Business Litigation
The National Labor Relations Act (“NLRA”) Does Not Prohibit Class-Action Waiver of Wage and Hour Claims in Employment Arbitration Agreements
By Todd Lundell, Snell and Wilmer LLP
Does the NLRA’s conferred right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection” preclude enforcement of an arbitration agreement in an employment contract that waives class actions and requires individual arbitration of wage and hour claims? The Supreme Court in Epic Systems Corp. v. Lewis, __ S.Ct. __, 2018 WL 2292444 (2018), answered this question “no.” In an opinion by Justice Gorsuch, the court reasoned that “[t]he NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” The court explained that the NLRA “does not mention class or collective action procedures” and “does not even hint at a wish to displace the Arbitration Act,” which requires enforcement of arbitration agreements according to their terms. Indeed, the employees’ argument against enforcing the arbitration agreements’ class-action waivers “seeks to interfere with one of arbitration’s fundamental attributes”—that is, the “traditionally individualized and informal nature of arbitration.” Thus, the court refused to “read a right to class actions into the NLRA” that would invalidate agreements requiring individualized arbitration of employment disputes.
Justice Ginsburg wrote a dissenting opinion, which was joined by Justice Breyer, Justice Sotomayor, and Justice Kagan. According to the dissent, “[s]uits to enforce workplace rights collectively fit comfortably under the umbrella ‘concerted activities for the purpose of . . . mutual aid or protection,’” and the majority opinion runs contrary to “the NLRA’s text, history, purposes, and longstanding construction . . . .”
Delaware Court of Chancery Denies Directors’ Attempt to Restrain Controlling Stockholder from Exercising Control, Citing “Tension” in the Law
By K. Tyler O’Connell, Morris James LLP
In CBS Corporation v. National Amusements, Inc., 2018 WL 2263385 (Del. Ch. May 17, 2018), the Delaware Court of Chancery expeditiously considered and denied a request by independent directors of CBS Corporation (“CBS”) to restrain its controlling stockholder, National Amusements, Inc. (“NAI”), from interfering with a board vote on a stock dividend to dilute NAI’s voting control.
NAI owns 10% of CBS’s equity, but controls 80% of its total voting power by owning a like percentage of its Class A voting stock. CBS’s Class B non-voting shares are owned by public stockholders. In early 2018, NAI proposed that CBS merge with another NAI-controlled public company, Viacom, Inc. On May 13, a special committee of CBS’s independent directors determined the merger was not in the best interests of CBS’s stockholders. The independent directors anticipated that, in response, NAI might remove them or take other action to force approval of the merger. They noticed a special board meeting for May 17 to consider approving a dividend of Class A voting stock to all stockholders, which would dilute NAI’s voting power to 17%. Unlike many dual-class stock companies, CBS’s charter permitted the board to approve such a dividend. The directors filed suit on May 14 and sought a temporary restraining order (“TRO”) to prevent NAI from interfering with the board vote. Shortly before the May 16 TRO hearing, NAI amended CBS’s bylaws to provide a 90% supermajority requirement for a board vote to approve a dividend.
Applying the TRO standard, the Court’s May 17 letter opinion found that allegations that NAI acted in a manner inconsistent with CBS’s representations to public stockholders that CBS would be governed by an independent board, rather than as a controlled company, sufficed to state a colorable claim. There was not a risk of imminent, irreparable harm, however, because the Court could provide redress after the fact. With respect to the balance of the equities, the Court noted the “apparent tension in our law between a controlling stockholder’s right to protect its control position and the right of independent directors—empowered under 8 Del. C. § 141(a) with broad authority to manage ‘the business and affairs’ of the corporation – to respond to a threat posed by a controller, including [by] possible dilution of the controller.” The Court found Adlerstein v. Wertheimer, 2002 WL 205684 (Del. Ch. Jan. 25, 2002) to be apt, as it reasoned that a controller was entitled to notice and the opportunity to prevent a dilutive issuance by removing directors. Per the Court, while Alderstein “expressly endorsed a controller’s right to make the first move preemptively to protect its control interest[,]” any such actions would be “subject to judicial review, which can afford full relief…” after the fact if needed. The Court accordingly denied the directors’ request for a TRO.
Following the Court’s decision, CBS’s board approved the dividend—although by fewer directors than required by the supermajority bylaw—subject to a determination by the Delaware Court that the dividend is lawful. The independent directors also amended their complaint to challenge the supermajority bylaw. Accordingly, absent a resolution, this dispute is likely to require examining on a fuller record unsettled questions over whether, and in what circumstances, directors may preempt potential breaches by a controller through diluting its holdings.