Solution to Class Action Wage Claims: Arbitration

by Wooden & McLaughlin LLP
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Across the nation and in Indiana, class action wage claims are exploding. And why not? Federal and Indiana law provide for awards of two or three times the amount of unpaid wages, plus attorneys’ fees for successful plaintiffs. If an employee has a claim for even nominal wages, his or her lawyer has an incentive to bring the matter as a class action, as doing so significantly increases the potential attorneys’ fee award. The class action strategy is ideal for wage cases, which often focus on an employer’s compensation system as a whole rather than on an individual employee’s unique situation.

How do employers deal with the growing problem of class action wage claims? Some are turning to mandatory arbitration agreements with employees. An agreement to arbitrate is a written agreement between an employer and an employee that requires employment disputes to be decided by an arbitrator selected by the parties rather than by a judge or jury in court. The parties generally are able to retain an arbitrator with a background in employment law. The process is intended to provide for more efficient resolution of disputes.

Historically, there has been much confusion over whether/to what extent arbitrations may be brought as class actions. Class action arbitrations have been permitted under some circumstances, and the American Arbitration Association, a well-known arbitration service, has developed rules for class arbitrations. Some employers have adopted arbitration agreements that prohibit class arbitrations. Nationally, some state legislatures have expressed concern and have limited the use of arbitration in the employment context. In Indiana, arbitration seems to remain a favorable way to resolve employment disputes.

As far as arbitration is concerned, the last year has been good to employers. In April 2010, the U.S. Supreme Court concluded that two parties could not be forced to participate in a class arbitration because their arbitration agreement was silent on the issue of class actions. See, Stolt-Nielsen SA v. AnimalFeeds International Corp., U.S. Supreme Court Case No. 08-1198. In April 2011, the U.S. Supreme Court ruled that federal law prohibits states from conditioning the enforceability of arbitration agreements on the availability of procedures to bring an arbitration action as a class action. See, AT&T Mobility, LLC v. Concepcion, U.S. Supreme Court Case No. 09-893.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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