Statistics released earlier this month by the Administrative Office of the U.S. Courts show an 8.8% increase in the number of Fair Labor Standards Act (“FLSA”) cases in the year ending in September 2014 as compared to the prior year.
This dramatic increase is the result of a variety of factors. First, the law itself has many ambiguities in its terms and definitions. Although the Department of Labor has attempted to reduce ambiguity in its guidance and regulations, many terms and issues are still unresolved and leave open the potential for legal claims. Also, the law is old. Applying a law passed in 1938 to the modern workplace, with drastic advances in technology, can be very difficult and often times leads to confusion. Finally, both employees and the attorneys to whom they may go to challenge a termination are becoming more savvy regarding wage and hour issues. As a result, we are seeing many cases where a terminated employee who comes into an attorney’s office looking to sue for “wrongful termination” walks out with a wage and hour claim – potentially even a class claim.
Employers should continue to review wage and hour practices to make sure that employees are properly classified as exempt or non-exempt and are being paid in accordance with local requirements. In addition, employers with specific concerns about class or collective actions should consider an arbitration program, which would require all claims to be dealt with in arbitration on an individual – not class or collective – basis.
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.