Arbitration Agreements & Class Action Waivers. Just Because You Can Doesn’t Mean You Should

Chances are that you've heard about the US Supreme Court's decision that employers are free to not only require employees to sign an agreement mandating that all employment disputes go to binding arbitration rather than courts but that employers are also free to include class action waivers in those arbitration agreements.  As a result, Epic Systems Corp. v. Lewis, 584 US ____ (2018), is being extolled as a boon to employers and experts predict that many more employers will adopt mandatory arbitration agreements.  However, just because employers can seek mandatory arbitration agreements from their employees doesn't necessarily mean that they should.

Don't get me wrong.  Arbitration certainly holds benefits for employers, the most significant being privacy.  Arbitrations are private proceedings, conducted out of the public eye (and news headlines) that can come with a lawsuit in state or federal court.  Individual arbitration is also most definitely speedier than litigation and less costly than a class or collective action lawsuit.

However, arbitration may not necessarily be less costly than individual litigation.  The American Arbitration Association and JAMS rules for employment arbitration provide for a very similar process – from discovery to dispositive motions – as litigation.  While arbitration may be speedier to reach a resolution than litigation, it may not necessarily come with the cost savings one might expect.  Speed alone is not necessarily a benefit to the employer.  To the contrary, an employer is typically in a better position to wait out a decision than an individual employee.

Plus, arbitration decisions can be appealed only in very limited circumstances, which is a benefit only if you are on the winning side.  If not, or, if the arbitrator issues a decision which “splits the difference” (as many lawyers believe arbitrators routinely do), then limited appeal rights are most definitely a risk.

Against this backdrop, then, each employer should evaluate its risk profile, culture and values, as well as the disruption to the workforce, to determine whether mandatory arbitration is the right solution for its workplace disputes.

Does Your Risk Profile Warrant Arbitration Agreements?

A large, national employer juggling compliance with multiple local, state and federal laws is definitely a bigger target for class or collective actions.  But, depending on the industry, even small or regional employers can be targets for certain types of class action claims, such as wage and hour collective actions.  In those cases, individual arbitration agreements can be an effective tool to manage the risk (though defending a deluge of individual arbitration demands could be costly).

Is Arbitration Consistent With Your Organization’s Culture and Values?

If your organization, for example, says that transparency is a core value then requiring your workforce to submit their disputes to arbitration might undermine your commitment to that ideal given the private nature of the process.  If your organization has just reinforced its commitment to providing a work environment free of harassment in response to the #MeToo movement, then a broad arbitration agreement that does not exclude harassment and discrimination claims, may be perceived as hypocritical.

What Type of Disruption Will It Cause In Our Workplace?

Employers are not going to have an enforceable arbitration agreement by just adding a policy to their handbooks and going under the radar.  It’s more likely that each new hire or current employee will have to sign a separate arbitration agreement as a condition of employment.  For new hires, this means that employers must be prepared to withdraw the offer and not hire the candidate if they refuse to sign the agreement.  It also means that employers must be prepared to terminate the employment relationship if a current employee refuses to sign the agreement.  If you’re not prepared to do either, then you may want to consider other options, such as rolling the agreements out at the time of a bonus payment or other benefit to secure the agreement.  You might even consider limiting the pool of employees you have execute the agreements to the most senior level.

There is never a one size fits all solution for employers and arbitration agreements are no different.  There are significant benefits that come with Epic Systems, however, and employers should be taking the time to evaluate whether arbitration agreements are right for their workplace.

About The Author

Lynn Reynolds |