this couldn’t qualify as a bona fide commission system because it wasn’t a “straight” commission and it was “too complex.” The court rejected this argument, stating in essence that nothing in earlier California decisions required a straight commission system in all circumstances.

The case is Muldrow v. Surrex Solutions Corp.

Image: graur razvan ionut, freedigitalphotos.net