Supreme Court Upholds Agreements that Compel Individual Arbitration of Employment Claims

There is little doubt that wage and hour class or collective action lawsuits are one of the biggest risks facing employers in a variety of industries. Many businesses hope to use agreements compelling employees to arbitrate claims on an individual basis as a means to limit some of that risk. Earlier this week, the United States Supreme Court, in Epic Systems v. Lewis, ended years of debate over the legality of these waivers. These agreements, however, are not without risk of their own so they should be carefully considered before employers force them upon their employees.

The Supreme Court first took up the issue of class action waivers in a 2011 consumer case, AT&T Mobility v. Concepcion. It held that a business could compel a group of individuals to waive their right to file a class-action lawsuit and instead arbitrate their collective dispute. Employers rejoiced, believing that they finally had a solution to the scourge of wage-and-hour class actions.

The National Labor Relations Board, however, had different ideas. In its seminal 2012 decision, D.R. Horton Inc., the NLRB held that an agreement compelling the individual arbitration of employment claims “unlawfully restricted employees’ Section 7 right to engage in concerted action for mutual aid or protection,” and held that the employer violated the Act “by requiring employees to waive their right to collectively pursue employment-related claims in all forums, arbitral and judicial.” In the years since it decided D.R. Horton, the NLRB invalidated many similar arbitration agreements and class-action waivers.

On appeal, however, not all federal circuit courts have been kind to the NLRB’s stance on this issue. The Fifth Circuit overturned D.R. Horton itself, while other circuits sided with the NLRB, thereby creating a split within the various circuit courts across the country.

The Supreme Court has now had the final say. In Epic Systems v. Lewis, in a narrow, 5-4 partisan decision, the Court concluded that “arbitration agreements providing for individualized proceedings must be enforced,” and upheld class and collective action waivers as lawful under the NLRA.
Before you jump your business onto the individual arbitration bandwagon, think through the goals you hope to achieve by sending your employees to arbitration.

One possible goal is that arbitration takes cases out of the hands of unpredictable juries. Yet, if that is your goal, instead consider a jury trial waiver. These waivers not only eliminate the risk of runaway juries, they also preserve appeals. Following an arbitration, the losing party may appeal the arbitrator’s decision only in very limited circumstances, and with a very low rate of success. Bench trials, on the other hand, are appealable for a variety of reasons, and you have waived nothing (other than a jury) merely by contractually electing a judge as the trier of fact.

The other commonly articulated goal employers hope to achieve via arbitration is lower litigation costs. Arbitration, however, is often as expensive, if not more expensive, than litigation. Arbitrators allow employment plaintiffs to engage in discovery that is as expansive (and expensive) as that which courts permit. Additionally, employers have to add into the equation the cost to file the claim, which the employer usually shares, or bears entirely. Moreover, your costs will also include the arbitrators’ time (at their customary hourly rate), including all pre-hearing conferences, discovery and motion practice, the actual hearing time, and the drafting of the opinion. It is not hard to understand how, in many cases, the defense costs associated with arbitration outweigh defense costs in a traditional court proceeding. These costs could increase exponentially if you are arbitrating dozens, or hundreds, or even thousands of individual claims instead of one class or collective action.

Individual employment arbitration of class or collective actions may, or may not, be the correct path for your business. To determine how your business should react to Epic Systems v. Lewis, contact one of our Labor and Employment lawyers:

Seth Briskin, 216-831-0042 ext. 141,
Jon Hyman, 216-831-0042 ext. 140,
Lester Armstrong, 216-831-0042 ext. 161,