Court Ruling Gives Employers Additional Armor To Protect Against Class-Action Lawsuits - BB&K's Brian Reider Examines the Impact of the U.S. Supreme Court Ruling

by Best Best & Krieger LLP

The Press-Enterprise - AUGUST 12, 2013

As an employer, you may sometimes feel as though a large “Sue Me” target has been painted on your chest. It is no illusion — plaintiff employment lawyers have pinned it there so they can aim their wage-and-hour class-action lawsuits directly at you.

Earlier this summer, the U.S. Supreme Court gave employers some additional armor to protect against such class-action lawsuits when it decided the case of American Express v. Italian Colors Restaurant. In its June 20 decision, the nation’s highest court held that where parties have agreed in advance to decide disputes only by individual arbitrations, and have waived the right to bring claims by a class action, such agreements are enforceable even though it may not be economical for one party to bring such an individual claim. While it was not itself a wage-and-hour case, American Express should be very helpful to California employers.

As many employers have discovered, even small errors in the calculation of wages or deciding how to administer rest and meal breaks have set the stage for huge damage claims by groups of employees who sue on a class-action basis to recover wages, interest, penalties and attorneys fees.

In California, such lawsuits are brought as a “class action” where a few “representatives” bring the claim for all other employees. To combat such actions, employers have tried various approaches, notably requiring employees to agree to mandatory, binding arbitration of claims and, in some cases, to agree to waive the right to bring class-action claims.

When such provisions have been challenged, the California courts have almost always sided with employees, often on the basis that California public policy is against such arbitration and waiver provisions. The courts have disfavored such provisions because the employee has no bargaining power regarding the arbitration and waiver language (which is often buried in the middle of an employee handbook) and particularly because it would not be economical to make each employee separately arbitrate his or her wage-and-hour claims.

Recently, however, the U.S. Supreme Court has ridden to the rescue of beleaguered employers in several key decisions that involve a little known federal law called the Federal Arbitration Act, or FAA. Originally enacted in 1925, the FAA was intended to establish a strong federal policy that when parties enter into an arbitration agreement, they can and should be later forced to arbitrate their disputes rather than go to court.

The question that recently has been considered by the Supreme Court involves a concept called “pre-emption” — a rule that says in certain cases where a state’s legal decisions conflict with a federal law, the state’s decisions are “pre-empted,” or superseded, by the federal law. In short, in a battle between a federal law and state decisions, federal law wins.

Opening the door to the use of waivers, in 2011 the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that class-action waivers are valid in consumer contracts (overruling, in effect, a California Supreme Court case that said such waivers are invalid under California law). Coupled with the recent American Express decision, it now appears that a well-written arbitration and class action waiver provision is likely to be enforceable.

This is not to say that the issue is entirely resolved in California. The FAA does not apply in every circumstance, and plaintiff’s counsel will surely seek to contest arbitration and class-action waiver provisions whenever they can. However, recent decisions in California suggest that the pendulum may be swinging back at least a bit. In one recent case, Serpa v. California Surety Investigations, a California appellate court held that an arbitration provision in an employee handbook was enforceable, even though the employer reserved the right to change the handbook later.

Every employer should review their employee handbooks and agreements now to see whether any changes are needed to take maximum advantage of these recent favorable decisions.

* This column first appeared in The Press-Enterprise on Aug. 11, 2013. Republished with permission.

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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