Can Employers Ban Class Actions? Supreme Court to Decide

Legal AnalysisWorkers' Rights

“Class action waivers may be one of the most important issues facing workers today.”

The Supreme Court announced on Friday that it will review whether or not class action waivers violate national labor laws. Companies frequently include these waivers in arbitration agreements to prohibit employees from forming class action lawsuits. For years though, district and appellate courts have disagreed on whether or not the practice is legal.

“Class action waivers may be one of the most important issues facing workers today, and many are unaware it is such an issue,” said attorney C. Ryan Morgan, co-chair of Morgan & Morgan’s Employee Rights Group. “Class action waivers are detrimental to the vast, vast majority of workers and hinder workers from having knowledge of their rights.”

40% of Employers Use Class Action Waivers

“Most workers would be shocked if they knew that many employers force workers to sign these agreements.”

Arbitration agreements and class action waiverswhich are usually buried deep within an employer’s contractrequire employees to handle their legal disputes in private arbitration, without a judge or jury. Employers prefer arbitration because proceedings are faster and are less costly than typical lawsuits. And, companies are more likely to win.

In arbitration, companies set the rules of proceedings and hire the arbitrator. A Cornell University study found that out of nearly 4,000 workplace arbitration cases filed between 2003 and 2007, only 21% were awarded in favor of employees. And, on average, employee litigation awards were 5 to 10 times greater than arbitration awards.

Employees are usually unable to opt out, and some courts, like the Sixth Circuit, have ruled that by simply showing up to work, an employee has agreed to the arbitration terms.

Favorable court decisions have only encouraged the practice. In 2015, about 40% of employers used class action waivers in their arbitration agreements.

“Most workers would be shocked if they knew that many employers force workers to sign these agreements and certain courts enforce the agreements,” said Carlos Leach, an employee rights attorney for Morgan & Morgan.

Class Action Waivers May Violate the National Labor Relations Act

Stephanie Sutherland was told that pursuing her case in arbitration would cost her $200,000.

Agencies like the National Labor Relations Board (NLRB) argue that class action waivers violate the National Labor Relations Act (NLRA) because they strip away employees’ rights to collective action. Employers, however, often argue that the Federal Arbitration Act, which permits class action waivers, trumps the NLRA.

The Supreme Court will decide whether or not the NLRB’s interpretation is correct by reviewing three cases involving Murphy Oil, Epic Systems, and Ernst & Young.

Epic Systems and Ernst & Young are appealing decisions made by the Seventh and Ninth Circuits respectively that declared their class action waivers were illegal. The Chicago and San Francisco-based appellate courts were the first to rule against class action waivers in 2016.

For smaller disputes, a class action lawsuit is usually the most cost-effective legal method since plaintiffs can share legal costs. Stephen Morris and Kelly McDaniel are fighting for their right to form a class action lawsuit against Ernst & Young, whom they allege withheld overtime pay from employees. 

In a similar case filed by another former Ernst & Young employee, Stephanie Sutherland was told that pursuing her case in arbitration would cost her $200,000. Though a New York federal court overrode the class action waiver since arbitration fees would prevent her access to the courts, it was later reversed by the Second Circuit Court of Appeals.

Employee Rights Advocates Are “Cautiously Optimistic”

“I am cautiously optimistic that the [Supreme Court] will do the right thing and side with the NLRB.”

Experts caution that the possibility of a 4-4 split and the looming justice vacancy far from guarantees a decision in favor of class action rights.

However, the Supreme Court announcement comes on the heels of President Obama’s Fair Pay and Safe Workplaces executive order, which rules that companies with federal contracts of $1 million or greater cannot require employees to sign arbitration agreements. And, last year, the Senate introduced the Restoring Statutory Rights Act, which would prohibit arbitration agreements that violate employee discrimination laws.

“As an attorney who constantly fights against these agreements on behalf of employees, I am cautiously optimistic that the [Supreme Court] will do the right thing and side with the NLRB’s position that class action waivers violate workers’ fundamental rights to join together versus their employer,” said Carlos Leach.

Opening briefs are scheduled to begin in February; a decision will likely be made sometime this summer.

 

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