Legality of “Class Waivers” in Employment Arbitration Agreements Remains Unclear

Companies are increasingly requiring workers to sign arbitration agreements that prevent workers from suing the company in court. Instead, under these agreements, employment disputes must be resolved through private arbitration.

Mandatory arbitration agreements frequently are criticized because private arbitration proceedings are not open to the public and do not allow for jury trials. These criticisms recently got some publicity when the sexual harassment claims of Fox News celebrity Gretchen Carlson were compelled to arbitration. The news media and women’s rights groups complained that private arbitration would prevent the public from learning about outrageous behavior tolerated at one of the nation’s biggest media empires.

A less-discussed criticism of private arbitration is that most arbitration agreements contain “class waiver” provisions. Under these provisions, the worker must agree that any arbitration will be limited to his/her individual dispute. In other words, companies are using arbitration agreements to prevent workers from bringing class action lawsuits on behalf of fellow employees.

Here is why workers’ rights advocates and policymakers should be very concerned about class action waivers. In many employment rights cases – especially those arising under wage and overtime laws – the damages stemming from an individual employee’s legal claim might only amount to a few hundred or a few thousand dollars. However, in the aggregate, the damages owed to all employees for the same legal violation might total millions of dollars.

Put in economic terms, class actions enable workers to achieve the “economies of scale” necessary to go up against the big boss. As observed by the Supreme Court: “The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997).

Employment rights class actions recently received a big boost when the U.S. Courts of Appeal for the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) and the Ninth Circuit (covering Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) ruled that class waivers in arbitration agreements are illegal because they violate the right of workers to engage in “concerted activity” under the National Labor Relations Act (“NLRA”). See: Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. Aug. 22, 2016).Meanwhile, the U.S. Courts of Appeal for the Fifth Circuit (covering Texas, Louisiana, and Mississippi), the Eighth Circuit (covering Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota), and the Second Circuit (covering Connecticut, New York, and Vermont) have held that such class waivers do not violate the NLRA. See: D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013);Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).These conflicting decisions are irreconcilable. So whether or not the NLRA prohibits class waivers in arbitration agreements is almost certainly destined for the Supreme Court. In the meantime, here in Pennsylvania, employment lawyers are anxiously waiting for the U.S. Court of Appeals for the Third Circuit (covering Delaware, New Jersey, and Pennsylvania) to decide this issue in an appeal entitled The Rose Group v. NLRB, 15-4092. The Court heard oral argument on October 5 and should issue a decision in the next several months.

In the absence of Supreme Court guidance, employment lawyers will continue to fight over the legality of class waivers in arbitration agreements. Although this “procedural” issue does not get much attention in the news media, it is extraordinarily important to the vindication of workers’ wage, overtime, and other employment rights.

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