The New Year is off to a quick start, but it is not too late to consider the lessons we can learn from the legal proceedings of 2013. Staying apprised in the court decisions that will shape the legal landscape going forward is the job of any good attorney. Those that work as general counsel would do well to keep up on employment law in particular. Some of the biggest employment law decisions in the past year came in regards to the class action waivers that have been increasingly “built in” to employee arbitration clauses.
Says Peter Zinober, co-chair of the global labor and employment and global human capital solutions practices at Greenberg Traurig, “What a number of employers have done over the last 20 years is that they have included mandatory arbitration language either in employee handbooks, sometimes in employee applications, sometimes in employment contracts, and the language includes a waiver of the right to file a class action grievance.” This means that not only is an employee, as a condition of employment, required to enter into arbitration rather than file suit against his or her employee, but they are also barred from filing a class action suit. The waiver applies even in a case where the cost of arbitration (which is the burden of the employee who complains) will be more than what the employee ultimately hopes to recover. In 2013, the inclusion of these class action waivers was challenged more than once. In both instances, the courts sided (eventually) with the waiver.
Franchise Class Action Rights
In American Express v. Italian Colors Restaurant, a group of merchants that had agreed to accept payment via American Express card tried to file suit against the company. The restaurants’ claim was that American Express illegally used a monopoly in order to charge unfairly inflated fees to the restaurants. However, the restaurants had signed an agreement with American Express that included a class action waiver. The U.S. Supreme Court upheld the waiver and American Express ultimately won the case. Before the decision, the number of franchisors that included arbitration clauses in their contracts was more than 50% and it is now expected to climb even higher.
While this case was not directly related to employment law, and rather to franchisor relationships, the class action waiver in this case was clearly shown to be constitutional and applicable. This could indeed have repercussions that reach into the employment law and will most likely serve to encourage employers to include these types of waivers in employee contracts going forward.
Employee Class Action Rights
In D.R. Horton v. National Labor Relations Board, employees of homebuilder D.R. Horton attempted to bring a class action suit against their employer with the belief that the class action waiver they signed went against the Fair Labor Standards Act. The FLSA, first passed in 1938, is the law that establishes a minimum wage as well as addressing overtime, child labor restrictions, and may other labor practices that persist today. More relevant, though, as Politico points out is the fact that law gives employees the right to organize and engage in activities for “the purpose of…mutual aid or protection,” which could easily be extrapolated to include a class action lawsuit. While the NLRB ruled against the class action waiver, finding it in violation of the FLSA, the 5th Circuit Court of Appeals overturned this ruling, upholding the initial waiver.
What This Means for General Counsel in 2014
The reality is that it is impossible for any business to thrive if they exist under the constant threat of lawsuit. Even the most ethical and highly regulated corporations can fall victim to litigation. An unfounded lawsuit can still end up incurring massive legal fees that may never be recovered. In order to protect themselves from expensive employee litigation, many companies include binding arbitration clauses in their employment contracts. However, until now there was much less clarity about whether a class action waiver would hold up in court. Both of these cases indicate that the courts overall is amenable to this type of waiver.
For their part, general counsel and other attorneys concerned with employment law will not only want keep apprised of the developments in these and other similar cases, but will want to notify their employers of these developments. Many companies that were on the fence may now choose to add a class action waiver in their employment contracts and counsel should be prepared to make these changes swiftly.
If you are a company looking to hire reliable counsel in order to draft a new employment contract or clause, consider searching the UpCounsel site. If we do help you find a good match, please let us know!