The Supreme Court’s decision to make class action waivers in workplace arbitration agreements enforceable means more hoteliers can put these policies into place, but they should take note of some of the intricacies before doing so.
REPORT FROM THE U.S.—The U.S. Supreme Court’s ruling that arbitration agreements with employees that include class action waivers are enforceable under federal labor law opens up an avenue for employers that was previously murky.
The 5-4 decision means these waivers, which prevent employees from joining together in arbitration or lawsuits against their employer, are legal under the Federal Arbitration Act.
For employers who already have workplace arbitration agreements with class action waivers in place, this decision means they can continue on as they did before—provided the language in their agreements was drafted properly, said Dana Kravetz, managing partner at Michelman & Robinson.
The question remains for those employers who have arbitration agreements but want to put the class action waivers into place with their existing workforce, he said.
“Have you given adequate consideration to your employees to get a new signature?” Kravetz asked. “The pitfall is how you add the new language.”
People don’t like change, Kravetz said, and employees likely will be skeptical of anything new put in front of them. Most companies looking to implement a class action waiver will include it in an overall rollout of a new employee handbook with updated policies and procedures, he said. Employers should keep in mind that this is a new contract that is asking them to give up something, he said.
Andria Ryan, partner at Fisher Phillips, recommended telling employees the company’s policies are being updated in light of the new law, and the company is asking employees to re-execute these agreements to take the place of old agreements.
Employers might find they have a “handful of non-lawyer lawyers” who question whether they have to sign, Ryan said. In such cases, the employer has some options, up to and including termination, but that’s not necessarily the best solution, she said.
When determining what consideration to give employees in exchange for their signatures, Kravetz said companies typically offer perks such as money, floating holidays or extra vacation days.
In terms of paying the employees, $10 is not going to do it, he said. Think along the lines of an extra $100, $250 or $500, he said. Similarly, three extra vacation days is meaningful and has a tangible value, he said.
An employee who doesn’t want to sign the agreement isn’t necessarily a bad apple, Kravetz said.
“People certainly may resist signing,” he said. “All you can do is gather as many signatures as you can to reduce the potential for class action suits. Numerosity is a requirement to ultimately get class action status.”
Typically the best way to introduce an arbitration agreement is at the time of hiring a new employee, said Chantal Mariotti, principal at Executive HR Consulting Group. It should be included in the new employee’s handbook and require acknowledgement that the employee has received it, she said. There should be two copies of that receipt: one for the employer and the other for the employee, she said.
For existing employees, companies should provide some consideration with such agreements, she said. For new hires, agreement means they get the job, she said.
“If they don’t want to sign it, well, they’re not onboarded,” she said.
One way to make it easier for applicants to sign the agreement is to make it known to them before they get too far into the hiring process, Kravetz said. It’s complicated when applicants quit their old job, move across the country to a new area and then find out the arbitration agreement with a class action waiver is a requirement for employment.
“Timing is important in how you get it in front of a prospective new hire,” he said.
Kravetz recommended including notice of the arbitration agreement and class action waiver with the offer letter to prospective employees.
“If I was being overly inclusive in the process, I’d put it in conjunction with the offer letter,” he said. “Let it be a freestanding agreement, not buried in a handbook.”
The more an employer tries to hide the agreement, the bigger the risk there is that employees might make a claim that due process wasn’t followed to get the required signatures.
Workplace arbitration is pretty common, Ryan said, and many attorneys recommend it. Companies often see these agreements as a way to avoid the length and expense of regular litigation, she said, but the process can still be expensive because it will still involve taking depositions and discovery. However, arbitration often is resolved more quickly than litigation, which can take years, she said. The employer also benefits from not having to face a jury, she said.
Binding arbitration is recommended to avoid a public case, Kravetz said, but that doesn’t mean a plaintiff’s lawyer won’t try to file a public case. The plaintiff can still get public opinion involved even if the case is compelled back into arbitration, he said.
The hotel industry employs a lot of young people, Ryan said, so employers should check with their legal counsel and state laws regarding enforcement of contracts with employees younger than 18 years old. In some cases, the employer would need one of the employee’s parents to sign off instead, she said.