Arbitration policies for wage and hour claims

By Michael Lauderdale

As the number of Fair Labor Standards Act lawsuits has grown, employers have started taking notice of the power a sizable class made up of numerous employees can command.

Arbitration provisions – once the realm of commercial disputes between customers and business – are now part of the labor and employment framework. FLSA collective actions can wreak havoc on businesses, both in time and money. Of course, the best way to avoid wage and hour claims is to make sure that your employers are properly paid and classified.

Arbitration as a tool to quell class actions

As collective actions become more prevalent in the wage and hour context, employers are looking more closely at ways to quell these actions before they start. One strategy is to establish a legally enforceable arbitration policy applicable to the workforce that specifically waives an employee’s right to pursue a class or collective action. Two U.S. Supreme Court rulings have held that such provisions are valid, at least in the commercial context.

In AT&T Mobility v. Concepcion, a consumer brought a state law deceptive advertising claim against his cell carrier on behalf of himself and all others similarly situated – i.e., a class action. AT&T objected to proceeding in a class action in federal court, arguing that the consumer’s contract with AT&T mandated that any dispute between the two would be handled in individual, not class, arbitration. The Supreme Court agreed with AT&T’s position and ordered that the dispute proceed on an individual basis, rather than a class action—meaning Concepcion, and only Concepcion, would square off in arbitration against AT&T.

In American Express v. Italian Colors Restaurant, a restaurant sued American Express arguing that the credit card company violated federal antitrust law when developing its fee structure. When the restaurant wanted to bring the lawsuit as a class, American Express objected. The Supreme Court sided with American Express, holding that class actions under federal antitrust law were prohibited in the face of an arbitration agreement requiring individual arbitration.

Additional strategies for employers

Recently, many employers have utilized arbitration agreements to put in place class or colelctive action waivers based upon these Supreme Court rulings. Now, some employers are considering instituting class or collective action waivers outside the context of an arbitration policy. While an employer may not like the idea of having many lawsuits over the same issue, the key benefit to a class action waiver is to remove the threat of a class action. When an individual sues with the eye on doing so on a class or collective basis, one plaintiff can create a lawsuit that involves multiple plaintiffs. Many of those plaintiffs would never have thought about suing their employer, but since all they have to do is sign a consent form, they go ahead and join the class. A class or collective action waiver stops this type of passive participation.

Other provisions employers should consider adopting are jury trial waivers and venue selection clauses. These replace certain benefits of arbitration clauses. By waiving a jury trial, the parties will have their case tried by a judge instead of a jury.  With a venue selection clause, management can ensure that the case is pursued at the employer’s principal business location, which can be a benefit depending upon the jurisdiction.

Basically, as part of the application process, an employer would require an employee to sign a class action waiver, jury waiver, and venue selection provision as a condition of employment. Thus, the employee would still have access to the court system but could not pursue a class action or a jury trial. The potential benefit of these provisions is that an employer can obtain these benefits without resorting to arbitration and arbitration’s main downsides (employer pays and extremely limited appellate relief). However, employers should consult with their legal counsel before implementing these policies. It has not been determined whether or not these types of provisions adopted by an Oklahoma employer outside the arbitration context would, in fact, be enforceable.