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Class Action Waivers: The Law of Unintended Consequences

By: Don Samuels

In light of the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis [1] that class action waivers in arbitration agreements are enforceable, employers have been rejoicing.  However, is their excitement misplaced? 

As that eminent legal scholar, Isaac Newton, once said “for every action, there is an equal and opposite reaction.”[2]  To the extent class action waivers are enforceable, employers may experience an increase in individual cases, each of which includes the possibility for plaintiff’s counsel to obtain attorneys’ fees if he or she is successful.  Accordingly, companies should carefully evaluate whether to include a class action waiver in any arbitration agreement with their employees in light of the possibility of multiple individual arbitrations involving similar issues for which the company must pay for the arbitration fee, its attorney’s fees and the plaintiff’s attorneys’ fees if it is unsuccessful in each arbitration. 

Class Action Waivers Outside Of Arbitration

The reasoning behind the Court’s decision in Epic Systems is tied closely to the policies underlying the Federal Arbitration Act (“FAA”), and it is unclear whether a class action waiver is enforceable in the absence of an arbitration agreement.  For example, in the absence of an arbitration agreement and the public policy underlying the FAA, would a non-arbitration class action waiver survive a challenge under Section 7 of the National Labor Relations Act involving concerted activity?  Similarly, in the absence of an arbitration agreement, would state statutes regarding unconscionability of a class action waiver be applicable?  See e.g., Gentry v. Superior Court, 42 Cal. 4th 443, 165 P.3d 556 (2007), abrogated by Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 327 P.3d 129 (2014).  Finally, in the absence of an arbitration agreement, can collective actions under the Fair Labor Standards Act (“FLSA”) be waived?  As a general matter, substantive rights under the FLSA cannot be waived.  The question is whether the right to a “collective action” is a substantive or procedural right, and the courts are split on this issue. 

Food For Thought

A company should carefully consider whether to employ class action waivers in connection with any arbitration program and, in the absence of an arbitration program, should consider that a class action waiver may not be enforceable in certain circumstances. 

[1] Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). 

[2] Sir Isaac Newton, Newton’s Third Law of Motion, in Philosophiæ Naturalis Principia Mathematica (1687).