Class action waivers: Green light or stop sign?

We are at an interesting crossroads: Recent U.S. Supreme Court decisions gave employers the green light to use mandatory arbitration agreements and to preclude class action lawsuits by those who sign on. Meantime, the #MeToo movement has caused some employers to back away from arbitration and confidentiality agreements following worker complaints that private dispute resolution masks recurring misconduct in the workplace. Employers have been hit with worker walkouts in connection with their use of arbitration agreements to resolve disputes; highly sought-after workers have boycotted companies utilizing mandatory arbitration agreements; legislatures around the country have sought to curtail mandatory arbitration, particularly where sex harassment or discrimination is claimed. There have also been similar efforts to ban the use of confidentiality provisions when it comes to settling harassment and sex abuse claims.

So are class action waivers contained an arbitration agreements a silver bullet or a dud?

Data shows that class action spending is on the rise and represents more than 11 percent of all U.S. litigation spend. Much of this relates to wage and hour class actions which have seen a 500 percent increase in less than 20 years. It's no wonder that an estimated 60 percent of American workers are now party to mandatory arbitration agreements, the majority of them containing class action waivers. Indeed, one source projects that 83 percent of non-union workers could be party to arbitration agreements by 2024.

Arbitration is generally considered to be cheaper, faster and more flexible than litigation in court, features that benefit both sides. One study found that the average time from filing to decision was 475 days in an arbitration. Contrast that with a court-filed lawsuit which generally has a lifespan between 18 months to three years. Absence of a jury -- and the reduced potential for a runaway verdict -- is another feather in the cap of arbitration. So is keeping the matter out of the press if the arbitration agreement properly provides for confidentiality. But the biggest advantage of arbitration for employers, particularly in the wake of recent Supreme Court decisions like Epic Systems v. Lewis and Lamps Plus, Inc. v. Varela, is the fact that those who are signatory to arbitration agreements can be required to litigate just their individual claims in arbitration, and be barred from pursuing what are often baseless class or collective actions altogether.

Still, arbitration has its downsides. Apart from the recent social rejection of mandatory arbitration, employers should consider the fact that they likely will foot the bill of any arbitration costs, which can be as much as $5,000 a day for a good arbitrator. Dispositive motions are unlikely to be granted, and arbitrators can be loosey-goosey with discovery and evidentiary rules. Significantly, while class action claims can be barred through use of an arbitration clause, claims brought under California's Private Attorneys General Act may not be arbitrated per Iskanian v. CLS Transportation Los Angeles, LLC. As such, enforcement of an arbitration clause could result in two-track litigation, with individual claims headed to arbitration, and representative actions brought under PAGA left behind in court. Arbitration's supposed promise of "confidentiality" can also be circumvented, particularly if the initial filing is a salacious lawsuit placed on a public docket. No matter how private the arbitration proceedings, such allegations would remain in public view. Most importantly, there are no appellate rights in arbitration. Get a bad decision and there is generally no recourse.

That said, an airtight arbitration agreement with a valid class-action waiver remains the best foil to limit ever-expanding class action spend. For those wishing to foreclose California wage and hour claims -- which are generally exempt from arbitration by California statute -- the agreement should invoke the Federal Arbitration Act, which preempts the California Labor Code. Note, however, that "transportation workers" are not covered by the FAA per New Prime, Inc. v. Oliveira. The agreement should also provide the name of the arbitrable forum to be used, along with the applicable rules which must pass muster under California law to ensure enforceability. Confidentiality, if desired, must be a specified term. Certain arbitration groups will actually publish their awards absent such a restriction. But beware: Some courts have found substantive unconscionability where confidentiality provisions hampered the claimant's ability to obtain necessary discovery.

Class actions are best addressed expressly, with the parties waiving their rights to class or collective actions, in either court or in arbitration. Make sure that you obtain the signature of a company representative, particularly if the agreement is "between the parties." Any provision allowing for the company to unilaterally change the terms of the agreement will undercut enforceability. And take care that you name the correct corporate entity if you want to bar class actions against that company.

Arbitration isn't right for every company, and some may want to excise harassment and other claims from the process in light of #MeToo concerns. For others, removing the "mandatory" aspect of the contract may be another approach. Let people opt out of the process if they so choose. Employers might also socialize the arbitration process with workers, so they appreciate the benefits of a less-than-public proceeding that generally results in an earlier resolution. There is no one size fits all.

For those who proceed to enforce arbitration agreements with class action waivers across the board, be careful what you wish for. With increased enforcement of arbitration clauses and class action waivers, there is always the potential for a well-funded plaintiffs' firm to fully engage in the arbitration process and to file dozens, hundreds or even thousands of individual arbitration cases. In the wake of the Supreme Court's green light on arbitration, some companies have been saddled with six-figure arbitration filing fees which they are obliged to pay. Then there's the issue of defending all those cases...

Green light or stop sign? You're in the driver's seat.