Consumer Advocate Legal Update : Class Action Lawyers & Attorneys : Khorrami Pollard & Abir Law Firm : Mass Torts, Products Liability

For years, companies, including credit card and cell phone companies, have included mandatory arbitration provisions in consumer contracts. However, a recent series of events has put the future of forced arbitration into question.

On July 14, Minnesota Attorney General Lori Swanson sued the National Arbitration Forum (NAF), one of the nation’s largest providers of arbitration services for the credit card industry, for consumer fraud, deceptive trade practices and false advertising. The complaint alleged that the company deceived consumers into thinking it was a neutral arbitrator in debt collection when, in reality, NAF worked behind the scenes with credit card companies and other creditors, such as cell phone providers, to write itself into small-print purchase agreements as the sole arbitrator consumers could use if they had problems with creditors. NAF quickly settled the lawsuit, agreeing not to take accept any new cases.

In the aftermath of the NAF lawsuit, the American Arbitration Association (AAA) has announced that it will also stop participating in consumer-debt-collection disputes until new guidelines are established. Additionally, JPMorgan Chase, one of the nation’s largest credit-card issuers, has announced it will no longer submit disputes to arbitration and is evaluating the inclusion of arbitration provisions in its consumer contracts.

As Ashby Jones wrote in a blog at the Wall Street Journal (7/22), “It’s too soon to say, in all likelihood, but we could be in the early stages of an arbitration revolution.” Consumer advocates are hopeful that the settlement reached between the Minnesota Attorney General and NAF, as well as AAA’s withdrawal from the consumer debt collection disputes, will lead to the end of mandatory arbitration. Consumer attorneys have argued that the recent chain of events shows a need for Congress to pass two bills currently before it, the Arbitration Fairness Act and the Fairness in Nursing Home Arbitration Act, which ban forced arbitration. Consumer attorneys have also responded by filing lawsuits seeking to set aside thousands of arbitration awards and judgments in consumer debt cases.

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Billie Burke:

“Age is something that doesn’t matter, unless you are a cheese.”

The U.S. Supreme Court issued a decision in Gross v. FBL Financial (2009) 129 S.Ct.2343; 174 L.Ed.2d 119 which changes the burden of proof in age discrimination cases. Courts previously used Title VII’s burden of proof-shifting analysis when analyzing age discrimination (ADEA) cases. Title VII cases are “mixed motive” cases wherein the employee presents evidence that an employer’s adverse decision was motivated, in part, by unlawful discrimination even if the employer was motivated by other, lawful reasons. In cases based on alleged Title VII violations, an employee presented direct evidence that the employer’s adverse employment decision was partly motivated by unlawful employment discrimination (race, sex, religion, national origin), then a shift of the burden of persuasion occurred wherein the employer has the burden of proof, not the employee, that the employer would have made the same adverse decision absent the alleged unlawful discrimination.

Gross utilized the burden of proof shifting approach as had been previously used in mixed motive cases, but the U.S. Supreme Court declared that said method was improper for ADEA cases, because the ADEA statute was worded differently than Title VII. In 1991, Title VII was amended to specify that an employee could prevail in an employment discrimination case by showing that an improper discriminatory purpose was a “motivating factor” in the employer’s decision to demote or terminate. The Court determined that the language of the amendment did not extend to the ADEA statute, and the “mixed motive” methodology of proof did not apply to ADEA cases.

The present criteria for proof in an ADEA case is that an employee must prove that age was the “but for” cause of the employer’s action or decision. The plaintiff has the burden of proving by a preponderance of the evidence that age was the determining factor in the employer’s employment decision.

The Court’s decision in Gross caught legal pundits by surprise because the issue was not briefed nor argued before the Court. The issue before the Court was whether or not an employee must present direct evidence in order to obtain a mixed motives jury instruction, but the Court declared that such an instruction was not appropriate in an ADEA case.

Many in the legal community regard the Gross decision to be the most significant employment law case in 2009, because it makes it more difficult for an employee to prevail on an age discrimination claim because of the comparatively high “but for” causation standard.

Gross is considered to be a major victory for employers. However, the decision may galvanize Congress to formulate legislation which is directly responsive to the Gross decision and an aging population where individuals are forced to work longer because of the uncertainty of social security.

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On June 2, 2009, the California Fourth District Court of Appeal overturned an $86 million dollar judgment against Starbucks for alleged tip-pooling violations. The Court’s decision, styled Chau v. Starbucks, 174 Cal. App. 4th 688 (2009), concluded that Starbucks baristas failed to prove that Starbucks’ “tip pooling” practices violated California law. Under California law, management is generally prevented from sharing in the tip proceeds of employees. (Labor Code § 351). The Court reasoned that this did not occur in this case because shift supervisors, a job position below assistant manager, performed the same work as baristas and were an intended recipient of customer tips that were deposited into a common tip box.   Significantly, the Court acknowledged that the outcome may have been different had Starbucks permitted store managers and assistant managers to take a share in the tips.

The Court’s ruling in Chau, which is the third appellate decision this year to have applied a limited construction of California’s tip statute, provides no clear solutions for the approximately 120,000 California Starbucks baristas who rely on gratuities as a substantial portion of their income. Presently, the fate of the tip statute itself hangs in the balance, as the California Supreme Court has taken up the issue of whether Labor Code section 351 even provides employees a private right of action against their employers for improperly withholding tip proceeds. See Lu v. Hawaiian Gardens Casino, Inc., 170 Cal. App. 4th 466 (2^nd Dist. 2009), review granted on April 29, 2009 (Supreme Court Case No. S171442); Grodensky v. Artichoke Joe's Casino, 171 Cal. App. 4th 1399 (1^st Dist. 2009), review granted on June 24, 2009 (Supreme Court Case No. S172237). Depending on how the Supreme Court rules on this question in the negative, California employees could be dependent on the Division of Labor Standards Enforcement (the state agency charged with enforcing section 351) for vindication of their rights, absent amendment of the statute by the Legislature.

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