Last May, the Supreme Court issued a landmark decision that permitted employers to require employees to give up their right to bring a class action lawsuit against the employer and instead arbitrate such a dispute. In light of this, should you require your employees to sign a class action waiver? Here are some pros and cons to doing so that you might want to consider.
- Arbitration is usually cheaper than litigation. Arbitration does not involve most of the formalities that litigation generally involves. There is no complex pleading stage or formal discovery. And there is no trial. Rather, the parties submit their evidence to an arbitrator in a more informal setting than litigation, which tends to reduce the cost.
- Arbitration is faster than litigation. As noted above, arbitration is more informal than litigation, so the complex procedures and delays associated with litigation are not a part of arbitration. Therefore, disputes referred to arbitration are typically resolved in months, not years like litigation.
- Employers have more control over an arbitrator than a jury. Most arbitration agreements give an employer some discretion in choosing an arbitrator, thereby giving the employer some idea as to how the arbitrator will decide the case. An employer has no control over the judge that presides over a case, and little control over a jury. Juries are famously unpredictable, so an employer can avoid this risk through arbitration.
- Arbitration is confidential. Employment lawsuits, even ones that are totally unfounded, never make an employer look good. And since lawsuits are public record, every unfounded allegation of an employee could be printed in the paper. Arbitration eliminates this problem, keeping the entire dispute private.
- Arbitrators often try to keep both sides happy. Arbitrators often try to give both sides something, even if one side has a meritless claim. Frivolous lawsuits are more likely to be tossed out of court, and in the most egregious cases the employee filing the frivolous suit will be required to pay the attorneys’ fees of the employer. Also, arbitrators may let a frivolous claim drag on longer than a court, who is not getting paid an hourly fee (which is footed by the employer) to work on a case. Overworked courts have no problem jettisoning meritless suits.
- The informal nature of arbitration may hurt employers. Hearsay and questionable documentary evidence which would be excluded in court may find its way into an arbitration hearing.
- The EEOC is not bound by an arbitration agreement. All the money that you pay your lawyer to draft an arbitration agreement may go to waste if the EEOC gets involved, as they would not be bound by such an agreement.
On balance, I tend to think that arbitration agreements are worthwhile for most employers, particularly those employers with many employees. This is particularly true if the employees are paid hourly and therefore could bring a claim against the employer for not paying in accordance with wage and hour law. Feel free to contact me if you have any questions or thoughts about class action waivers.