Justin Brooks

Ninth Circuit Court of Appeals Holds Employers Cannot Require Employees to Individually Arbitrate Claims By Way of “Separate Proceedings.”

OVERVIEW

In late August 2016, a divided panel of the Ninth Circuit Court of Appeals held that employers cannot require employees to individually arbitrate their claims by way of “separate proceedings,” even if executing a class action waiver in an employee arbitration agreement. Morris v. Ernst & Young, LLP, No. 13-16599 (9th Cir. Aug. 22, 20016). The decision deepens a Circuit split and will likely have significant consequences for employers.

The Ninth Circuit joined the National Relations Board (“NLRB”) and the Seventh Circuit by holding that requiring employees to sign an agreement bringing concerted legal claims violates § 7 and § 8 of the National Labor Relations Act (“NLRA”). By contrast, the Fifth, Second, and Eighth Circuits previously rejected the NLRB’s interpretation and allow enforcement of class and collective action waivers in employee arbitration agreements. E.g. Murphy Oil USA v. NLRB, No. 14-60800 (5th Cir., October 26, 2015); D.R. Horton, Inc. v. NLRB, 737 F. 3d. 344 (5th Cir. 2013).

REASONING 

As a condition of employment, Ernst & Young required its employees to execute agreements hat legal claims had to be brought through arbitration, and in “separate proceedings.” After signing this agreement, two plaintiffs brought a wage and hour class and collective action in federal court against Ernst & Young. Invoking the employee arbitration agreement, Ernst & Young filed a motion to compel arbitration, which the district court granted.

The Ninth Circuit reversed the order compelling arbitration, holding that the NLRA § 7’s “mutual aid or protection clause” provides a substantive right to collectively “seek to improve working conditions through resort to administrative and judicial forums.” The court rejected defendant’s argument that the Federal Arbitration Act (“FAA”) mandates a different result, holding that the FAA’s savings clause  prevents enforcement of an arbitration contract’s waiver of a substantive federal right. Critically, the Court left open the possibility that the FAA can prevent enforcement of procedural federal rights but exempted enforcement of arbitration provisions from its ambit by deeming the  “[t]he rights established in § 7 of the NLRA — including the right of employees to pursue legal claims together” to be substantive. The Ninth Circuit explained that these rights are “central, fundamental protections of the act, so the FAA does not mandate the enforcement of a contract that alleges their waiver.”

The panel also remanded the case to the district court to determine whether the “separate proceedings” clause was severable from the remainder of the contract.

The majority emphasized that the contract’s requirement of aribration did not, alone, cause problems. Rather, the problem with the contract was not that it required arbitration, but that it precluded concerted action, stating:

The illegality of the “separate proceeding” term here has nothing to do with arbitration as a forum. It would equally violate the NLRA for Ernst & Young to require its employees to sign a contract requiring the resolution of all work-related disputes in court and in separate proceedings. The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings. The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted worked-related legal claims. (emphasis added).

In her dissent, Judge Sandra S. Ikuta criticized the decision as “breathtaking in its scope and in its error,” writing that the majority had joined “the wrong side of a circuit split.” She reasoned that “when a party claims that a federal statute makes an arbitration agreement unenforceable … the Supreme Court requires a showing that such a federal statute includes an express “contrary congressional command.” Finding no such express congressional command within the NLRA, she concluded it could not override the FAA.

Judge Ikuta also disagreed that §§ 7 or 8 of the NLRA create a substantive right to the availability of classwide claims, stating that “[w]hile the NLRA protects concerted activity, it does not give employees an unwaivable right to proceed as a group to arbitrate or litigate disputes.” Finally, Judge Ikuta asserted that “[t]o the extent the Supreme Court has held that class actions are inconsistent with arbitration … the majority effectively cripples the ability of the employers and employees to enter into binding agreements to arbitrate.”

IMPLICATIONS 

The decision deepens an existing Circuit splits and leaves the enforceability of agreements which mandate arbitration by way of separate proceedings and preclude class and/or collective actions in the employment context uncertain.

RECOMMENDATIONS

As a protective measure, employers should consider amending their arbitration agreements to provide that the entire agreement is rendered null and void and that the class or collective waiver is not to be severed from the remainder of the agreement if found unenforceable. This approach is advisable because defending against class or collective action certification in arbitration is generally more difficult in arbitration than federal court. Ernst & Young faces the possibility it may have to do just that depending on the district court’s decision on remand, but other employers can minimize this possibility through effective drafting of arbitration agreements.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys provide employment counseling and litigate on behalf of both employers and employees.

Off-label statements and conduct of pharmaceutical manufacturers that rise to the level of misbranding under the Federal Food, Drug & Cosmetics Act are not protected by the First Amendment. 

OVERVIEW

On May 17, 2016, the United States Court of Appeals for the Second Circuit affirmed dismissal of a False Claims Act case against Pfizer, holding that National Cholesterol Education Program (NCEP) Guidelines as to the prescription of Lipitor were advisory rather than mandatory or required by the FDA-approved label.  Accordingly, marketing outside these Guidelines did not constitute off-label promotion as relator claimed.[1]

Although this direct holding has garnered the most attention from the legal world, the Court’s clarification and cabining of its decision in United States v. Caronia is by far the more broadly significant aspect of its decision.

REASONING 

In the controversial decision of United States v. Caronia, 703 F.3d 149 (2d Cir. 2012), the Second Circuit held that the FDCA does not prohibit or criminalize the promotion of a drug’s off-label use if the promotion is truthful and not misleading in order to avoid First Amendment concerns.  However, the Caronia court reaffirmed that off-label promotion that was false or misleading did not enjoy constitutional protection.  The decision was praised by pharmaceutical manufacturers but criticized in many other quarters.  The decision is not binding outside the Second Circuit and has been sharply cabined or rejected outright by district courts in other jurisdictions.[2]  Likewise, in response to a post-Caronia bill designed to loosen the restrictions on off-label promotion, the White House issued a Statement of Administration Policy explaining that the bill “could undermine regulatory standards by allowing unproven uses of therapies to be marketed to health care payors as though such uses had been proven safe and effective.”[3]

In Polansky, a unanimous decision by the Second Circuit itself has now cabined Caronia and identified additional conduct (and statements in furtherance thereof) that do not enjoy constitutional protection.  Citing to Caronia for the proposition that there is potential value to off-label drug use and that certain off-label statements by manufacturers are permitted, the Court carefully identified off-label statements and conduct that is not constitutionally protected.  The Court explained that pharmaceutical manufacturers “are generally prohibited from promoting off-label uses of their products if the off-label marketing is false or misleading, or if it evidences that a drug is intended for such off-label uses and is therefore misbranded.” (emphasis added).  The Court further explained that a drug is misbranded “if its labeling lacks ‘adequate directions’ for safe use by a layperson ‘for the purposes for which it was intended” and affirmed that “Caronia left open” the “government’s ability to prove misbranding on a theory that promotional speech provided evidence that a drug is intended for a use that is not included on the FDA-approved label.”

IMPLICATIONS 

The implications are significant.  For example, obtaining approval for one indication and intending to market and marketing a drug for a wholly different indication upon approval qualifies as misbranding under the law and would not be constitutionally protected speech or conduct under the Second Circuit’s decision in Polansky.  Off-label statements made in furtherance of a manufacturer’s efforts to sell a drug for an indication unrelated to those for which it sought and obtained approval are not protected.  Other jurisdictions continue to take a stricter view of permissible conduct and statements, refusing to affirm the existence of constitutional protection for any off-label promotion or statements by pharmaceutical manufacturers.

Caronia  has not proven to provide the license to promote off-label that many anticipated, and pharmaceutical manufacturers should continue to proceed cautiously.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys assist qui tam relators and the United States government in prosecuting fraud and provide compliance counseling to companies wishing to avoid legal liability under the False Claims Act and other federal and state statutes. GBB has litigated some of the nation’s largest qui tam cases to date.

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[1] United States ex rel. Polansky v. Pfizer, Inc., 2016 U.S. App. LEXIS 8974, No. 14-4774 (2d Cir. May 17, 2016).  Off-label promotion has long been recognized as a violation of the Federal, Food, Drug and Cosmetic Act (FDCA) and a predicate for False Claims Act liability.  Since 2004, there have been at least 31 False Claims Act settlements where a predicate allegation has been promotion of a drug in violation of the FDCA.  Many of these cases settled for billions or hundreds of millions of dollars.

[2] E.g. Hawkins v. Medtronic, Inc., No. 13-00499, 62 F. Supp. 3d 1144 (E.D. Cal. Feb. 15, 2016);Beavers-Gabriel v. Medtronic, Inc., 15 F. Supp. 3d 1021 (D. Haw. 2014); McDonald-Lerner v. Neurocare Assocs., P.A., No. 373859-V, 2012 Md. Cir. Ct. (Md. Cir. Ct. Aug. 29, 2013).

[3] STATEMENT OF ADMINISTRATION POLICY: H.R. 6 – 21^st Century Cures Act (July 8, 2015), available at  https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr6r_20150708.pdf