Supreme Court To Decide Whether Employee Class-Action Waivers Are Enforceable
The U.S. Supreme Court has agreed to hear an appeal in three cases involving employee class-action waivers. The issue before the Court in Epic Systems v. Lewis; Ernst & Young v. Morris; and NRLB v. Murphy Oil, is whether clauses in employee agreements which effectively prohibit class-actions are enforceable. The Court’s impending decision will have important effects on domestic companies as well as foreign companies operating in the U.S.
A class-action waiver is often included by employers in arbitration agreements that prospective employees are required to sign as a condition of employment. Such clauses typically provide that (a) all disputes between employee and employer shall be settled by arbitration and (b) that the employee waives his right to pursue work-related legal claims in court as a group, i.e., in a class-action.
Class-action waiver clauses protect companies from the risk of large damages awards by juries, and at the same time provide for a relatively speedy and cost-effective resolution process through arbitration. From the company’s perspective, fighting an individual plaintiff in arbitration is greatly preferable to fighting a large class in court, especially given that class-actions are often driven by law firms with substantial expertise in this field and who tend to be aggressive and driven by self-interest. A recent survey shows that nearly 40 percent of employers currently use such waivers in their employee arbitration agreements, all hoping to guard against the rising tide of employee lawsuits.
However, in several high-profile cases, employees have fought back and sought to invalidate class-action waivers in federal courts. The results have been mixed, which is the reason why the Supreme Court has agreed to hear the case. Two courts of appeals – the Chicago-based 7th Circuit and San Francisco-based 9th Circuit – have ruled that class-action waivers are prohibited by a law protecting workers’ right to act together. Three other courts, including the 5th Circuit, have upheld the waivers and blocked the class-actions.
The Supreme Court decision is expected later this year. Depending on the ruling, the tide of wages-related litigation will either subside or turn into a flood.
