Employee’s WARN Act, COBRA and ERISA Claims Stayed for Arbitration

The Western District of Virginia Federal Court recently ruled that an employee cannot bring class-action employment and benefits claims against his employer when he previously agreed to arbitrate them.  Reinforcing recent federal decisions favoring employment arbitration, the Court stayed the employee’s claims concerning his layoff pending arbitration.  The decision is Green v. Zachry Industrial, Inc., Civil Action No. 7:11CV00405 (W.D. Va. Mar. 25, 2014).

The employee worked for Zachry Industrial, Inc., a construction and industrial maintenance firm.  At the start of employment, Zachry required all employees to sign an arbitration agreement referenced in the application for employment.  When the employee and others were laid off suddenly by Zachry, the employee filed suit in federal court claiming that he was not given termination and benefits rights provided under federal law.  These rights include advance notice of layoff under the WARN Act and notice of the right to continue health care insurance under COBRA, which at the time included a significant government subsidy of premiums provided by the stimulus package (the American Recovery and Reinvestment Act of 2009).  The employer filed a motion to dismiss or stay the lawsuit and require arbitration, and the employee filed a motion to amend his lawsuit to include other similarly-situated employees as plaintiffs.

To prevent arbitration, the plaintiff challenged the authenticity of his signature on the arbitration agreement.  The Court rejected this argument, finding that the employee signed an application apart from the arbitration agreement that proved the plaintiff’s consent to arbitrate.  The plaintiff then argued that the arbitration agreement violated the “concerted activity” protections of the National Labor Relations Act by preventing him from bringing a collective or class action.  The Court did not agree based upon a recent Supreme Court decision that arbitration agreements can be enforced even though they waive class action rights, and based upon a recent federal court ruling that such waivers do not violate the NLRA.  The employee then claimed that the arbitration agreement was unconscionable because it required him to pay attorneys’ fees that he could otherwise recover in court under the WARN Act, COBRA and ERISA.  The Court rejected this argument, finding that, while the employee would have to pay attorneys’ fees during arbitration, the arbitrator could award recovery of these fees under the arbitration agreement.

Finally, the employee challenged whether the arbitration agreement would cover COBRA and ERISA claims, which relate to post-employment benefits rather than disputes concerning employment.  The Court found that the agreement’s broad language covering “any and all claims . . . arising out of or relating to . . . the terms and conditions of employment, and/or to the cessation of employment” would cover such claims.

This decision shows the increasing federal court support for employment arbitration agreements.  Nevertheless, given the many challenges that can be made to prevent arbitration, employers who choose arbitration must make sure to refer to arbitration in their employment applications, make available extensive arbitrator remedies, and provide for broad coverage of claims.