The Modern Workplace

Given a recent uptick in court rulings enforcing class action waivers, it may be time to revisit whether your company prefers to resolve disputes with employees in court or through arbitration. Class action waivers in arbitration agreements have been gaining in popularity with employers since the U.S. Supreme Court upheld an arbitration clause containing a class-action waiver in the AT&T Mobility v. Concepcion case in 2010 and again this year in the American Express Co. v. Italian Restaurants case. These Supreme Court cases involved consumer disputes, but numerous employers responded to the rulings by requiring employees to enter into arbitration agreements waiving the right to go to court and to participate in class-based court or arbitration proceedings. By requiring employees to arbitrate claims on an individual, rather than a class or collective basis, employers hope to avoid the substantial expense and time associated with the rise in employment class action litigation over the years.

There has, however, been some continued uncertainty as to whether employers can obtain a fully enforceable waiver of an employees class action rights.  The federal National Labor Relations Board, which enforces federal labor law, has issued a number of high-profile, controversial rulings in recent years.  Among those rulings, the NLRB held, in D.R. Horton, that a class waiver under the federal Fair Labor Standards Act (FLSA) was unenforceable, because federal labor law gives non-management employees the right to engage in protected concerted activity, including collective legal actions.  Following the D.R. Horton ruling, employers were not certain how courts would respond to class action waivers, particularly waivers that encompassed wage and hour claims under the FLSA.

As of this month, however, the majority of federal courts to address class action waivers since D.R. Horton have upheld those waivers. Earlier this year, we posted about the Eighth Circuits decision in Owen v. Bristol Care, enforcing a mandatory arbitration agreement that included a waiver of FLSA class action rights. This month, two more federal appellate courts joined the Eighth Circuit in declining to follow D.R. Horton. The Second Circuit Court of Appeals issued a ruling in Sutherland v. Ernst & Young, enforcing a class action waiver under the FLSA, and, last week, the Ninth Circuit Court of Appeals issued a unanimous ruling in Richards v. Ernst & Young that rejected the D.R. Horton approach. Numerous federal district courts have also declined to follow D.R. Horton and have enforced mandatory arbitration agreements containing class action waivers.

Despite these victories, some caution is still warranted. Not all jurisdictions have weighed in on the NLRBs position in D.R. Horton, leaving some uncertainty for employers outside the Second, Eighth, or Ninth Circuits. In addition, the NLRB is standing by its position in D.R. Horton, and, just this month, an administrative law judge found that an employer violated federal labor law by requiring a mandatory class waiver arbitration agreement from employees.

So far, however, the trend in the courts has been to uphold these waivers. In deciding whether your company is interested in requiring arbitration agreements that include class action waivers, you will want to carefully weigh the pros and cons of arbitration. There are numerous advantages to arbitration, including, first and foremost, the possibility of avoiding highly expensive class claims. Other advantages over litigation in court can include avoiding unfavorable court jurisdictions and the potential for cost savings, greater efficiencies, and greater confidentiality of the proceedings. There are, however, also disadvantages to arbitration. Arbitration is not always less costly or faster than court proceedings, and appeal rights from an arbitration ruling are significantly more limited than from a court proceeding. In addition, while courts are increasingly willing to enforce arbitration agreements, arbitration provisions must be carefully drafted, must be even-handed, and must not require employees to incur excessive arbitration fees that may preclude the filing of a claim. 

Depending on your company's size, industry, and particular employment law risks, arbitration agreements may or may not be the right choice, but the growing buzz around the potential benefits of arbitration agreements and the trend in increased enforceability may warrant a closer look.