Northwest Business Litigation

The Northwest Business Litigation blog is a resource for in-house counsel, business executives, human resource managers and others who monitor litigation and legal issues affecting Northwest businesses. The litigation group of Ater Wynne LLP hosts the blog.  Go to Ater Wynne LLP's Website.

This site is provided for informational purposes only and does not constitute legal advice, nor does it form the basis for an attorney-client relationship.

Oregon Court of Appeals upholds arbitration clause in employment contract

The Oregon Court of Appeals has again enforced an arbitration clause in an employment contract, rejecting the employee's claim that the clause is unconscionable.  In Livingston v. Metropolitan Pediatrics, LLC, the plaintiff, a pediatrician, took issue with the conduct of his employer and other doctor members and employees related to an investigation of the clinic's child vaccine program.  He alleged he was ultimately terminated because of the concerns he expressed to his employer and government authorities. 

Plaintiff filed common law and statutory employment claims against his employer and the others in court.  The employer moved to abate the claims and compel arbitration, citing a clause in the employment agreement that required arbitration of "[a]ny controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof."  The trial court denied the employer's motion, ruling that the arbitration clause is "unconscionable" and, therefore, unenforceable.  The employer appealed, and the Court of Appeals last week agreed with the employer and sent the case back for arbitration of all claims.

The test for "unconscionability" in Oregon has two parts, one procedural and the other substantive.  A contract is procedurally unconscionable, and therefore not enforceable, if there is "oppression" or "surprise" in the "conditions of contract formation," but unequal bargaining power alone is insufficient for a finding of procedural unconscionability.  A contract is substantively unconscionable if the "terms" of the contract are "unreasonably" one-sided, such that their "effect" makes the parties' respective obligations "so unbalanced as to be unconscionable."

In this case, Plaintiff did not contend that the agreement was procedurally unconscionable; the Court of Appeals noted that, in any event, because plaintiff is a highly educated physician, any inequality in bargaining power was minimal.  The trial court, however, had found these aspects of the agreement substantively unconscionable:  (1)  the possibility that plaintiff would have to pay defendant's attorney fees and costs if plaintiff is unsuccessful on his "blacklisting" claim; (2)  excessive arbitration fees assessed against plaintiff; (3)  ambiguity about which set of American Arbitration Association rules would govern the arbitration; and (4) a requirement of confidentiality.  Before the Court of Appeals, plaintiff asserted these and other grounds for a finding of unconscionability and further argued that the arbitration clause should not apply to intentional torts, statutory claims, and claims against non-signatories to the employment agreement.  The Court of Appeals addressed the trial court's findings as well as the other arguments put forth by plaintiff, and held that none of the concerns arises to the level of substantive unconscionability or otherwise requires court litigation of the parties' disputes.  Central to the ruling of the Court of Appeals is the very broad language of the arbitration clause allowing for arbitration of "any controversy, dispute or disagreement."

COBRA subsidy extended - again!

Last night, President Obama signed into law an extension of the COBRA subsidy period until March 31.  The extension allows employees who are involuntarily terminated between March 1 and March 31 to receive the 65% COBRA premium subsidy for up to 15 months.  The new law also broadens the definition of "assistance eligible individual" to include employees who lost coverage due to a reduction in hours, but did not elect COBRA then and were later terminated.  Under the original law, such employees were not eligible for the subsidy, since the involuntary termination did not cause the loss of coverage.

The new law is effective as of March 1, so employees who terminated after February 28 when the subsidy period expired are eligible for the extension.  Although the extension is for only the month of March, several pending bills would provide for much longer extensions.

Ninth Circuit: Tip pooling does not violate Fair Labor Standards Act.

Last month in Cumbie v. Woody Woo, Inc., the Ninth Circuit addressed whether a restaurant violates the Fair Labor Standards Act (FLSA) when, despite paying a cash wage greater than the minimum wage, it requires its wait staff to participate in a "tip pool" that redestributes some of their tips to the kitchen staff. 

Judge O'Scannlain, writing for the court, began with the default rule that an arrangement to turn over or redistribute tips is presumptively valid, unless such arrangement is forbidden by statute. The plaintiff, a server at a Portland restaurant, argued that tip pooling violates section 203(m) of the FLSA, which provides that restaurants must allow employees to keep all of their tips, except when the employee participates in a tip pool with other "customarily tipped employees."  The plaintiff argued that members of the kitchen staff are not "customarily tipped employees," thus rendering her tip pool "invalid."  The Ninth Circuit rejected the plaintiff's interpretation, finding that the FLSA "imposes conditions on taking a tip credit and does not state free standing requirements pertaining to all tipped employees."  (Emphasis in original.)

While rendering judgment for the employer here, the court hinted that the outcome may be different in situations where a restaurant pays its wait staff less than the minimum wage and utilizes a "tip credit" to make sure the employees' wages exceed the minimum wage.

U.S. Supreme Court defines corporations' place of residence for diversity jurisdiction

In January, the U.S. Supreme Court gots lots of attention for ruling, in Citizens United v. FEC, on the free speech rights of corporations.  On Tuesday, the Court addressed a less-controversial aspect of a corporation's role as "citizen" -- namely, how to determine its state of residence.

In federal court, diversity jurisdiction may exist if the parties are citizens of different states.  A corporation is deemed to be a citizen of the state or states where it is incorporated and where it has its principal place of business.  28 USC sec. 1332(c)(1).  The Supreme Court held in Hertz Corp. v. Friend that "principal place of business" means the place where a corporation's high level officers direct, control, and coordinate the corporation's activities -- i.e., its "nerve center." This reversed the Ninth Circuit, which held that a corporation's principal place of business can be the state where it conducts the most business activity.

See our earlier coverage of the case here.

Employee may be forced to arbitrate employment claims under FAA

In 2007, the Oregon Legislature amended Oregon's arbitration statute to impose an additional requirement on employers that sought to require employees to arbitrate employment-related disputes: the employer must either provide notice of the requirement at least two weeks prior to the time employee starts work, or have the employee sign the agreement in connection with a bona fide advancement. See ORS 32.620(5).  The amendment was of questionable validity because it imposed additional requirements on arbitration agreements that did not apply to contracts generally, something arguably prohibited by the Federal Arbitration Act (FAA), 9 USC § 2.  Judge Brown recently put this issue to rest in Bettencourt v. Brookdale Senior Living Communities, Inc.

Deanna Bettencourt challenged the enforceability of an arbitration agreement based on the fact that she signed it after she started work and not in connection with any advancement.  She argued that under ORS 32.620(5), the agreement was void. The defense argued that the FAA preempts Oregon law and, therefore, prohibits Oregon from imposing any additional requirements on arbitration agreements that do not apply to contracts generally.  Judge Brown agreed, finding that the FAA places arbitration agreements on the same footing as any other contract. Consequently, ORS 32.620(5), which "only renders unenforceable arbitration agreements that would otherwise be enforceable under the FAA" is invalid.  While Judge Brown's ruling eliminated one obstacle to arbitration, she ordered the parties to go to trial on whether the parties agreed to arbitrate.

Judge Brown's ruling is good news for Oregon employers who favor arbitration over going to court.  However, employers should keep in mind that there are many issues to consider before committing to arbitration - one being that the agreement to arbitrate will likely be litigated as a preliminary matter, before the parties ever get to the underlying claims.  Therefore, before running headlong into arbitration, it is a good idea to go over the pros and cons with counsel.