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Mandatory Employment Arbitration Programs – Practical Considerations In Light of Supreme Court’s Epic Decision

On May 21, the U.S. Supreme Court, by a 5 to 4 vote, upheld employers’ use of pre-dispute mandatory arbitration agreements with class action waivers.  Our prior alert on this ruling in the related cases of Epic Systems Corp. v. Lewis; Ernst & Young LLP et al. v. Stephen Morris et al.; and NLRB v. Murphy Oil USA Inc. is linked here.  As promised, we are following up with more thoughts on practical considerations for employers.

Q: Does this mean all mandatory arbitration programs for employment related claims are enforceable?

A: Yes, but you have to draft arbitration programs thoughtfully and cautiously.  For example, employers cannot require employees to give up substantive rights, such as the ability to recover liquidated damages under the Fair Labor Standards Act (“FLSA”) or punitive damages under other employment laws.  You also have to consider your state’s contract law.  For instance, most states recognize continued employment for existing employees as sufficient consideration, but some states differ.  The Federal Arbitration Act (“FAA”) simply prohibits states from setting higher requirements for arbitration agreements than other contracts.

Q: If I already have an arbitration program, do I need to do anything? 

A: Yes.  Not all arbitration agreements are created equal.  Generic, off-the-shelf programs likely can be improved and strengthened.  For instance, an employee arbitration program should unequivocally prohibit multi-plaintiff or class claims since we believe facing these group cases in arbitration would be even worse than in court.

Q: Is mandatory arbitration of employment claim always the clear choice for all employers?

A: Not necessarily. There are pluses and minuses to litigating claims in court or arbitration, as touched upon by the following chart:

Court v Arbitration Comparison Table

Q: If I have an employment arbitration program, do I have to make all employment related claims subject to the program?

A: No.  Recently, Uber exempted sexual harassment claims from its mandatory arbitration program for independent contractor drivers (with pending claims arguing that they should be classified as employees).  Arbitration programs may provide the greatest benefit for FLSA and state and local wage and hour claims.  These claims are most frequently brought on a class basis (maximizing an advantage of arbitration) and can be more difficult to get dismissed on summary judgment (minimizing a perceived disadvantage).  An employer should agree to submit any claims it may have against the employee to arbitration, with the exception of the right to go to court to get a temporary restraining order and injunction.  Some claims by their nature cannot be bound by an arbitration program.  For example, claims brought by government agencies like EEOC and DOL on behalf of employees still would go to court.  As another example, plaintiffs typically argue that California Private Attorney General’s Act (“PAGA”) claims are not bound by arbitration programs.

Q: If I do decide to implement an arbitration program, how should I do so?

A: Carefully and with consultation from counsel.  Beyond legal requirements, there may be employee morale, labor relations, and other practical considerations.  How will existing employees react if required to agree to arbitration as a condition of continued employment? Given the rate of employee turnover, will an arbitration program only be required for new employees in order to quickly capture the bulk of the workforce?  In most states, an employer does not need to obtain a signed agreement.  That said, if practicable, we prefer to have one.  We also recommend an initial orientation and training program with a signed attendance log, as well as communication through other means, such as a direct mailing, a workplace posting, and the employee handbook.

Q: Would the arbitration program cover unionized employees?

A: Generally not.  Unionized employees likely already have the right to arbitrate grievances pursuant to a collective bargaining agreement.  Arbitration beyond that would be a mandatory subject of bargaining, and we typically have not seen arbitration programs covering the rest of the workforce applied to unionized employees.

Q: Are there options other than arbitration if I don’t love the idea of juries or class actions?

A: Yes.  Employees may sign jury waivers and still pursue claims in court, but only before a judge.  State laws vary, and some courts have declined to enforce mandatory jury waivers for rank-and-file workers.  Jury waivers do not provide class action protection, and they may actually cut against one argument against class certification.

Without doubt, the Supreme Court’s ruling was a major win for employers.  As touched upon above, this does not mean that every employer will adopt mandatory employee arbitration programs or that a one-size-fits-all program is the right choice for all employers.  Still, the ability to bar class actions will undoubtedly lead more employers to choose mandatory arbitration.  As with anything, if you are going to do it, do it right.

If you have questions, please feel free to contact Brad Harvey or any other member of our Labor & Employment department.

Source: Miller & Martin PLLC Alerts

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