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Collective/Class Action Waivers & Arbitration Clauses: Why Employers Should Care

Posted in Highlight, Human Resources (HR) Compliance, Litigation, Wage & Hour

2d Circuit Opens Door to Class Action Waivers

Continuing my series of posts this week on recent Second Circuit FLSA cases, today I’ll talk about class action waivers and arbitration clauses.

If that last clause is just legalese to you, let me try to walk you through it and why employers should care deeply about it.

As I’ve covered in prior posts, wage & hour claims, typically brought by one employee on behalf of others (known as a collective or class action) have been all the rage for the last decade.  Employers have struggled with how to rein such actions in because litigation them can be costly.

In doing so, employers have tried to use two defense mechanisms. First, employers have tried to get employees to agree to arbitrate all claims before a neutral third party. That typically keeps costs down because arbitrations are quicker and more efficient.

Second, employers have tried to get employees to forego their ability to join a class action. In other words, employees can sue to recover their own missing overtime, but not for hundreds of other employees too. I foreshadowed this in a post back in March.

Recent pronouncements by the U.S. Supreme Court have opened to door to these arguments. Earlier this month, the Second Circuit just made that door a lot wider.

The case, Sutherland v. Ernst & Young, strengthened the ability of employers to use arbitration agreements and to include a class action waiver in them even under the Fair Labor Standards Act.  It upheld both types of provisions relying on the U.S. Supreme Court cases.

For employers, this decision is important because it now provides employers with a tool to use to try to limit exposure in wage & hour cases and more.   Of course, whether arbitration agreements or class action waivers is right for your particular business is something that you should discuss with counsel and may depend on a variety of circumstances.

In the meantime, though, this is not the end of the battle on this issue. The National Labor Relations Board has come to a different conclusion and it remains to be seen how the U.S. Supreme Court will confront the issue. However, I have a hunch based on the prior precedent, that its just a matter of time before the U.S. Supreme Court decides this issue once and for all (and probably in the employer’s favor.)