Navigating Class Action Waiver Law

Cases involving arbitration agreements with class action waivers have been in the headlines a lot lately. For employers, the underlying issue in these cases is often a simple one: can an employer require an employee to sign an arbitration agreement waiving his or her right to bring class or collective action claims? The simplicity of the issue belies its significance. If such agreements are enforceable, then an employer may be able to effectively shield itself from class or collective action liability by entering into arbitration agreements with its workforce. Courts have historically greeted "class waivers" with a heavy dose of skepticism, but class waivers are back in the news because many courts have recently reversed course and started enforcing them. While this trend presents tempting possibilities for employers, they need to exercise care when drafting class waiver agreements.

The recent trend in favor of class waivers started with the Supreme Court's decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011). Broadly speaking, Concepcion held that state laws prohibiting class action waivers in arbitration agreements are pre-empted by the Federal Arbitration Act (FAA) and are therefore unenforceable. Although some early cases struggled to define Concepcion's breadth, courts now generally uphold class waivers, even in employment cases. Indeed, the trend is so strong that one court—believing class waivers disproportionally benefit employers over employees—upheld a class waiver in an arbitration agreement even though it thought doing so was "unappetizing," "lamentable" and possibly "unjust." Porreca v. Rose Grp., 2013 WL 6498392 (E.D. Pa. Dec. 11, 2013). The court concluded that it must nevertheless enforce such waivers because it was "not at liberty to ignore the decisions of the United States Supreme Court."

The trend got another boost last month when the Fifth Circuit refused to reconsider its opinion in the highly publicized case of D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013), reh'g denied, (5th Cir. Apr. 16, 2014). The D.R. Horton case rose to prominence in 2012 when the National Labor Relations Board (NLRB) ruled that class waivers in arbitration agreements violated the National Labor Relations Act (NLRA) by infringing on employees' rights to engage in concerted activity. The defendant appealed the decision to the Fifth Circuit, which cast aside the NLRB's decision in December 2013. Among other things, the Fifth Circuit noted that the NLRB's opinion failed to give proper weight to Concepcion and federal arbitration law. It also held that nothing in the NLRA suggested that Congress intended it to trump the strong policy in favor of arbitration established in the FAA.

In refusing to reconsider its D.R. Horton decision, the Fifth Circuit sided with a growing number of state and federal courts that have upheld class waivers. But a recent Sixth Circuit case shows that courts will not simply rubber stamp arbitration agreements. In Russell v. Citigroup, 2014 WL 1327868 (6th Cir. Apr. 4, 2014), the defendant argued that an arbitration agreement stating it applied to "all employment-related disputes" that "arise" in the employment relationship applied retroactively to claims that occurred before the parties signed the agreement. The court disagreed, finding that the agreement's use of the term "arise" rather than "arose" or "have arisen" indicated that the agreement only applied to claims arising after the parties signed it.

Citigroup illustrates that notwithstanding the growing body of case law upholding class waivers, employers must carefully scrutinize the precise language they use in any arbitration agreement. Employers should also be cognizant of the fact that some jurisdictions, such as California, have been slow to embrace the trend in favor of class waivers. Thus, companies should exercise caution to ensure not only that the language they use in arbitration agreements is broad enough, but also that the language is enforceable in specific jurisdictions. These limitations aside, class waivers may provide many employers an important tool in limiting exposure to class or collective actions.

The Faegre Baker Daniels complex employment litigation team will continue to keep you updated with future developments. In the meantime, please feel free to contact us with questions.

This legal update was also published in Law360 on May 21, 2014.