A Primer on Class Action Waivers
The term “class action waivers” has been in the news a lot lately. Employers are well advised to understand why; and more importantly, the practical workplace implications of that particular description.
What exactly are class action waivers? Basically, they are agreements by which employees waive their right to pursue legal claims in the same lawsuit with other employees. It’s important to recognize the context in which these waivers typically occur. Class action waivers usually do not stand alone. Rather, they are customarily found in broader agreements by which employees also agree to resolve their claims through an informal arbitration process, rather than courts of law.
The primary emphasis of these types of agreements is quick and cheap dispute resolution of individual claims. The related goal is prevention of more complex class actions. It’s generally much easier and far less expensive to informally resolve individual employment claims through arbitration rather than defend individual or class action lawsuits in traditional litigation.
The authorization for arbitration as an alternative to formal litigation dates all the way back to 1925 in the Federal Arbitration Act. Back then, Congress decided that employers and employees should be encouraged to resolve disputes informally, through arbitration, rather than exclusively through the court system. That’s why arbitration provisions are included in most union contracts.
Highlighting the potential value of arbitration agreements and class waivers in recent decades is the dramatic rise in class action lawsuits, particularly under the Fair Labor Standards Act. Plaintiff’s attorneys have become skilled at identifying and recruiting claimants who allege they were improperly denied overtime pay, or perform work “off the clock.” Sometimes, a collection of individuals allege they are bona fide employees who’ve been misclassified as independent contractors, as in the massive Uber driver dispute.
Employers countered the class action phenomena by introducing class action waivers to their standard arbitration agreements. Some federal courts approved. Conversely, the National Labor Relations Board (NLRB) reached the opposite conclusion. According to the NLRB, employees have a non-waivable right to collectively pursue their claims in class actions, regardless of whether they agree otherwise in an arbitration agreement.
The disagreement between the federal courts and the NLRB continued for several years, culminating in an appeal to resolve the conflict in the United States Supreme Court. Earlier this year, the Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 138 S Ct. 1612 (2018). The media watched closely, and reported the outcome.
Employers won. Per the highest court in the land, employers can now agree with employees to preclude class action lawsuits in favor of individual dispute resolution in arbitration.
Notwithstanding the Supreme Court’s newly published clarity, some employers are still grappling with practical, unanswered questions. For some, the Epic decision affords the opportunity to avoid obvious risk. For others, the advantages of this option are far less clear, and may not exist at all.
For example, a large employer with a well-defined historic pattern of being repeatedly sued may easily favor arbitration agreements, and class action waivers. With or without them, they will be forced to defend, again and again. The only question is how and where? Better to funnel those disputes through informal, individual arbitration than battle an ongoing stream of more costly individual or class action lawsuits.
On the opposite end of the spectrum are small organizations, or even larger employers, who rarely or never get sued. In that group, giving employees the right to arbitration, with or without class action waivers, may actually increase the number of legal disputes, and related defense costs. Remember, employees in most organizations are far more likely to tap into an easily accessible arbitration process than hire an attorney and engage in traditional litigation.
Yet even the rarely sued employers suffer mightily with just a few lawsuits generating painful defense costs, even when they win. Plaintiffs lawyers, like sharks, circle and attack vulnerable targets, especially those that are already bleeding from battle. Arbitration looks much more attractive after a single, bad litigation experience. That’s why the analysis of the value of arbitration agreements can sometimes be tricky, even for rarely sued employers.
If you are an attractive target for plaintiff’s lawyers, especially for FLSA claims or independent contractor disputes, it may be time to take another look at arbitration agreements, and class action waivers. The Supreme Court has now affirmed their legality. As the saying goes, “an ounce of prevention is still worth a pound of cure.”