Are Class Action Waivers in Arbitration Agreements Valid? YES! Does Your Company Want to Adopt Them? MAYBE!

On May 21, 2018, in a 5-4 majority decision in Epic Systems Corp. v. Lewis, No. 16-285, the U.S. Supreme Court found class action waivers in arbitration agreements to be valid and enforceable, settling a long-standing split among federal courts of appeals. The decision broadly affirms that class action waivers are enforceable regardless of the nature of an employee's claim, even if the claim is brought pursuant to an employment statute that explicitly provides for a class action. This includes all employment related federal and state class action matters including wage and hour disputes, pay equity and harassment claims, disability, and other discrimination claims.

Next Steps for Employers and HR Professionals with Arbitration Agreements

The decision provides an opportunity for employers and HR professionals to review any of their employment agreements containing an arbitration clause. If you haven't reviewed your employment agreements and handbook policies in a few years, it's important to do so now to bring them up to date. Next step considerations include:

  1. If you currently have agreements with arbitration as the employee dispute resolution forum, determine if you should now include a class or collective action waiver that specifically requires that all claims be brought by employees individually and not jointly;
  2. You should review any policies in your handbook that state that employee disputes are subject to arbitration and ascertain whether these policies are sufficient to ensure arbitration. In many cases, handbook policies concerning arbitration are not enforceable since they do not meet the minimum standards for enforceability under applicable federal and state laws; and
  3. You must consider if your current arbitration agreements and any added class action waivers are enforceable and will withstand a challenge by an employee as to its enforceability based on many factors, including duress or coercion. Arbitration agreements must be in writing, and have certain procedural protections for employees, such as the employee has affirmatively agreed to arbitrate any claims individually and give notice to the employee that they should review the language with an attorney. In addition, the terms of the agreement should be bilateral – both parties are bound by the rules, and the plaintiff should have a means of discovering evidence.

Next Steps for Employers and HR Professionals Considering Using Arbitration Agreements with Class Action Waivers

If your company doesn't currently use arbitration agreements with or without a class action waiver, you should not jump to use them without careful analysis of the following pros and cons of arbitrating employment disputes. For example, the most important consideration may be that there is no jury trial with arbitration. In addition, you should consider that arbitration is usually faster, cheaper, more private, more flexible and is not subject to the more convoluted rules of evidence and procedure of court litigation.

There are downsides, however, including that arbitration is subjected to limited review and that recourse after an adverse decision is very limited. Litigation procedures, such as summary judgment motions and other dispositive motions are rarely used in arbitrations, and arbitrators often admit evidence that would be excluded at trial, such as hearsay. In addition, arbitrations lately have become more costly, lengthy, and less private, as there is no recourse if plaintiffs resort to the internet and/or social media to publicize their cases. Other considerations include:

Do the employee claims that your company typically encounters involve class actions? If your company employs a large number of non-exempt workers (i.e. eligible for overtime and other protections under wage and hour laws which are typically litigated with a class action), a class action waiver may be useful;
If arbitration agreements and class action waivers are used in employee agreements will they impact morale and work productivity? If so, it may be appropriate to use only for certain positions.
Are other companies in your industry asking employees to sign arbitration agreements and class action waivers? If not, how will it impact your recruiting and retaining talent if you have such a requirement?
The time to revise or implement the arbitration provisions and class action waivers may be more seamless if done with updated employee handbook distribution or at annual compensation reviews

Careful Consideration | State Laws and More

The Supreme Court has taken an expansive view of the Federal Arbitration Act and would likely uphold the use of class or collective action waivers in the context of a variety of federal statutes beyond the Fair Labor Standards Act, including with respect to claims under Title VII of the Civil Rights Act of 1964.

However, some laws expressly prohibit the use of arbitration to settle disputes. Retaliation claims under The Sarbanes-Oxley Act of 2002 cannot be adjudicated via arbitration, and certain Department of Defense contractors and subcontractors cannot enter into or enforce these agreements with their employees under the Franken Amendment.

New York State recently passed a law prohibiting mandatory arbitration for sexual harassment complaints. In addition, Maryland has now passed a law prohibiting employment agreements from including any provision that waives any substantive or procedural right or remedy to a future claim of sexual harassment. That said, these laws do not ban arbitration for all employment matters.

Additionally, Congress still may amend legislation concerning the Federal Arbitration Act and how broadly arbitration and class action waivers can be used for employment matters. Excelerator will keep you informed about amendment such as these, if they occur.

You should closely consider the state arbitration laws that impact your company.

Excelerator's Guidance

Excelerator provides HR advisory services supported by our HR professionals and internal team of attorneys to assist with an analysis to determine if an individual arbitration agreement and class action waiver is the best option for your company based on types of employee disputes you are at risk for and employee population.

Particularly with wage and hour class actions, we can assist in analyzing if the arbitration agreement and class action waiver can limit the risk of these expensive actions.

We also offer guidance on how to draft employee handbook policy concerning arbitration agreements, set electronic acknowledgement procedures to verify that employees have agreed to arbitration procedures, and provide education for management to provide the appropriate message to employees that arbitration is not bad for them.

Reach out to us to learn more.

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