Does your business need a collective-action waiver?
NOTHING NEW HERE: The recent arbitration ruling by the Supreme Court generally mirrors employment arbitration rules already in effect in Baton Rouge. (Photo by The Associated Press)
Picture this: You’re CEO of a Baton Rouge area company employing some 250 people. About 30 of your employees decide they’ve been working too much overtime and have not been properly compensated for it. They want to take you to court. What happens next?
In short, it depends on whether or not the company has a class- or collective-action waiver in its employee arbitration agreement. If not, you might be facing a collective-action lawsuit.
So it would seem simple: Add the waiver and let an arbitration panel quietly decide the matter. That seems to be the takeaway from a recent Supreme Court ruling, where it decided companies across the country can use arbitration clauses in their employment contracts to prohibit workers from banding together to take legal action over workplace issues.
While the United States Court of Appeals for the Fifth Circuit—the lower court governing Baton Rouge and other parts of Louisiana and Mississippi—already had this rule in effect, the court’s decision confirms that this law is here to stay, at least, for the time being, says attorney Tom Peak, a partner at Taylor Porter who specializes in employment and labor law.
The ruling also sheds light on another issue: whether or not companies should even have these waivers in their arbitration agreements.
Opponents of the court’s decision, including Justice Ruth Bader Ginsburg in her dissent, say class-action suits allow employee plaintiffs to pool together enough resources to make them more attractive clients for attorneys. Taking collective action, they add, also quells fears of employer retaliation.
Whether you’re an employer or an employee, class-action waivers will matter to you if there’s a lawsuit involved. Here’s what you need to know:
The Fifth Circuit already had this ruling in place; why should I care now—as an employer or an employee?
There was always a lingering concern the higher court might reverse the Fifth Circuit’s decision, says Peak, especially under left-leaning administrations that were more employee- and union-friendly. The decision tilts the scales in the direction of business.
“As long as the court retains its composition, that possibility (of a reversal) no longer exists,” Peak says. “To me, everybody is served by predictability.”
Beth Liner, an employment and labor litigation associate in Baker Donelson’s Baton Rouge office, says the decision will yield local effects, such as more employers adding these types of waivers in their arbitration agreements.
“Long-term, I would anticipate seeing a decline in the number of class actions that are filed,” Liner says. “However, that’s not guaranteed.”
Plaintiff attorneys, she predicts, may well push back, finding other ways to “attack” these types of class-action waivers. Still, roughly half of all employers across the country have class-action waivers in their arbitration agreements, and Liner believes the adding of such agreements will ripple into employee manuals across the Capital Region.
Some see the ruling as a loss for employees, particularly for those in unions. By rejecting the National Labor Relations Board’s position that class-action waivers violate federal labor law, the Supreme Court’s decision could make tackling issues with overtime pay and minimum wage more difficult for dissatisfied workers.
“Our workers may see a reduced capacity to complain about workplace conditions,” says Amy Newsom, an attorney at Newsom Law Firm who specializes in business and employment law.
Unionized plants in the Baton Rouge area, which faced the biggest stakes should the Fifth Circuit’s ruling be overturned, are most likely to be impacted.
Regardless, Liner says local employees entering into these agreements should know they still have the ability to take a dispute to arbitration individually, regardless of how small the issue, averting a “drawn-out” litigation process.
“We’ve seen an uptick in wage and hours class- and collective-action claims.”
KELLEN MATHEWS, litigation attorney, Adams and Reese, on the need for restaurant owners to consider adding class action waivers to their arbitration agreements
I’m an employer; should I add a class-action waiver to my arbitration clause?
Most lawyers say it boils down to one question: How likely are you to get sued?
Dig deeper: Do you have enough employees to even worry about the possibility of a collective-action lawsuit? Do you have regular disputes with employees that become costly quickly?
These are questions CEOs and other company heads must answer honestly, says Liner, before drafting a class-action waiver in their arbitration clauses. If the answer to these questions is “yes,” then “they should probably grab a pen now,” she says.
But remember, this is the law we’re talking about, so proceed with caution. “People drafting these agreements need to be explicit and clear about what the parties are agreeing to do and what they’re not agreeing to do,” says Jennifer Anderson, a labor and employment attorney for Jones Walker.
She adds class-action waivers should include language specifying that employees who might later wish to file suit are not only agreeing to waive their right to collective action, but are also agreeing to proceed on an “individualized, bilateral basis.”
A significant mistake Anderson most often sees is a company putting an arbitration clause in an employee handbook when that handbook has a disclaimer saying, “This is not a contract. You are an at-will employee.” Most do.
Employers can’t place arbitration provisions in something that’s not a valid contract. The best way to ensure the contract is valid, Anderson notes, is for it to be a standalone agreement that both parties sign.
Kellen Mathews, a litigation attorney and partner at Adams and Reese, notes CEOs of larger companies aren’t the only professionals who should consider placing class-action waivers in their arbitration agreements. The hospitality industry—restaurants, especially—should consider adopting these contracts, he says.
“We’ve seen an uptick in wage and hours class- and collectiveaction claims,” Mathews says, adding that he’s handled some in Baton Rouge across various industries.
Employers should also weigh the pros and cons of arbitration in general before making a final judgment call.
The main benefit to arbitration, as opposed to litigation, is the lower costs, more streamlined process and increased control over the decision-maker, Peak says, since the parties typically pick the arbitrator via a contractually agreed upon process, as opposed to having a judge randomly assigned to the dispute.
Arbitration also offers companies more privacy, says Anderson, who has had clients whose cases were covered by the press. But there is a downside.
“What I’ve seen happen in cases is, if you have a class-action waiver in your arbitration agreement and you would have had 150 people in one federal court case, they all have to go to individual arbitration, so you’ve just gotten 150 individual arbitrations,” Anderson says. “I call it squashing a pregnant spider.
“Can you imagine having 150 trial dates, back to back?”
The bottom line: The Supreme Court’s decision saved employment arbitration as Baton Rouge already knew it. Now it’s up to local companies to decide what that means for them.