Tackling Class Actions Before They Start

by Spilman Thomas & Battle, PLLC

Courts continue to make it easier for employers to adopt arbitration agreements and class action waivers.

In our most recent edition of SuperVision Today, we mentioned recent rulings from National Labor Relations Board (NLRB) Administrative Law Judges that considered the viability of class action waivers within arbitration agreements. Recent decisions by both state and federal courts have strengthened the viability of such waivers - and arbitration agreements generally.

West Virginia employers would likely agree the state's courts have been historically hostile toward arbitration agreements in general, but recent decisions have signaled a major change in that regard. For instance, in the putative class action of State of West Virginia ex re. Ocwen Loan Servicing, LLC v. The Honorable Carrie Webster, Judge of the Circuit Court of Kanawha County, the Supreme Court of Appeals of West Virginia considered whether, among other things, a class action waiver within an arbitration agreement was valid and enforceable under West Virginia law. First, the Court found the mutuality of the arbitration promise was sufficient consideration to support the agreement. Next, the Court rejected numerous objections that the arbitration agreement and the class action waiver were unconscionable. Specifically, the Court found the requirement for each party to pay its own attorneys' fees and the exclusion of certain subjects from the scope of the arbitration did not make the agreement unconscionable. The Court also found that certain limitations imposed upon discovery did not make the agreement unconscionable. Finally, relying on the Supreme Court of the United States and West Virginia precedent, the Court determined class waivers do not render an arbitration agreement unconscionable. Similarly, in New v. Gamestop, the Supreme Court of Appeals of West Virginia found inclusion of an arbitration policy within an employee handbook could create a valid arbitration agreement between the employee and employer and further held the arbitration agreement was enforceable. In short, the climate for employer arbitration agreements in West Virginia continues to improve significantly.

Employers in other states also received good news on the class action waiver front. The United States Court of Appeals for the Fifth Circuit issued its decision in D.R. Horton Inc v. National Labor Relations Board and overturned the NLRB's prior decision invalidating such waivers. The decision further bolsters an employer's ability to use arbitration agreements to require employees to resolve disputes on an individual basis, rather than through class or collective actions. The NLRB decision issued in the D.R. Horton matter held that class waivers violated Section 7 of the National Labor Relations Act (NLRA) because they could interfere with an employee's rights to engage in concerted activities. The Fifth Circuit reversed the decision on the grounds that, although the NLRA generally protects collective action by employees, it does not specifically address arbitration. Thus, there is no evidence Congress intended the NLRA to override the Federal Arbitration Act. An appeal to the Supreme Court of the United States is possible, and we will keep you updated on the latest developments with the status of class action waivers.

Although all employment situations are different and jurisdiction must be taken into account, employers who have struggled with the recent uptick in class and collective action litigation and unfavorable decisions by the NLRB and West Virginia state courts should consider requiring all employees to execute arbitration agreements or class action waivers as a condition of employment. These waivers can be included as early as the job application stage or as part of the employment handbook. We recommend all employers talk to their labor and employment counsel to decide if arbitration agreements and class action waivers are appropriate for them, and if so, how best to implement each.

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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