By David Baffa, John Collins, and Gerald L. Maatman, Jr.

Recently, Wolters Kluwer Law & Business published our article “Guidance for Employers Considering Mandatory Arbitration Agreements with Class and Collective Action Waivers” in its Employee Relations Law Journal, Vol. 39, No. 3 Winter 2013

In the article, we discuss how the Supreme Court’s rulings in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. __ (June 20, 2013), and Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (June 10, 2013), have changed the legal landscape when it comes to arbitration agreements, and what employers should keep in mind when deciding whether to pursue arbitration as a general policy that includes a class or collective action waiver. Although the Supreme Court’s decisions in AmEx and Oxford Health did not address arbitration issues in an employment context, both cases shine light on arbitration issues facing employers.

Here are the key points:

  • Particularly relevant to wage & hour cases, in American Express Co. v. Italian Colors Restaurant, the Supreme Court ruled that, even if individual arbitration is economically unfeasible, and thus prevents vindication of federal statutory rights, class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA). The AmEx case shows that a class action waiver in an arbitration agreement is enforceable where a plaintiff’s costs of individually arbitrating a federal statutory claim exceed the potential recovery. AmEx bolsters the Supreme Court’s previous AT&T Mobility LLC v. Concepcion ruling, that enforcement of a class arbitration waiver under the FAA trumped a California statue that sought to preclude class waivers, and communicates that collective actions are not necessary to effectively vindicate federal statutory rights.
  • The Supreme Court’s ruling in Oxford Health Plans LLC v. Sutter clearly communicates that if an employer requires employees to arbitrate disputes, but not on a class basis, it must explicitly state that class or collective arbitration is impermissible within the arbitration agreement. Although Oxford Health resembles Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., as the arbitration agreements in both cases were silent on the issues of class arbitration, the Supreme Court noted that the facts of the Oxford Health case were starkly different from those in Stolt-Nielsen, in that the arbitrator in Oxford Health based his decision on the parties’ contract, which the parties had authorized him to interpret; and, therefore, he did not exceed his powers as arbitrator. Thus, if an arbitration agreement is silent on whether disputes may be arbitrated as class actions, and the parties leave the issue to an arbitrator to decide, an arbitrator can interpret a silent arbitration clause to permit class arbitration.

Should you, as an employer, implement an arbitration policy that includes a class or collective action waiver? While the pros and cons of immediately implementing an alternative dispute resolution policy with non-class final and binding arbitration are numerous, and we recommend that you weigh them here; below are key points and questions that employers should consider before adopting class action waivers as a general policy.

  • In early 2012, the NLRB issued a decision outlawing employment agreements and policies requiring class or collective action waivers in employment disputes as a condition of employment. Although, the judicial trend has strongly favored enforcement of class or collective action waivers, D.R. Horton was recently reversed by the U.S. Court of Appeals for the Fifth Circuit. To the extent employers particularly vulnerable to union organizing and advocacy group challenges had been waiting until D.R. Horton was overturned before proceeding with plans for implementation, they now have a “green light.”
  • Has your company been sued in a class or collective action, and do you consider your organization at risk for additional lawsuits? In the wake of AmEx and Concepcion, the benefits of avoiding a class action lawsuit in the future may outweigh risks associated with arbitration.
  • Are there any class or collective actions pending now, at the pre-certification stage? It may be possible to enter into arbitration agreements with putative class members that include class action waivers (both in court and in arbitration) even with regard to an existing class action.
  • As far as non-class action cases go, how many employment-related lawsuits do you expect in a year? As the number of claims rises, the likelihood that your overall employment litigation costs will be reduced through arbitration, also rises.
  • What is your organization’s philosophy with regard to defending employment-related lawsuits? The advantages of arbitration are amplified, when employers commit to taking certain cases to judgment, rather than seeking settlement.
  • In what jurisdictions are you generally sued by your employees? Some jurisdictions offer significant opportunity for favorable and cost-effective results on summary judgment, while others remain unfriendly to employers.
  • Does arbitration make sense for all employees at all levels of your organization? Arbitration provisions may make sense for particular groups of employees, but not for others.
  • How does arbitration fit within your overall employee relations strategy? The implementation of an arbitration policy may result in push back from employees. Thus, you should consider whether such a policy is in line with the organizations employee relations goals and philosophy.
  • Should your arbitration program include an “opt-out” provision that allows employees to opt-out within a certain period of time after hiring? Such an approach, though apparently unhelpful to overcome an NLRB challenge, may help avoid successful challenges in California.

Employers that have decided to move forward with an arbitration policy should consider these elements in crafting an enforceable arbitration program.

  • Formation & Consideration – Controlled by state contract law, proving formation and consideration requires that employers demonstrate an offer, acceptance, and supporting consideration. The acceptance requirement is generally satisfied by an employee’s signature on an arbitration agreement. While supporting consideration can be more difficult to prove, making the duty to arbitrate employment-related disputes binding on the employee and employer can often solve consideration issues. The mutual forbearance of the right to proceed in court acts as consideration to support the arbitration agreement. California employers should take notice that a shared duty to arbitrate employment-related claims is required in California. Lastly, employers should be cautious using language that reserves the right to modify, amend, or revoke the policy at any time, with or without notice, as such agreements have been attacked on the ground that the contract to arbitrate is misleading. Instead, a policy should include a notice period and other processes that place limits on the timing and method for modifying the arbitration agreement.
  • Fairness – For those employers that operate across multiple jurisdictions, an effective arbitration policy must meet the fairness requirements of each jurisdiction; most importantly, those jurisdictions where you anticipate a significant number of claims to arise. To be fair, an arbitration agreement must clearly specify what claims are covered, the statute of limitations or time allowed to assert a claim, and the arbitration process to be followed to resolve a claim – which, must also be considered “fair.” The California Supreme Court and the D.C. Circuit have communicated that, at a minimum, an employer must provide that it will pay all of the forum costs, including arbitrator fees; provide for the selection of a neutral arbitrator, and meaningful discovery; allow for all types of relief that would be available in court; and require a written award to allow for adequate judicial review.
  • Class Action Waivers – If, despite current NLRB law, an employer decides to implement a class or collective action waiver, the waiver should be clear, conspicuous, and include language waiving class, collective, or other representative actions filed in court and brought before an arbitrator, and prohibit an arbitrator from presiding over those actions. We recommend that employers include language that carves out the right of employees to file administrative charges (for example, with the NLRB), and a disclaimer clarifying that employees, notwithstanding their waiver, have a right to file a class or collective action under the NLRA without fear of retaliation. Lastly, employers should include language communicating that if a waiver of class, collective or representative actions is found to be unenforceable, then court is the only forum for such an action.
  • Other Exclusions & Carve-Outs – To increase the likelihood that an arbitration agreement will survive judicial or administrative challenge, consider including language regarding an employee’s right to file worker’s compensation or unemployment claims, and administrative charges. Federal contractors that have upwards of $1 million contracts with the Department of Defense  should note that the Department’s Appropriations Act of 2010 requires arbitration agreements to exclude claims brought under Title VII of the Civil Rights Act of 1964 or any tort related to sexual assault or harassment. Lastly, the Dodd-Frank Wall Street Reform and Consumer Protection Act precludes certain types of whistleblower claims from mandatory pre-dispute arbitration.