As a follow up to our post last year, this week, in a 5-4 decision, the Supreme Court rejected the National Labor Relations Board’s position that class waivers in arbitration agreements violate federal labor law. The Court held that employers can legally require their employees, as a condition of employment, to agree that they will not pursue class action claims against their employers, but rather address legal issues through individual arbitration.
Writing for the majority, Justice Neil Gorsuch stated simply that, “The [Federal] Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select.” In support of the decision, he compared the “simplicity and inexpensiveness” of arbitration to “slower, more costly” class actions, which are, in the view of the majority, “more likely to generate procedural morass than final judgment.”
The effects of the decision remain to be seen – Justice Ginsberg read her dissent from the bench, calling for Congress to address the matter. For now, though, employers with arbitration agreements in place will want to add a class-action waiver, and those that do not use arbitration agreements at all may want to reconsider that approach.
Last month, the Supreme Court agreed to resolve a circuit split over whether class action waivers — mandating that any claims brought against the employer be brought individually rather than as a class — contained in employment arbitration agreements violate employees’ rights under the National Labor Relations Act. The Court recently announced that it would decide the highly-anticipated case in its 2017 term, beginning in October. Both the Seventh and Ninth Circuits have struck down class action waivers in arbitration agreements. The Fifth, Second, and Eighth Circuits have held the opposite. We will update when the Supreme Court has made its decision. In the meantime, companies should consider the rule in their circuit before rolling out new employment arbitration agreements.
As we have blogged about before (see related post links below), the EEOC has said one of its priorities is to challenge separation agreements that, in its view, interfere with the ability of employees to file charges with the EEOC or participate in investigations.
On December 2, the EEOC’s efforts in this area took another hit. A Colorado judge tossed out the EEOC’s claims against CollegeAmerica Denver Inc. relating to the company’s separation agreements, although the judge permitted the EEOC’s claims of retaliation to move forward. EEOC v. CollegeAmerica Denver Inc. The court ruled that the EEOC had not made an adequate effort to conciliate the claims relating to the separation agreements.
Earlier this year, a similar case against CVS also was dismissed on other grounds before the court addressed the separation agreement issue. The EEOC recently appealed the CVS decision to the 7th Circuit.
And it’s not just about separation agreements anymore either; in September, the EEOC sued Doherty Enterprises for using pre-employment arbitration agreements that allegedly interfered with the rights of employees to file charges and participate in investigations. EEOC v. Doherty Enterprises Inc.
Though the EEOC hasn’t had much success in court to date, companies should review their separation and arbitration agreements to ensure that they carve out employee rights relating to the EEOC process. Otherwise, they risk ending up in the EEOC’s cross hairs.
On March 21, 2014, the Eleventh Circuit Court of Appeals (which covers Alabama, Florida, and Georgia) became the fifth federal circuit court to reject arguments against arbitration agreements containing class waivers, joining the Eighth, Second, Fifth, and Ninth circuits in enforcing such agreements.
In the Eleventh Circuit case (Walthour v. Chipio Windshield Repair), employees brought a class action alleging their employer violated the Fair Labor Standards Act by not paying them required minimum and overtime wages. The defendants moved to compel arbitration, citing agreements the plaintiffs had signed which stipulated that all employment disputes were to be resolved through individual arbitration. In the end, the court sided with the employer and the lower court, ruling that the arbitration agreements were enforceable and that the class action could not move forward.
As discussed in our earlier post Tide Continues in Favor of Class Action Waivers in Arbitration Agreements, more employers are using these types of agreements to reduce the risk of class claims. The Walthour decision continues a trend of court cases in favor of the agreements.
There are advantages and disadvantages to arbitrating disputes with employees, but for employers that fear class claims, either because of the nature of their workforce or their industry, arbitration agreements can make a great deal of sense.
In a long awaited decision in the D.R. Horton case, the 5th Circuit Court of Appeals ruled yesterday that an employer was within its rights to require employees to sign an arbitration agreement that mandated individual arbitration (i.e. not allowing for class claims). The National Labor Relations Board had taken the position that employees’ right to engage in concerted activity means that they cannot waive their right to participate in class or collective litigation or arbitration. The court disagreed, finding that the Federal Arbitration Act required that the arbitration agreement be enforced as written. This is a significant win for employers that seek to avoid class and collective actions by requiring employees to sign arbitration agreements that require that claims be brought individually. Employers using or considering such agreements should take heed, though, at the court’s finding that arbitration agreements need to make clear that they do not prohibit an employee from filing charges with the NLRB.
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.