Class Action Waivers Held Enforceable in Employment Context: Should Your Restaurant Implement a Waiver? (by Marie Trimble Holvick and Sara Moore)

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by Marie Trimble Holvick and Sara Moore of Gordon & Rees

The United States Supreme Court recently issued an important new decision regarding the use of class action waivers in arbitration agreements.  Specifically, the Supreme Court held that an employer can require employees to waive their rights to pursue class action litigation in connection with their employment.  This decision represents an important “win” for California employers, and particularly for restaurants as restaurants are often plagued with class action lawsuits for alleged wage and hour violations.  While class action waivers are effective and now have the Supreme Court’s blessing, there are many other factors you need to consider before requiring employees to sign arbitration agreements.

New Supreme Court Decision

On May 21, 2018, the United States Supreme Court issued a highly-anticipated decision for employers. In this decision, the Court ruled that class action waivers are enforceable in arbitration agreements in the employment context.

This ruling resolves a controversial and often-litigated issue stemming from a 2012 decision by the National Labor Relations Board (NLRB) in the D.R. Horton matter.  In that case, the NRLB ruled that an arbitration agreement that required employees to waive their right to file class or collective actions violated the National Labor Relations Act (NLRA).

Since that 2012 ruling, many federal and state courts have disagreed the NLRB’s position.  As a result of this conflict, the United States Supreme Court heard three consolidated cases (Epic System Corp. v. LewisErnst & Young LLP v. Morris; and NLRB v. Murphy Oil USA, Inc.).  In a close 5-4 decision, the Supreme Court resolved this conflict and upheld the validity of class action waivers in employment arbitration agreements. This ruling will impede the ability of workers to bring class action lawsuits.

While this decision brings good news for employers, there are risks to considering class action waivers, and arbitration agreements in general.

Practical Tips for Compliance

There are many advantages to arbitration. Below are a few of the benefits to incorporating a class action waiver into your arbitration agreement.

(1)   Waiver of Class Actions.  In light of the United States Supreme Court’s recent decision, employers can effectively undercut the ability of employees to bring class claims. A class action is the difference between defending against an individual employee’s claims and 20 or more employees alleging similar claims.  Defending class actions is expensive, and restaurants are often prime targets for alleged wage and hour violations.  Implementing a class action waiver would permit an individual employee to pursue his or her claim, but would prevent that same employee from attempting to bring these claims on a class-wide basis.

(2)   Privacy.  Arbitration is a private forum, which reduces the potential for publicity that is often connected to publically filed lawsuits.

However, arbitration agreements are not without risk.  If you are considering implementing a class action waiver as part of an arbitration agreement, employers should consider the following:

(1)   Cost.  Arbitration is often far more expensive than court because the employer is required to pay the full cost of arbitration. In San Francisco, most arbitrators cost as much as $5,000 per day. Depending on the claims, the arbitration costs may be covered by insurance, but you need to check with your broker for details.

(2)   Mixed Outcomes.  In some instances, arbitrators will award a small sum to the plaintiff in an effort to keep the parties and attorneys on both sides happy. In other words, a case that an employer may win in a jury trial may result in an award of nominal damages in arbitration. However, even a small damages award may result in the plaintiff’s ability to recover the full amount of his or her attorney’s fees.

(3)   PAGA Representative Actions Are Precluded.  Claims under the Private Attorneys’ General Act (“PAGA”) can still proceed to court, and are not covered by class action waivers.  The recent Supreme Court decision does not address the California-specific issue of large-scale “representative actions” under PAGA, which authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California.  PAGA waivers are not enforceable, so a class action is prevented but a PAGA representative action is not. Where a plaintiff attempts to assert a class action for various alleged wage and hour claims, and also asserts a claim under PAGA, the court can only transfer the non-PAGA claims. This process results in the employer essentially handling two lawsuits with the same plaintiff – one in court and one in arbitration.

(4)   Changing Law.  Arbitration remains a heavily-litigated area of employment law and the legal landscape often changes, especially in California.  Be sure to review arbitration agreements on an annual basis. If you elect to use an arbitration agreement, you should ensure that your agreement is well-written, enforceable, and is a stand-alone agreement (i.e. it cannot be included in your handbook).

It is important to consult with legal counsel before implementing an arbitration agreement or revising your agreement to include a class action waiver.  Employers would be wise to immediately review their arbitration policies and practices, and consider revising them to comply with the new ruling and California law.

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