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High court to decide fate of class action waivers
SHERRY KARABIN
Legal News Reporter
Published: October 18, 2017
Are class action and collective action waivers in which employers require workers to resolve employment-related disputes through individual arbitration and waive their right to do so through class and collective proceedings enforceable?
That’s what the U.S. Supreme Court will decide after the circuit courts failed to agree on an answer.
On Oct. 2, the justices heard oral arguments in three consolidated cases that deal with the enforceability of waivers (Epic Systems Corp. v. Lewis, Ernst & Young, LLP v. Morris, et al. and National Labor Relations Board v. Murphy Oil USA, Inc.) known as Epic Systems Corp. v. Lewis.
The cases pit two federal laws, the Federal Arbitration Act (FAA) and the National Labor Relations Act, against one another.
The FAA states that arbitration agreements “shall be valid, irrevocable, and enforceable,” while Section 7 of the NLRA protects the rights of workers to engage in “concerted activity” for their “mutual aid or protection.”
Richard Millisor, a partner in the Cleveland office of the management-side labor and employment law firm Fisher Phillips, said the high court will have to decide whether “the NLRA protects the right to pursue class actions and collective actions in state and federal courts and, if so, whether the policies underlying the FAA trump the NLRA.
“The Supreme Court has already ruled that arbitration agreements that contain class action waivers are enforceable in the commercial context,” said Millisor. “The question as to whether they are enforceable in the employment context is very important to employers, especially large and mid-sized companies.”
In addition to increased exposure, Millisor said class action lawsuits generally cost companies much more in legal fees and time spent defending against the actions than individually arbitrated disputes.
“In my view, arbitration agreements are good for both employers and employees,” said Millisor. “The disputes are generally resolved much quicker and the decision is very difficult to appeal.
“Traditional jury verdicts can take years to resolve and may be overturned,” he said.
Millisor said one significant benefit to employees and employers is that these disputes are not public.
“This prevents employees from being concerned that asserting a claim against one employer may adversely impact their future employment opportunities with other employers.”
In addition, Millisor said the costs of arbitration, except for the employee’s own attorney’s fees, must be borne by the employer.
While the specific circumstances in the three cases heard by the high court were different, they all dealt with the enforceability of class action/collective action waivers.
The 2nd, 5th and 8th circuits ruled that the waivers are enforceable, while the 6th, 7th and 9th circuits held they are not.
Olivia Hochschwender, an associate at Kastner Westman & Wilkins, said the Department of Justice has switched sides in the matter under the Trump administration.
“The DOJ was initially representing the NLRB at the Supreme Court on the issue of whether the waivers violate Section 7 of the National Labor Relations Act,” said Hochschwender. “Now the DOJ has flipped flopped and actually has filed an amicus curiae brief in support of the employers.”
Rachel Reight, a partner at Baasten-McKinley & Co, who represents employees, argues that class actions provide advantages for both employers and employees.
She said allowing class action challenges provides employers with more accountability since they know a class action may be a potential outcome of violations and “can reduce costs to employers by enabling employers to defend the same issue once as a class action, as opposed to defending numerous individual claims over the same issue.
“Whereas, mandatorily eliminating the ability of employees to bring collective claims pre-dispute would essentially prevent employees from pursuing many employer violations,” said Reight. “Oftentimes, it is cost prohibitive to file an individual claim against an employer, especially if that claim is a wage-and-hour suit in which damages are limited.
“Additionally, I believe that the waivers violate employees’ rights under the NLRA to engage in ‘concerted activities.’ I believe that if the Supreme Court sanctions the use of class action waivers, we will see an open floodgate of inclusion of these class action waivers in employment agreements.”
But Millisor disagrees.
“Currently based on published estimates by one think tank, only about 25 million employees are subject to arbitration agreements with class waivers, which is only one in four nonunion employees, and this estimate likely overstates employers’ use of arbitration agreements with class action waivers,” said Millisor.
“While I believe arbitration agreements make sense for employers and employees in most workplaces, these agreements are not a panacea for employers since companies do have to pay for the arbitration costs, the agreements cannot limit remedies, such as liquidated and punitive damages, available to employees and both sides are guaranteed a neutral decision-maker.
“If things do not go the employer’s way, it’s almost impossible to reverse the award,” he said.
Additionally, he said under the Fair Labor Standards Act, a prevailing plaintiff obtains his/her legal fees, “which will continue to provide an incentive for plaintiffs-side lawyers to pursue low-damage individual wage-and-hour claims, even if they cannot do so as part of the class or collective action.”
Hochschwender said “here at KWW we have noticed that employers with high volumes of employees tend to use the waivers more than others.
“In particular skilled nursing and home health franchises as well as food service franchises use the waivers more than others.”
If the Supreme Court does decide that they are enforceable, Millisor said there would likely be a significant uptick in the use of arbitration agreements containing class action waivers. However, he said “many businesses will still shy away from binding and mandatory arbitration.”
While no one can predict what the high court will decide or when, Reight said it will be interesting to see how Justice Neil Gorsuch rules.
“In reviewing NLRB v. Community Health Services, Inc., one of his most recent decisions involving the NLRB, then-Judge Gorsuch in his dissent found the NLRB overreached by failing to deduct interim earnings in calculating back pay for hospital employees whose hours had been unlawfully reduced.”
However, she said Justice Gorsuch has deferred to the NLRB in previous cases as well, such as in Teamsters Local Union No. 455 v. NLRB.
“If the court finds that class action waivers are enforceable, I would advise employees bound by such agreements to seek legal counsel right away on how they should proceed should problems arise,” said Reight.