Be Careful What You Wish For – How Collective Action Waivers May Hurt Employers

What is a collective action?

A collective action is a type of class action that is brought by employees to assert their rights under the Fair Labor Standards Act (FLSA), most commonly actions alleging wage and hour claims. By utilizing the collective action process, employees can join together to assert individual claims in one action, saving time and money. These types of claims often assert that employees are misclassified and therefore entitled to overtime, or have not been paid for all the time worked, travel time, or meal breaks.

Supreme Court upholds collective action waivers in arbitration agreements

The Supreme Court of the United States recently held that collective action waivers in employee/employer arbitration agreements are enforceable. These types of waivers are often signed by employees as a condition of accepting a job.

In a 5/4 decision, the Supreme Court found that class action waivers do not violate employees’ right to “protected concerted activity” under the National Labor Relations Act (NLRA). The NLRA protects employees’ right to communicate with each other and join together to take concerted action to improve working conditions and participate in union-related activities. The Court held that class actions do not constitute concerted activity under the statute.

The Court’s decision allows employers to include a collective action waiver in mandatory arbitration employment agreements.

Potential downside of collective action waivers

One potential downside for employers is that in collective bargaining negotiations, union representatives may balk at accepting arbitration clauses that contain the waivers, causing protracted and expensive negotiations. Such negotiations may involve assertions that requiring employees to waive both their right to sue in court and their right to bring a collective action in arbitration should require some other concessions or protections of employees on the part of employers.

Relatedly, non-union employees could join together to organize and unionize their workplace to protect their rights. The NLRA guarantees the right of employees to discuss organizing or joining a union. The NLRA also protects employees against discrimination or retaliation for exercising their rights under the statute.

Waivers of collective action in mandatory arbitration agreements may also lead to more litigation for employers, in turn negating the intent and cost benefits of arbitration.

Including a collective action waiver in an arbitration agreement could result in an increase in the number of employee actions challenging the validity and enforceability of the arbitration agreement itself. The Federal Arbitration Act’s savings clause enables employee actions to challenge the validity of arbitration agreements that are unconscionable, or the product of duress or fraud under basic contract principles. An arbitration agreement may also be found unenforceable if its terms fail to meet the FAA’s criteria or violates other federal or state laws. Due to differences in the way state case law has approached challenges to arbitration agreements, notably in New Jersey, an employee may choose to bring an action in state court to invalidate an arbitration agreement rather than in federal court. An employer could end up defending against challenges to its arbitration agreement in multiple forums.

After the Supreme Court decision upholding collective action waivers, your right to discuss wages and other conditions of employment with other employees is still protected under the NLRA. Your right – and the right of other employees – to file individual claim under the FLSA against the employer also remains intact. Unless the arbitration agreement is invalidated, employees who sign a collective action waiver must pursue claims individually rather than in a class with other employees. Individual employees may retain a single law firm to pursue their wage and hour claims or other types of claims; these single arbitrations could take a more time and effort to defend on the part of the employer.

If you are considering bringing a claim for unpaid wages or other claim under the FLSA, you should contact an experienced employment lawyer to discuss your rights. Murphy Law Group focuses exclusively on employment law. We can review any arbitration agreement to determine its potential enforceability and validity. Email us at murphy@phillyemploymentlawyer.com or call (267) 273-1054 for a free consultation.