Class Actions Waivers Between Employers And Employees Enforceable

Agreements requiring individual arbitration must be enforced

A recent U.S. Supreme Court ruling helps clarify the legality of employment contracts asking employees to waive rights to class and collective actions.
 
In what will be considered a victory for employers, the justices issued a 5-4 split ruling in late May, holding that agreements requiring individual arbitration must be enforced, giving employers the green light to ask employees to enter into contracts that waive their rights to bring class or collective action employment claims in court.

 
The Supreme Court’s ruling rejects the National Labor Relations Board’s position that class waivers violate federal labor laws.
 
Prior to the court’s ruling, employers have included similar provisions asking employees to waive their class and collective action rights in employment contracts in favor of binding arbitration but faced uncertainty in enforcement. These agreements help employers alleviate the burden of increasingly common class and collective claims that can be an expensive and drawn-out process.
 
Employees often prefer class and collective claims because it expands the plaintiff pool thereby decreasing the legal costs to any one individual plaintiff. The threat of widespread liability to a class may also persuade an employer to take claims seriously early in the process and provide leverage for settlement.
 
Employers still have considerations to make in assessing the practicality of entering into or amending arbitration agreements based on the Supreme Court’s decision.
 
There are several benefits to requiring arbitration and class waivers — most notably avoiding the extreme costs in dealing with class and collective claims. Agreements to arbitrate outside of the class and collective action framework, and outside of the court system, allow the parties to settle disputes in a cost-effective manner. Arbitration is also typically confidential, which means that any resolution will not be publicly reported.
 
Without the risk of costly class litigation, an employer’s employment practice liability insurance premiums could be reduced.
 
However, some employers may decide not to enter into arbitration agreements with class waivers, preferring instead to resolve claims on a class or collective basis because it provides finality. Using this method, an employer does not have to worry about similar claims arising from similarly situated class member employees in the future.
 
Employers should also note that an arbitration agreement generally will not preclude the filing of administrative charges, and may not prevent the Department of Labor, the Equal Employment Opportunity Commission or similar agencies from bringing lawsuits, including class and collective actions on behalf of employees.
 
If an employer decides to require employees to enter into arbitration agreements, it is important to consider state law contract requirements to determine whether new agreements with existing employees can be based on continued employment only or require new consideration such as raises or bonuses. Employers must also decide whether to use standalone agreements or revise written employment agreements to include arbitration clauses.
 
Employers have flexibility to tailor the agreement and should talk through the options with an attorney. For example, employers should think about whether there are any types of employment disputes they want to carve out of agreements to arbitrate.
 
Prior to the Supreme Court’s rulings, these types of arbitration agreements with employees have faced significant legal challenges, with courts and administrative agencies issuing conflicting opinions. Specifically, the 2nd, 5th and 8th Circuit Courts of Appeal found that clauses waiving an employee’s right to pursue class claims and opting for arbitration were enforceable under the Federal Arbitration Act (FAA). The 6th, 7th, and 9th Circuit Courts of Appeal, as well as the NLRB, all found that employers violate the National Labor Relations Act (NLRA) when requiring employees to enter into arbitration agreements waiving their class or collective action rights.
 
This most recent decision helped to rectify the purportedly competing language of the FAA and Section 7 of the NLRA and will have a significant impact on employers’ ability to limit legal exposure for certain employment-related claims going forward and provides clarity on a topic that has created much disagreement among courts and federal agencies.

Author Bio

Kate Dewberry is an associate attorney at Poyner Spruill LLP in North Carolina. Her practice focuses on employment law and litigation. She represents employers in litigation under all federal and state employment laws, including cases involving harassment, discrimination, retaliation, and wage and hour issues. Visit www.poynerspruill.com Connect Kate Dewberry