Supreme Court class-action waiver decision: What employers should know

There’s an old saying that states: “Just because you can do something doesn’t necessarily mean you should.” Employers ought to keep that in mind when considering their next steps following the U.S. Supreme Court’s blockbuster decision this spring in the case of Epic Systems. Corp. v. Lewis.

That case involved the issue of “class action” lawsuits. A class-action suit is a single lawsuit brought on behalf of multiple people claiming the same injury caused by the same party under similar circumstances.

The most common types of employee class actions involve multiple employees claiming the same employer has violated wage-and-hour laws, cheating them out of pay they’ve earned. But employee class actions can also involve alleged safety violations, accusations of widespread sexual harassment and systemic race or gender discrimination.

In the Epic case, the Supreme Court ruled 5-4 that employers can require workers to sign agreements waiving the right to bring class actions over employment disputes and agreeing to individual arbitration of any dispute instead. In other words, workers would have to proceed alone before a neutral third party instead of proceeding as a large group to a jury.

This represents a clear “win” for employers for a variety of reasons. For one thing, class actions can be costly. Even if an individual worker’s level of harm isn’t that high, these cases can translate into huge dollars in the aggregate. Further, juries can be unpredictable, which means employers often feel pressure to settle these cases, even when they truly believe they lack merit. In fact, according to a recent study conducted by a pair of worker-advocacy groups, large companies have paid out close to $9.2 billion in employee class actions since 2000.

But while the prospect of making class actions “go away” is enticing, there are some thing employers should think about before rushing to draft a class action waiver and forcing all their workers to sign it.

First, while arbitration can be a cheaper, quicker and more predictable means of resolving disputes than a jury trial, it does have its shortcomings. In some cases it can actually be more expensive, if the employer is paying for the process aside from the worker’s filing fee.

Further, arbitration is final. That’s helpful if you win. But if the employee wins and you think the arbitrator got it wrong, you can’t appeal.

One advantage to a class action is that you only have to defend one case. If you’re dealing with multiple individual claims being handled on a case-by-case basis, you could lose some of them, depending on how good each worker’s attorney is or who you get as an arbitrator.

Finally, you should think hard about whether your arbitration agreement covers sexual harassment cases, particularly in the #MeToo era, when there’s been so much buzz about harassment being swept under the rug by shunting cases off to secret arbitration. From a PR standpoint, it may be better to exclude these types of cases while making a firm commitment to addressing potential harassment and gender bias in the workplace.

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