Here’s the typical scenario, several ex-employees hire an attorney and threaten a class action lawsuit for employment law violations that if proven probably won’t result in a jury awarding more than $20,000. Employer’s attorney contacts the employees’ lawyer in order to attempt a settlement. The employer’s attorney reports that the other side is not interested in settling for less than $100,000.00. Defense counsel asks employer if the individuals signed an Arbitration Agreement and if so, did it contain a class action waiver. The answer to both questions was “no.” Attorneys for the employer inform them that if the matter moves into litigation, their attorney fees and costs will easily exceed $100,000 and that if the employee wins at trial the employer will also have to pay his costs and fees so they may want to consider settling for $100,000. Oh how life would have been different for this employer if the employees in question had signed an arbitration agreement and that is even more so in light of the 2013 United States Supreme Court ruling in American Express Co. v. Italian Colors Restaurant. It was in that case that the Supreme Court ruled that a class action waiver provision in an arbitration agreement governed by the Federal Arbitration Act (FAA) is enforceable even if the plaintiff’s cost of individually arbitrating the claim(s) exceed the potential individual recovery.
In American Express, a group of merchants filed a class action and Amex asked the court to dismiss the case due to an arbitration agreement that included a class action waiver which was signed by all merchants. The merchants claimed that if forced to arbitrate individual claims, each such challenge would require that plaintiff pay an expert witness from several hundred thousand dollars to more than $1 million, while the maximum recovery per merchant would be $38,549. The Supreme Court ruled that the barring a specific congressional order to the contrary such agreements and provisions therein must be “rigorously enforced” and writing for the majority, Scalia stated that an individual party’s rights are not eliminated simply because it may be more expensive to litigate a claim. Scalia distinguished between a situation wherein one was forbidden from asserting a right, versus a scenario in which assertion of the right might not be cost effective.
The result is that employers and employees should be aware that arbitration agreements and most of their provisions will be enforced as written. Arbitrating claims allows for quicker resolution thereby reducing costs and fees for both sides. Had the employer in our example had such an agreement in place, it would not have felt compelled to write such a large check simply to avoid having to write a larger one due to litigation. As a last remark, the US Supreme Court has indicated that its holding in American Express Co. v. Italian Colors Restaurant will apply to FLSA and other employment law claims, even if based upon state laws. As such, we highly recommend that every employer have a stand-alone arbitration agreement and that each employee sign and date the document and that the original be placed in their personnel file.
We hope you found this information of value.
Please do not hesitate to contact Holman HR with any questions you may have.