Supreme Court ruling may spur employers to make changes

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Rich Meneghello, BridgeTower Media Newswires

You may have heard about the U.S. Supreme Court’s significant ruling a few weeks ago that cleared the way for employers to enter into mandatory arbitration agreements with their employees that block class action litigation. This is potentially a game-changing decision, and employers may wish to consider revising their workplace policies to take advantage of this ruling.

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Arbitration agreements and class waivers

Mandatory arbitration has become a very popular strategy for employers over the past several decades. Rather than allow workers to bring expensive legal claims against them in court – where it can often feel like the deck is stacked against them – many employers require their workers to sign pre-dispute agreements that ensure all such conflicts are instead resolved through private arbitration proceedings.

In recent years, “class waivers” have become vogue; they are provisions within arbitration agreements that require workers to bring their workplace disputes in the form of individual arbitration proceedings rather than through class or collective actions.

In 2012, however, the National Labor Relations Board (NLRB) ruled that employers violate federal law when they require employees to sign arbitration agreements containing class waivers. It cited the National Labor Relations Act (NLRA), which protects employees (not just union members) who engage in “concerted activities” for “mutual aid or protection” in the workplace. The NLRB concluded that there was nothing so concerted as employees banding together to air workplace grievances through class or collective actions against their employers, so any contract that restricted this right was considered illegal.

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Battle over agreements reaches courthouse

Over the past five years, a series of court decisions across the country defined the contours of this legal conflict. For Oregon employers, the battle lines were drawn in 2016, when a federal appeals court hearing cases arising from most of the western states agreed with the NLRB and struck down class waivers. While some other courts joined this stance, several others rejected this line of thinking and permitted class waivers, setting the stage for the Supreme Court to step in and settle the conflict once and for all.

On May 21, in a narrow 5-4 decision, the Supreme Court sided with employers and said that the right to bring a class-based claim is not considered a “concerted action” as protected by the NLRA, and therefore the labor statute does not bar any agreement requiring arbitration instead of any such claims. Instead, the court deferred to another federal statute (and related policy) that favors the resolution of disputes through arbitration. The result? Oregon employers are once again free to incorporate class waivers into pre-dispute arbitration agreements.

Now employers have much to consider when determining whether to require their employees to enter into mandatory arbitration agreements, especially those with class waiver components.

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Pros and cons of arbitration and class waivers

First, there are benefits of arbitration. In most cases, arbitration proceedings are less costly than courtroom litigation. The parties can control the scope of the case a bit better than if they were in typical litigation, and the efficiency of arbitration usually leads to lower legal bills. That same efficiency also means that a typical arbitration case wraps up much sooner than the average piece of courtroom litigation, which can often drag on for well more than a year. Arbitration brings finality to proceedings as well, because it is exceptionally difficult for either side to appeal an arbitration ruling and drag the case on even longer than necessary (as often happens to dampen employer victories in court).
Other benefits to arbitration include privacy and confidentiality to proceedings, which do not appear in court cases (where most pleadings and proceedings are open to the public), and replacing unpredictable juries with steadier arbitrators. When a class waiver is tacked on, an employer gets all these benefits and more.

Employees are prevented from threatening or bringing costly class or collective actions against their employers, forcing aggrieved parties to take the time and effort to bring claims on their own.

Arbitration has downsides too. Employers, especially those in Oregon, need to act with precision when crafting and implementing pre-dispute agreements or else they could be rejected as unenforceable. There are a series of legal standards and state-specific technical requirements that need to be followed. Employees’ attorneys understand these legal hurdles better than anyone and often engage in protracted litigation over the enforceability of arbitration agreements for months before the underlying issue at stake is even addressed. Such fighting could wipe out the cost savings and efficiency originally sought from arbitration in the first place.

Moreover, in the current political climate, requiring employees to engage in private arbitration proceedings may not sit well with public citizens, board members or others concerned about social justice. One’s organization may face pressure from worker advocates who contend that denying court access is an unforgivable sin, leading to negative publicity and lost business.

All of this remains true if class waivers are folded in; the Supreme Court’s recent decision received a lot of negative press from mainstream news sources, and therefore use of such agreements could raise a red flag when it comes to public perception. In fact, the decision has led to calls for Congress to step in and change the law, banning class waivers (and possibly pre-dispute arbitration agreements) once and for all.

Unless and until Congress acts, the decision whether to require class waivers belongs to employers. They will approach this question differently, but they should do so thoughtfully and with full consideration of the aforementioned issues before making a final decision.

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Rich Meneghello is a partner in the Portland office of Fisher Phillips, a national firm dedicated to representing employers’ interests in all aspects of workplace law. Contact him at 503-205-8044 or rmeneghello@fisherphillips.com, or follow him on Twitter – @pdxLaborLawyer.

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