Private Arbitration is Not Always a Home Run for Employers

Last week, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that workers can be barred from pursuing class action lawsuits against their employers if they’ve signed arbitration agreements limiting their right to pursue workplace claims on an individual basis only.

Many employer advocates call the Epic Systems ruling a “strike three” pitch against employee class action lawsuits, predicting that millions more employers will (and even should) impose arbitration agreements on their workers.

However, arbitration agreements, with or without a waiver of class claims, may not be helpful in all situations and could throw some employers a curve. A few more baseball metaphors should drive home the point:

It’s like déjà vu all over again! If groups of employees can’t band together to form a class, an employer may face multiple individual arbitrations over the same issue.

The tickets are expensive. Unlike court, in arbitration the employer typically pays for the judge (arbitrator), clerks and court staff. Arbitration can cost a lot of money, particularly when aggregating small-value claims.

Employers could get caught off base. Given the #MeToo movement and related pending legislation, arbitration agreements that aren’t scoped properly to address discrimination and harassment claims, and confidentiality of the proceedings, could end up hurting workers and creating legal, PR and employee relations headaches.

Class waivers could invite unexpected designated hitters. In theory, class action waivers limit employers’ risks because plaintiff’s attorneys often find it not worth arbitrating multiple similar claims that, individually, are only worth a few hundred to a few thousand dollars. Unions and worker groups, however, may begin financing these small classes. We’ve pointed out before that this already is happening with the National Women’s Law Center’s launch of the Times Up Legal Defense Fund to help low-income women bring sex-based claims against their employers.

Suits may still come out of left field. Illinois may follow California and implement a private attorney general statute (PAGA) to allow workers to sidestep class waivers and arbitration agreements. A PAGA statute deputizes claimants to stand in the shoes of a state attorney and seek civil penalties (not damages) for violation of a state’s labor code on behalf of themselves, other ‘similarly aggrieved’ workers, and the state.

So, what’s an employer to do about implementing class action waivers and arbitration agreements? First, figure out what league you’re playing in. Not all companies are at risk for class actions. Next, take a look at the players on the field. Arbitration agreements may be appropriate for some types of predictable disputes with certain employees, but may not be appropriate for all disputes or the whole team. Finally, watch the standings. Arbitration agreements must be carefully drafted to be enforceable. Get help from an employment lawyer to draft the arbitration agreement so you avoid common enforceability pitfalls and tailor the agreement to the latest legal requirements.

Gary Savine is a Chicago employment lawyer and founder of Savine Employment Law Ltd. In his practice, Gary routinely litigates and arbitrates employment disputes on behalf of both companies and workers.