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Wage and Hour: Arbitration Agreements with Class Action Waivers

Tue January 1, 2019 Publications

Earlier this year, the U.S. Supreme Court approved the use of class action waivers of wage and hour claims in arbitration agreements between employers and employees. Epic Systems Corp. v. Lewis, 548 U.S. ___, 138 S. Ct. 1612 (2018). The Supreme Court stated:

In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. Each employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its “savings clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreement here violated the National Labor Relations Act. The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRB demands a different conclusion.

Until recently, courts as well as the National Labor Relations Board’s general counsel agreed that such arbitration agreements are enforceable. In 2012, however, the Board ruled that the NLRA effectively nullifies the Arbitration Act in cases like these, and since then other courts have either agreed with or deferred to the Board position.

Held: Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s savings clause nor the NLRA suggests otherwise.

While class action waivers might help employers avoid class claims worth millions of dollars (workplace class action settlements totaled over $2.72 billion in 2017, individualized arbitration could be the employer’s “death by a thousand paper cuts.” But managing small recovery individualized arbitration cases on a contingency basis is also a lot work for a plaintiff’s-side attorney.

Will class action waivers limit wage and hour claims? That has not happened yet. Stay tuned. Meanwhile, for 2019, employers should consider arbitration provisions with class action waivers.

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