On Friday, the U.S. Court of Appeals sitting in New York handed down its decision in Sutherland v. Ernst & Young, giving employers yet another leg up in enforcing requirements that their employees forego class actions and pursue their claims individually in arbitration.
Since the Supreme Court’s decision two years ago that a class action waiver in an arbitration agreement was enforceable (which, practically, means that a party can avoid class actions if it’s agreed to in advance in an arbitration agreement), plaintiffs’ attorneys and government agencies have been trying to find exceptions to the Court’s holding in the employment context. The three primary arguments have been (1) that the National Labor Relations Act gives employees an unwaiveable right to participate in collective litigation, (2) that the Fair Labor Standards Act’s special provisions for collective (opt-in) actions trump the Federal Arbitration Act, and (3) that plaintiffs can’t be required to arbitrate individually if their claims are so small that individual actions are impractical. The third of these arguments was rejected by the Supreme Court this June in the Amex decision. In the Sutherland decision last week, the Second Circuit Court of Appeals joined the majority of courts in rejecting the first and second arguments as well.
What does this mean for your business? It means that you should seriously consider implementing a mandatory arbitration policy that requires individual arbitration of employee claims. Arbitration isn’t perfect – and a requirement that cases be arbitrated individually could be turned against an employer if a large group of employees each files an individual claim – but in many cases the downsides of arbitration are far outweighed by the ability to avoid class actions.