Employment Law Update: Slamming the Door on Class & Collective Actions

On Monday, in what many commentators have described as the most monumental employment law decision in years – and what some are claiming may be “the last workers’ rights case” the Supreme Court will ever hear[1] – the United States Supreme Court definitively held that employers and employees have the right to enter into arbitration agreements that require any litigation or arbitration over employment disputes be commenced one-on-one. Epic Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018). This ruling gives smart employers a lawful means to effectively disarm arguably the most potent weapon in the plaintiffs’ bar’s arsenal: the class/collective action.

To fully grasp the importance of this ruling, consider this very typical scenario: XYZ Inc. has 20 facilities scattered in 15 states across the country.  Each of those facilities has approximately two dozen Middle Managers that XYZ Inc. pays a salary and classifies as exempt from the FLSA’s overtime provisions.  These Middle Managers put in roughly 50 hours per week without receiving any overtime.  One disgruntled former Middle Manager hires an attorney who quickly determines that XYZ Inc. has inadvertently misclassified the Middle Manager position as exempt and deprived his client of an average of 10 hours of overtime per week for the past two years.  The attorney then files a collective action lawsuit seeking to recover the two years’ worth of overtime payments (as well as liquidated damages and attorneys’ fees in the six-figure range) for not just his individual client, but for every Middle Manager in the country because they all have the same job title, responsibilities, and pay structure (at least according to XYZ Inc.’s own documents).

The above scenario is hardly far-fetched.  To the contrary, federal and state courtrooms nationwide are brimming with wage-and-hour class/collective actions just like the one described above.  Now consider the same scenario, but with XYZ Inc. having required its employees to sign arbitration agreements containing class/collective action waivers upon hire.  Faced with a Complaint in court, XYZ’s attorneys file a Motion to Compel Arbitration, attaching as an exhibit the signed arbitration agreement.  The court then sends the parties to arbitration and dismisses the case.  The arbitrator notes that the agreement bars any class/collective arbitration, as well.  Now the disgruntled Middle Manager is only able to seek unpaid overtime and liquidated damages for himself, while his attorney’s claim for fees is exponentially reduced.

The preceding hypothetical is very real.  Many employers that failed to protect themselves using arbitration agreements with class/collective waivers have paid out six-, seven-, or even eight-figure sums in cases just like this.  Many others have declared bankruptcy as a result.  What’s more, the vast majority of legal violations giving rise to such “bet-the-company” litigation are unintentional, stemming from an employer’s well-meaning attempts to navigate a byzantine patchwork of federal and state employment laws, oftentimes without the assistance of legal counsel.[2]

Arbitration agreements with class/collective waivers can protect any employer of any size in any industry from liability for unintentional and inadvertent legal violations; they are not exclusive to large, multi-state employers facing million-dollar lawsuits.  These agreements can apply to most types of employment law claims, including harassment and discrimination claims in addition to wage-and-hour claims.  It must be noted that arbitration agreements are not 100% bulletproof, as they are still susceptible to challenge on the same grounds as any standard contract (fraud, duress, unconscionability, lack of consideration, etc.), and their enforceability with regard to state law claims can vary in jurisdictions hostile to arbitration, like California.  While an enforceable arbitration agreement does not provide complete immunity from liability for the company – an arbitrator can still rule that the company violated the law and can grant the same relief that a court can – the agreement can steer claims out of court into the (typically) more cost-effective arena of arbitration, and can force the employee and his attorney to face the company one-on-one, which drastically reduces the amount of potential liability.

While arbitration agreements with class/collective action waivers are not a new phenomenon, as the Supreme Court itself noted, their use had not been particularly widespread until recently, and their enforceability had become seriously endangered over the past several years by a slew of lower court decisions.  Now, arbitration agreements with class/collective waivers have the unequivocal approval of the highest court in the land.

In light of the Epic Systems ruling, all employers should strongly consider implementing the use of arbitration agreements that include class/collective action waivers for all new hires, existing employees, and possibly even job applicants.  To discuss the pros and cons of arbitration agreements for use in your business, and to ensure that you receive an agreement that meets your company’s needs while providing the most comprehensive protection possible, Cokinos | Young’s Board Certified Labor & Employment Law Specialists J. Shannon Gatlin and M. Wilson Stoker are more than happy to speak with you.

About the Author:  J. Shannon Gatlin is Senior Counsel in the Houston office of Cokinos | Young, P.C. (View Bio).  Mr. Gatlin has been Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization since 2014, and has practiced labor and employment law on behalf of companies nationwide since 2009.  Mr. Gatlin also spent one year as a Briefing Attorney for the Texas 14th Court of Appeals.

[1] See Celine McNicholas, “Murphy Oil may be the last workers’ rights case the Supreme Court has the opportunity to consider,” Economic Policy Institute Working Economics Blog (Aug. 10, 2017); Simon Lazarus, “The Supreme Court Case That Could ‘Overturn the Heart of the New Deal,’” The American Prospect (Jan. 4, 2018).

[2] The complexity and labyrinthine nature of varying federal, state, and local employment regulation in today’s economy makes it more vital than ever to seek legal counsel from attorneys who specialize in labor and employment law when dealing with employment law issues.