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Many businesses engage in careful planning regarding the company’s exposure to risk and legal liability. One means many businesses use to manage expose to lawsuits and litigation are provisions in employment agreements that set forth acceptable, agreed upon means of resolving disputes that arise during the employment relationship. While there are many agreements of this type to suit the unique needs of a specific entity’s concerns, a common approach is to have employees sign an agreement that requires the use of alternative dispute resolution – typically arbitration – and bars class actions lawsuits.

What Do Class Action and Arbitration Waivers Require?

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In recent years, court dockets throughout the nation have been particularly backed up with both simple and complex litigation. As such, the courts have announced a policy that favors alternative dispute resolution techniques such as arbitration and mediation. The use of alternative dispute resolution forums can decrease the amount of time an employee or other claimant must wait for his or her matter to be heard. The company can also benefit because the expedited process allows for greater certainty and provides for swifter resolution of open legal issues.

The class action waivers in question are waivers that compel an employee to use individual arbitration procedures. That is, employees must bring disputes through the arbitration form and are barred from engaging in a class action lawsuit in the traditional court system.

The grant of certiorari by the Supreme Court draws from three unrelated cases. In Lewis v. Epic Systems Corp., 15-2997 (7th Cir. 2016), worker misclassification to avoid overtime pay was alleged by employees in a class action lawsuit. Similarly, in Morris v. Ernst & Young, 5:12-cv-04964 (9th Cir. 2016) a class of employees also alleged worker misclassification. In these matters, the 7th and 9th Circuit Courts found that mandatory arbitration waivers with class action bars violated aspects of the National Labor Relations Act (NLRA). However, in Murphy Oil USA Inc. v. NLRB, 14-60800 (5th Cir. 2015) the 5th Circuit court found that waivers of this type compatible with the NLRA. Thus, due to the uncertainty and unsettled state of the law in this area, the U.S. Supreme Court granted certiorari in this matter.

How Do Class Action Waivers Manage the Risk a Company Faces?  How Might a Supreme Court Ruling Impact my Company’s Planning?

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Class action lawsuits can be particularly damaging to a company simply because of scale and aggregation. That is, a simple accidental mistake multiplied tens, hundreds, or thousands of times across a workforce can lead to significant liability and damages. However, businesses take their duty to comply with all employment, immigration, and wage and hours law seriously. Further, Companies recognize their employee’s right to bring complaints and grievances to a neutral forum. Arbitration fits nicely into this worldview as employee concerns can be addressed on a case-by-case basis.

However, if the provisions were to be struck down by the Court, businesses making extensive use of these provisions would face significantly changed legal circumstances overnight. In all likelihood, any ruling disturbing the use of these types of agreements would significantly increase affected businesses exposure to legal risk. Business owners and managers would be prudent to determine if their employment agreements would be affected by a decision in this case. Furthermore, contingency planning to meet the challenge of expanded liability would also be wise.

Work with an Employment Attorney in Baltimore

Ken C. Gauvey is a business, employment immigration, and civil litigation lawyer who works with businesses in Maryland and throughout the United States. Mr. Gauvey is focused on providing legal guidance and resolving legal issues so that a business can thrive and grow. Mr. Gauvey can assess your company’s legal standing in an array of situations including employment agreement documents, contracts, and processes. He can provide actionable legal guidance for your business. To schedule a confidential consultation at The Law Practice of Ken C. Gauvey, call 443-692-7685 or contact the firm online.