UNITED STATES SUPREME COURT ALLOWS EMPLOYERS TO REQUIRE EMPLOYEES TO WAIVE CLASS ACTION CLAIMS

Posted: May 22, 2018 |

Class action lawsuits are one of the greatest threats employers face in today’s business landscape.  The potential liability in class actions often threatens a company’s survival, because they exponentially increase monetary damage exposure.  These actions create crisis situations for nearly all companies facing such litigation. 

However, the United States Supreme Court has strengthened the right of employers to require that employees enter into arbitration agreements that waive class action claims as a condition of employment.  On May 21, 2018, the Supreme Court issued a decision in Epic Systems v. Lewis, which overruled controlling Ninth Circuit precedent that had previously invalidated class action waivers under the National Labor Relations Act.  This broad decision provides employers with a great opportunity to protect themselves from the massive potential liability that class actions pose.

Under prior Ninth Circuit case law, set forth in Morris v. Ernst & Young (2016) 834 F.3d 975, employers were forbidden from requiring employees to waive their right to participate in class actions as a condition of employment.  The Ninth Circuit held that employees’ rights to engage in collective action protected by the National Labor Relations Act also prohibited employers from creating protection against class actions. Creative employers had utilized alternative methods to attempt to insulate the risk that class actions posed, but until the Epic Systems decision, it was unclear whether even those creative methods would defeat potential class actions. 

The Epic Systems decision clarifies that employers may require class action waivers as a condition of employment.  The 5-4 decision provides employers with clear options for implementing a protection scheme to avoid the risks and trauma that class actions present. 

However, the Epic Systems decision will not result in the waiver of all class actions for employers with arbitration agreements.  The Supreme Court has stated that arbitration agreements are still subject to general contract defenses and may only be enforced according to their terms.  Thus, California employers still must overcome unconscionability concerns in the drafting of the arbitration agreement.  Additionally, arbitration agreements must be written to explicitly waive participation in class action proceedings to avoid the risk of a class arbitration. 

For employers with many employees (especially non-exempt employees), it is a great time to work with an employment attorney to ensure that their businesses are protected from potential class action risk.  Questions about implementing arbitration agreements or amending current arbitration agreements for additional protection against class actions may be directed to the employment attorneys at Ferruzzo & Ferruzzo, LLP.  We can help ensure that your company is protected and that your implementation of an arbitration agreement complies with California law.

James F. Rumm