Employers frequently require that employees enter in certain agreements upon hire as a condition of employment, to include non-competition, non-disclosures and non-solicitation.
In some cases, employers also will require that employees agree to arbitrate employment disputes, in lieu of filing them in state or federal court, or being included as part of a class action.
Last month, the U.S. Supreme Court split 5-4 in deciding that these arbitration clauses are legal and do not violate federal law. Newly appointed Justice Neil Gorsuch wrote for the majority.
In Epic Systems Corp. v. Lewis, the employer and the employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. Despite signing these agreements, certain employees sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.
The employers sought to enforce the arbitration agreements pursuant to the Arbitration Act and deny the employees the right to participate in class or collective actions.
The Supreme Court held that the agreement to arbitrate individualized disputes must be upheld. The employees were thus prohibited from bringing suit in court, or joining a collective or class action.
Previous to the case, there was a split in the law on whether these agreements that provided the class action waivers were enforceable. This Supreme Court decision resolves the conflict.
Kimberly Daniel, a partner with Richmond-based Hancock, Daniel & Johnson P.C., said employers can now safely use arbitration clauses as a valuable tool to efficiently resolve individual workplace disputes. She said this case is especially significant for national and regional employers because it settles a split between the circuit courts that had subjected these employers to conflicting rulings over the enforceability of class action waivers in arbitration agreements.
“With this important legal issue settled, now is an ideal time for employers to develop arbitration agreements that include class action waivers,” Daniel said.
She says the arbitration process is quick and inexpensive in comparison to litigation, and a well-drafted arbitration agreement will greatly reduce an employer’s litigation risk.
In addition, she said that for many employers, the cost and risks associated with even meritless class action litigation have led to countless and extremely costly settlements.
Finally, there is no one-size-fits-all agreement for every company. She said employers should create an arbitration agreement and process that is right for the company, to include the establishment of important terms such as where the arbitration will take place, the process for selecting the arbitrator and when claims must be filed.
Employers who do not have such agreements in place should consider implementing them for new and current employees.