The United States Supreme Court recently ruled, contrary to the National Labor Relations Board position, that the National Labor Relations Act (NLRA) does not prohibit class action waivers in arbitration agreements. The Supreme Court found in a 5-4 decision that the NLRA does override the Federal Arbitration Act’s instruction that arbitration agreements are to be enforced according to their terms. The court did leave open state law procedural and substantive challenges based upon fraud, duress and other common law challenges to whether a contract was formed. In Texas, courts routinely uphold arbitration agreements where the employer pays the costs of the arbitration and where there are procedures in place which allow for the employee to have some meaningful discovery and a meaningful hearing before an arbitrator. In fact, Texas courts have held that merely notifying the employee that there is an arbitration policy that will apply to any disputes with the employer and the employee’s decision to continue working is sufficient to constitute an agreement that the employee’s claims will be arbitrated.
Employers needs to realize the significance of this ruling as it pertains to risk management in the employment context. This ruling allows employers to effectively avoid the most financially damaging lawsuits that Plaintiff’s attorneys can pursue: class action lawsuits. Below are links to recent class action lawsuits filed in a variety of industries under the Fair Labor Standards Act.
Transportation Industry: http://swartz-legal.com/truck-drivers-bring-fair-labor-standards-act-flsa-action-against-stevens-transport/
While arbitration is not always cost effective for the garden variety discrimination claim, an arbitration policy with a collective action waiver makes the pursuit of FLSA (minimum wage, salary misclassification and overtime claims) much less lucrative for the Plaintiff’s attorney and much less risky for employers. If you examine the links above, the potential verdicts are in the millions and the settlements are in the millions. For a small business, this could be a lawsuit that ends the business. With an arbitration policy requires the employee to waive the right to pursue a collective action, each claim must be submitted separately to the arbitrator. Thus, the Plaintiff’s attorney cannot litigate all the claims together and in an efficient manner. Rather, he has to litigate each $10,000.00 or less claim separately. This increases his cost and makes the pursuit of the claim much less efficient and less financially attractive. When attempting to address your opponent, it is often important to look at his view of the game board. Here, by eliminating the ability to litigate the claims in a collective manner, the attorney is less interested in pursuing the claims and thereby, lawsuits often don’t get filed or are resolved soon after the Plaintiff’s attorney learns that an arbitration agreement waiving collective action is in place.