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Not Backing Down – Why Fight for Arbitration and Class Waivers

An arbitration agreement with workers—either employees or independent contractors—that also prohibits class claims in those arbitrations can help considerably in managing Fair Labor Standards Act (“FLSA”) claims. Individual arbitrations make FLSA claims much easier to deal with when the company is not working under the threat of a court-ordered notice to potential class or, in FLSA speak, potential collective action members.

The National Labor Relations Board is going after these class and collective action waivers in employment arbitration clauses, and will probably keep at it until the Supreme Court puts a stop to it. The Board has defiantly issued a flurry of decisions finding class and collective action waivers in employment arbitration clauses to be unfair labor practices, since they supposedly chill employees’ ability “to engage in . . . concerted activities for the purpose of . . . mutual aid or protection,” and ordering their removal, even though the Fifth Circuit has disagreed with them—twice—and the Supreme Court strongly favors class waivers in other contexts. Anyone willing to challenge the Board’s interpretation of this 1935 law as it applies to arbitration agreements is in for a fight, but that fight might be well worth the risk for some companies.

Costs are more manageable and claims can be resolved on an individual basis with a dispute resolution program. For this reason, many companies, especially those concerned with extensive wage and hour exposure, choose these programs and choose class or collective action waivers.

The Board doubled down at least five times on this position. In one typical case, it ordered the company to cease and desist its arbitration clauses since those clauses waived collective arbitration and lawsuits.1 This rash of decisions followed closely on the heels of the second ruling by the Fifth Circuit—which covers Texas, Louisiana and Mississippi—flat out rejecting the Board’s conclusion as contrary to the Federal Arbitration Act.  

Given that a federal court and a federal agency are at loggerheads, what are employers supposed to do? Some companies should consider taking the NLRB to task and fighting to maintain their dispute resolution programs. First, if the employer can get its case reviewed by the Fifth Circuit, it will likely win. Second, as the Fifth Circuit pointed out, several other courts have stated they would agree with the Fifth Circuit if faced with the issue. This means that even if a company can’t get review in the Fifth Circuit (based on where the business is located and where the alleged unfair labor practice occurred), the company still has a shot at getting into a favorable court. Third, each company with these waivers should be asking itself whether fighting might be worth it; that is, what’s worse, the NLRB or class actions? While this question is business specific, there are good reasons why any business with a dispute resolution program should be asking it.

1 Citigroup Tech, Inc.. and Citicorp Banking Corp., 363 N.L.R.B. No. 55 (Dec. 1, 2015).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.