April 21, 2015

Employers seeking ways to limit liability in employment-related disputes should consider adopting binding employment policies or agreements that include the following elements: 

  • The employer and employees agree to resolve all disputes through arbitration rather than litigation
  • The employees waive their rights to bring any litigation as a class action

In recent years, the United States Supreme Court has consistently moved toward enforcing arbitration agreements in most commercial contexts, including employment-related disputes. (See https://www.muchlaw.com/knowledge-center/article/class-action-waivers-should-employers-be-adopting-them-their-employment-agr.) Arbitration of such employment-related disputes generally takes less time and costs less money, especially if the parties choose an appropriate arbitration firm that has adopted far more streamlined discovery and hearing practices than are available in federal and state courts.

Courts that have considered the issue generally enforce voluntary agreements between employers and employees requiring employees to waive class action rights as part of a mutual agreement between the employer and employees to arbitrate any employment-related disputes.

Advantage: Arbitration
Employers have increasingly faced overtime cases, other wage and hour disputes, and discrimination claims brought either by individual employees or by employees as a class. Litigating these issues in court can prove incredibly time-consuming and expensive. But by requiring such disputes to be arbitrated and prohibiting them from being brought as class actions, employers can minimize the time and expense involved in such litigation.

Employers considering adopting such binding policies or requiring employees to sign such separate agreements should also require arbitration of any disputes brought by the employer against employees. Reciprocal arbitration obligations are important to enforceability of such policies and agreements.

It is important to note that not all types of disputes brought by employees against the employer are subject to arbitration. For example, an employee could still bring workers compensation claims before the state agency that handles such issues, and could still bring discrimination charges before the Equal Employment Opportunity Commission (EEOC) or before comparable state agencies, even though the employee might not be able to recover any money if the EEOC or state agency pursues a discrimination complaint against the employer. But, as a whole, most arbitration policies or agreements will prove enforceable.

Class Action Waivers Can Also Lower Costs and Risks
Class action waiver provisions in such binding arbitration policies or agreements generally bar employees from bringing any wage and hour, discrimination or other types of lawsuit as a class action, and require each employee to separately arbitrate such claims. Although the thought of separately arbitrating scores — or perhaps hundreds — of essentially identical disputes brought by employees sounds daunting, in reality, this rarely happens. Usually, only a few highly motivated employees will pursue such actions through arbitration. Class action waivers prevent the less-motivated employees from jumping on the bandwagon and increasing litigation costs, costs of settling any possible cases, and costs associated with any verdicts against the employer.

Implementing Enforceable Waivers
Employers considering limiting their arbitration and class action risks must consider the best way to implement such a system. For current employees, employers can consider adopting a policy in their employee handbooks containing such provisions, but must also make it expressly clear that unlike almost every other policy in the handbook (which employers generally do not want to constitute a binding contract with their employees), the arbitration and class action waiver clause must state that it is binding, enforceable, and cannot be changed by the employer. 

Further, any language in the employee handbook saying that nothing in the handbook constitutes an enforceable contract would need to contain an exception for the arbitration and class action waiver policy. And appropriate language above the signature line should remind the employee that the arbitration and class action waiver provision is binding and enforceable.

Employers can also consider asking existing and new employees to sign a separate agreement containing such arbitration and class action waiver clauses.

Not all federal and state courts have ruled on the enforceability of such arbitration and class action waiver provisions, so enforceability is certainly not guaranteed. But given recent court decisions on such issues over the last several years, the probability of courts upholding such provisions seems high.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.