Yesterday, in a narrow, 5-4 partisan decision, the Supreme Court issued its most anticipated employment decision of its current term, Epic Sys. Corp. v. Lewis [pdf]. The Court reconciled six years of debate between split federal circuits into a unified standard that permits the waiver of class actions via the compelled individual arbitration of employment disputes.
The issue in the case was whether employers could compel employees to waive their rights to file or participate in class or collective actions and individually arbitrate their claims. Employees and the NLRB argued that these waivers unlawfully infringed on employees’ rights to engage in protected concerted activity under the National Labor Relations Act. SCOTUS concluded that “arbitration agreements providing for individualized proceedings must be enforced,” and upheld the waivers.
Many argue that employers should rejoice this decision.
I say be careful for what you wish.
I do not like arbitration as a means to resolve employment disputes. When a client asks me for an arbitration clause in an employment agreement, I ask them, “What are you hoping to achieve by sending your employees to arbitration?”
Inevitably, I hear one of two reasons, or both, in response.
“It takes cases out of the hands of unpredictable juries,” and/or “It’s less expensive than court.”
Let me address each argument.
“I don’t want a jury trial.”
If your concern is the unpredictability of juries, then your arbitration agreement is killing the proverbial fly with a sledgehammer. Instead, simply consider a jury trial waiver. Courts have upheld contractual jury trial waivers by employees for at least three decades.
Moreover, jury trial waives offer employers one additional protection above and beyond that which arbitration offers — appeals. The losing party can appeal an arbitration award only in very limited circumstances with a very low rate of success (approaching nil). Bench trials, on the other hand, are appealable for a variety of reasons, and you’ve waived nothing (other than a jury) merely by contractually electing a judge as the trier of fact.
“I don’t want to spend that much money.”
Guess what’s often just as expensive as going to court, if not more expensive? Arbitration. Arbitrators allow plaintiffs to engage in discovery that is nearly as expansive (and expensive) as that which trial courts permit. Additionally, employers have to add into the equation the cost to file the claim, which the employer usually shares, or bears entirely. Moreover, these fees do not include the arbitrators’ time (at their customary hourly rate), and includes all pre-hearing conferences, discovery and motion practice, the actual hearing time, and the drafting of the opinion. It is not hard to understand how in many cases the defense costs associated with arbitration outweigh defense costs in a traditional court proceeding.
Moreover, these costs only increase if you are arbitrating dozens, or hundreds, or thousands, of individual claims instead of one class or collective action. Don’t think for a second that this decision will end wage and hour litigation. Instead, plaintiffs’ lawyers, who currently have claimants opt-in to FLSA collective actions, will instead merely file a plethora of individual arbitration claims.
Be careful for what you wish, because this case is not the wage/hour panacea that many claim it is.