Gold v. N.Y. Life Ins. Co.

153 A.D.3d 216

59 N.Y.S.3d 316

Avraham GOLD, et al., Plaintiffs–Appellants,

v.NEW YORK LIFE INSURANCE CO., et al., Defendants–Respondents.

653923/12. 2430.

Supreme Court, Appellate Division, First Department, New York.

July 18, 2017.

Lovell Stewart Halebian Jacobson, LLP, New York (John Halebian and Adam Mayes of counsel), and Law Offices of Sanford F. Young, P.C., New York (Sanford F. Young of counsel), for appellants.

Morgan Lewis & Bockius LLP, New York and Princeton, NJ (Sean P. Lynch, and Richard G. Rosenblatt of the bar of the State of New Jersey and the Commonwealth of Pennsylvania, admitted pro hac vice, of counsel), for respondents.

ROLANDO T. ACOSTA, J.P., DAVID FRIEDMAN, ANGELA M. MAZZARELLI RICHARD T. ANDRIAS KARLA MOSKOWITZ, JJ.

MOSKOWITZ, J.

On this appeal, we consider an issue that we have never directly addressed before now: whether employees can be obliged to arbitrate collective disputes such as class actions regarding wage disputes with their employers. We find that plaintiffs cannot be required to arbitrate their disputes with defendant New York Life Insurance Company because that obligation would run afoul of the National Labor Relations Act.

Plaintiffs in this action are former insurance agents for defendants New York Life Insurance Company and its related companies (collectively, N.Y. Life), all of which provide a variety of insurance products, including life insurance and annuities. Plaintiffs brought this putative class action seeking recovery for allegedly illegal wage deductions and violations of overtime and minimum wage laws.

NY Life generally hired new agents, including the four named plaintiffs, as Training Allowance Subsidy (TAS) agents for up to three years. As to training the new agents, N.Y. Life had a "sales cycle" that it taught to its agents, which consisted of, among other things, fact-finding or gathering information and, after having done so, tailoring an insurance product to a client's needs.

Upon joining N.Y. Life, each plaintiff signed standardized contracts, including an "Agent's Contract" and a "TAS Plan Agreement." Each Agent's Contract provided that the agent was not an employee of N.Y. Life, but an independent contractor free to exercise his or her own discretion and judgment in soliciting applications. Plaintiffs Johnson's and Kartal's Agent's Contracts further provided that they were free to work the hours of their choosing and from their own homes or offices. Moreover, their remuneration was not to be based on the number of hours worked, but on commissions "directly related to sales or other output."

N.Y. Life maintained a ledger system to keep track of the compensation payable to each plaintiff. Each agent's ledger tallied credits for commissions and allowances resulting from sales, and tallied debits for certain expenses and commission reversals. Credits and debits were reconciled on a rolling basis as they were posted to the ledger, and plaintiffs' semi-monthly pay consisted of their credits net of debits as of the date plaintiffs received their pay. Under the TAS Agreements, when a customer paid the first monthly premium on a policy, the agent was credited with an "advanced" or "annualized commission." Thus, although N.Y. Life had received only a single month's premium payment, it credited the agent's ledger with the commission and training allowance corresponding to a full year's worth of premium payments.

NY Life also offset two kinds of charges against the agent's earnings, only one of which is relevant to this appeal: NY Life debited agents' ledgers for commission reversals or chargebacks. These chargebacks occurred under three circumstances.

First were annualized commission reversals that occurred when a customer cancelled a policy or the policy lapsed within its first year. The TAS Agreements provided that in those circumstances, the annualized commission previously credited for a full year's worth of premium payments would be reversed and the agent would be credited only with commissions corresponding to the premiums received.

Second, the TAS Agreements provided for refunds of premium reversals. Thus, when N.Y. Life rescinded or cancelled a policy and refunded the premium to the customer, in whole or part, N.Y. Life debited the agent's ledger by the commission amount corresponding to the refund.

Third, N.Y. Life charged back commissions on certain products such as annuities and universal life insurance policies if the customer withdrew money from the product or surrendered it within a certain time after purchasing it. Although charged back commissions were apparently not specified in the Agent's Contracts or TAS Agreements, N.Y. Life's commission manual states that commission chargebacks will occur when a policy is surrendered or foreclosed, or lapsed in the first 24 months after issuance.

Plaintiff Kartal's Agent's Contract contained an arbitration provision requiring arbitration of any claim or dispute with N.Y. Life, with certain exceptions that the parties do not address on this appeal. Additionally, under the arbitration provision, Kartal waived any right to a jury trial and agreed that no claim could be brought or maintained "on a class action, collective action or representative action basis either in court or arbitration." But the provision also provided that if the waiver of class, collective, or representative actions were found to be unenforceable, the class, collective, or representative claim would proceed in court.

The four plaintiffs in this appeal filed this consolidated and amended class action complaint in Supreme Court, New York County, alleging four causes of action; only the second, third, and fourth causes of action are relevant to this appeal.¹ The second cause of action, asserted by all plaintiffs, alleged unlawful wage deductions for commission reversals in violation of Labor Law § 193. The third cause of action, which only plaintiffs Johnson and Kartal asserted, alleged failure to pay overtime in violation of 12 NYCRR 142–2.2. The fourth cause of action, also which only plaintiffs Johnson and Kartal asserted, alleged failure to pay the minimum wage in violation of Labor Law § 652.

Insofar as relevant to this appeal, N.Y. Life moved to dismiss the second, third, and fourth causes of action and to compel Kartal to arbitrate her claims. At oral argument, Supreme Court orally granted so much of the motion as sought to compel plaintiff Kartal to arbitrate her claims. The motion court also converted N.Y. Life's motion to dismiss the second, third, and fourth causes of action as to the other plaintiffs to a motion for summary judgment and ordered supplementary briefing. After the additional briefing, the motion court granted summary judgment to N.Y. Life, dismissing the second, third, and fourth causes of action as to all plaintiffs except Kartal. At the same time, the court also put in writing its granting of N.Y. Life's motion to compel Kartal to arbitrate her claims, and, pending resolution of the arbitration, stayed the action as to Kartal's claims.

We turn first to that portion of the motion court's order addressing the arbitration provision in Kartal's Agent's Contract.² As noted above, the motion court granted that branch of N.Y. Life's motion seeking to compel arbitration of Kartal's claims.

Courts of this State have not squarely addressed the question of whether this type of arbitration provision is enforceable. Further, there is a recent split among the Federal Circuit Courts regarding these types of clauses. Upon consideration of the matter, we conclude that the better view is that arbitration provisions such as the one in Kartal's contract, which prohibit class, collective, or representative claims, violate the National Labor Relations Act (NLRA) and thus, that those provisions are unenforceable.

In reaching this conclusion, we agree with the reasoning in Lewis v. Epic Sys. Corp. , 823 F.3d 1147 [7th Cir.2016], cert. granted – –– U.S. ––––, 137 S.Ct. 809, 196 L.Ed.2d 595 [2017], the recent case from the United States Court of Appeals for the Seventh Circuit, which addressed the enforceability of arbitration agreements prohibiting collective actions. In Lewis, the plaintiff employee agreed to an arbitration agreement mandating that wage and hour claims could be brought only through individual arbitration and requiring employees to waive "the right to participate in or receive money or any other relief from any class, collective, or representative proceeding" ( id. at 1151 ) [internal quotation marks omitted]. The arbitration agreement also included a clause stating that if the waiver were unenforceable, "any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction" (id. ) [internal quotation marks omitted].

The plaintiff later had a dispute with the defendant employer, but did not proceed under the arbitration clause (id. ). Instead, the plaintiff sued in federal court, contending that the employer had violated the Fair Labor Standards Act (FLSA) and state law by misclassifying him and his fellow employees, thereby unlawfully depriving them of overtime pay (id. ). The plaintiff argued that the arbitration clause violated the NLRA because it interfered with employees' right to engage in concerted activities for mutual aid and protection, and was therefore unenforceable (id. ).

The Seventh Circuit denied the employer's motion to proceed under the arbitration clause, declining to enforce a clause that precluded employees from "seeking any class, collective, or representative remedies to wage-and-hour disputes" because the clause "violate[d] Sections 7 and 8 of the NLRA" ( id. at 1161 ). According to the Court, section 7 of the NLRA provided that employees have the right to engage in concerted activities, and concerted activities "have long been held to include resort to ... judicial forums" ( id. at 1152 ) [internal quotation marks omitted]. The Seventh Circuit also found that...