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Supreme Court Holds Class/Collective Action Waivers in Arbitration Agreements are Enforcable

By Kimberly Hall

June 29, 2018

Class actions for violations of the Fair Labor Standards Act ("FLSA") and collective actions for violations of state wage and hour laws are common, and can also be very expensive for business who find themselves as defendants in such suits.

Such suits may include claims regarding failure to pay overtime or minimum wage, employee misclassification, regular rate misclassification, off-the-clock work, preparatory and concluding work, on-duty meal periods, and waiting and travel time.

Take, for example an employee who believes his employer has been wrongfully failing to pay him overtime compensation. The employee seeks out an attorney who investigates the issue and discovers the employer has failed to pay overtime not only to the one employee, but to all non-exempt employees working at the employer’s plant.  The attorney files a "hybrid" collective/class action in federal court, meaning the employee brings a class action on behalf of himself and all other similarly situated employees at the plant for violation of state wage and hour laws, and a collective action for violation of the FLSA.  

In a collective action, eligible employees must affirmatively opt-in to the suit to participate, whereas in a class action all eligible employees are included in the suit unless they affirmatively opt out.  Bringing a hybrid class/collective action can help maximize employees’ participation in the action, thereby increasing the employer’s exposure to liability. The procedural complexities of a hybrid collective/class action can make such suits expensive to defend, and can also result in steep penalties to the employer. For example, an employer that violates the FLSA can be held liable for the employee's attorneys' fees, plus the wages owes to the employees and liquidated damages in an amount equal to the wages owed to the employees.

In an effort to avoid collective/class actions, some employers have required their employees to enter into arbitration agreements pursuant to which the employees waive their right to join together in a class/collective action for perceived wage and hour violations. Arbitration is a form of alternative dispute resolution and takes place outside the normal court system.  In arbitration, the dispute is decided by one or more arbiters who render an arbitration award, which is legally binding on both sides and enforceable in the courts.

Employees questioned the enforceability of such arbitration agreement and the issue was litigated all the way up to the United States Supreme Court. On May 21, 2018, the Supreme Court held that class/collective action waivers in arbitration agreements are enforceable. Does that mean every employer should require its employees to sign arbitration agreements? Not necessarily.

Although some employers view arbitration as a quicker and more cost-efficient way of resolving employment disputes, arbitration comes with its own set of risks, both substantively and procedurally.  Additionally, employers must be careful in drafting arbitration agreements to ensure they are enforceable, even given the Supreme Court's decision.

The attorneys in Critchfield, Critchfield & Johnston, Ltd.'s employment law group are experienced in defending collective/class actions regarding wage and hour violations. More importantly, we can review your pay practices to help your business avoid such suits in the first place and can help you decide if an arbitration agreement is right for your business.

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