Good News For Employers! U.S. Supreme Court Rules That Class and Collective Action Waivers in Arbitration Provisions are Enforceable

Chalk one up for the good guys! In a 5-4 vote, the United States Supreme Court held today that employer-mandated arbitration provisions containing class and collective action waivers are enforceable. I realize that this sounds a bit esoteric to get so worked up about, (I have used TWO exclamation points already.) but this ruling has the potential to save you a LOT of money.

As you know, class and collective actions are incredibly expensive to defend and they often result in hugely costly settlements and judgments. This is particularly true when dealing with collective actions under the Fair Labor Standards Act. As unfair as it seems, under the FLSA employers are usually only allowed to depose a very small sampling of the collective plaintiffs. The Courts extrapolate the data from this small representative group to the entire class to determine if the employer is liable and how much it owes. Often, most members of the collective group do nothing more than sign an opt-in card and then cash their settlement check. Since employees know that they will never be deposed or have to testify at trial, they are inclined to join these types of suits whether or not they have actually been wronged or suffered any damages.

The ruling today gives employers a way to significantly reduce the likelihood that employees who have not been harmed bring FLSA claims. We now know that with a valid arbitration agreement in place, each employee will be required to arbitrate their FLSA claim against the employer separately, rather than as part of a collective group. In arbitration, each employee will have to affirmatively prove up their own case. This will significantly reduce your chances of being sued under the FLSA.

As with most things “legal,” the details of the agreement matter, and this is not a total cure-all for all FLSA liability. But, for many employers, a properly drafted arbitration agreement containing a class/collective action waiver could save your company literally millions of dollars. Consult with your legal counsel to ensure that your arbitration agreement will pass legal muster.

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