California employers at reduced risk for labor litigation following Supreme Court decision, litigators say

By Karen Kidd | May 30, 2018

WASHINGTON – California employers now have a lower risk of ending up in court fighting Federal Arbitration Act and National Labor Relations Act lawsuits following a split U.S. Supreme Court decision in a major arbitration case earlier this month, two California litigators said in recent interviews.

Statue, Authority of Law, at the U.S. Supreme Court  

WASHINGTON – California employers now have a lower risk of ending up in court fighting Federal Arbitration Act and National Labor Relations Act (NLRA) lawsuits following a split U.S. Supreme Court decision in a major arbitration case earlier this month, two California litigators said in recent interviews.

"Employers with arbitration agreements subject to the FAA that contain class waivers can rest assured that their agreement does not violate the NLRA," Wendy McGuire Coats, partner and a certified appellate law specialist with Fisher Phillips in San Francisco, told the Northern California Record. "This is especially important for employers with businesses inside and outside the 9th Circuit because they no longer have to worry about conflicting authority that permitted class waivers on the one hand and prohibited them on the other."

The high court's recent decision in Epic Systems Corp. v. Lewis could "significantly reduces the risk of class action or collective lawsuits in the employment context, but will not eliminate them," Margaret Grover, a partner in the employment practice group at Wendel Rosen Black & Dean in Oakland, said in a separate interview with the Northern California Record

"Many California employers have not adopted arbitration agreements and some with arbitration agreements do not have a provision precluding class and collective actions – so the Epic Systems decision offers them no protection," she said.

Margaret Grover, partner with Wendel Rosen Black & Dean LLP in Oakland  

According to McGuire Coats, that could mean employers without such provisions may have some work to do.

"California employers that currently do not have class waiver provisions in their arbitration agreements should consider evaluating whether the inclusion of a class waiver furthers their business needs and goals," McGuire Coats said.

The Supreme Court ruled 5-4 on May 21 that employer-employee arbitration agreements can be enforced and that companies can take individual disputes to arbitration rather than have workers band together to sue them in court.

Justice Neil M. Gorsuch, Trump nominee and freshman on the court, penned the majority's opinion, in which Chief Justice John Roberts, Justice Anthony Kennedy, Justice Clarence Thomas and Justice Samuel Alito concurred. Justice Ruth Bader Ginsburg, Justice Stephen Breyer, Justice Sonia Sotomayor and Justice Elena Kagan dissented.

"In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties," Gorsuch wrote in the syllabus portion of the high court's majority opinion. "Each employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its 'saving clause' removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements here violated the National Labor Relations Act."

Epic Systems argued that arbitration agreements are protected by the Federal Arbitration Act from "judicial interference and that neither the saving clause nor the NLRA demands a different conclusion," Gorsuch wrote.

Federal law and Congress have made plain that arbitration is preferred to expensive and lengthy litigation, the high court's opinion said.

"As a matter of policy these questions are surely debatable," the court's opinion said. "But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms - including terms providing for individualized proceedings. Nor can we agree with the employees' suggestion that the National Labor Relations Act (NLRA) offers a conflicting command."

The U.S. Supreme Court has a duty to interpret laws passed by Congress "as a harmonious whole rather than at war with one another," the opinion said. "And abiding that duty here leads to an unmistakable conclusion. The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum."

In Ginsburg's dissent, she wrote that the majority's ruling was a setback for workers.

"The inevitable result of today's decision will be the under-enforcement of federal and state statutes designed to advance the well-being of vulnerable workers," Ginsburg said in her dissent. "The probable impact on wage and hours claims of the kind asserted in the cases now before the court is all too evident. Violations of minimum-wage and overtime laws are widespread."

Those losses for workers will be gains for employers, Ginsburg wrote. 

"If employers can stave off collective employment litigation aimed at obtaining redress for wage and hours infractions, the enforcement gap is almost certain to widen," Ginsburg said in her dissent. "Expenses entailed in mounting individual claims will often far outweigh potential recoveries."

For California, the Epic decision will have a big impact in unpaid wage cases, Grover said. 

"In California, the vast majority of employment class actions assert claims for unpaid wages," she said. "The ability to force employees to resolve these claims one-on-one is a significant benefit to the employer, as many wage claims are individually too small to warrant civil litigation. The California Division of Labor Standards Enforcement provides a relatively inexpensive, relatively rapid means of resolving individual wage claims. Employers who have arbitration agreements precluding class and collective actions may want wage claims decided by the DLSE."

Attorneys now will be less likely to take up employee disputes, Grover said. 

"The ability to pursue class-wide relief is one of the reasons that employee-side attorneys will accept wage claims, which typically have a low individual value," she said. "The cost to the employer of defending a class action, coupled with the risk of  exposure to class claims for unpaid wages, penalties and attorneys' fees, means that many employers are eager to settle the claims early, resulting in a significant fee being paid to class counsel, with relatively little expenditure of time  and resources."  

The Epic decision also creates an opportunity for California employers to dust off their arbitration agreements, McGuire Coats said. 

"This is an excellent time for employers to revisit and review their arbitration agreements to make sure that they are in line with their business needs and goals," she said. "This includes a checkup to make sure employee records are complete and best practices are in place for rolling out new hire-on boarding documents and updated arbitration agreements, if they're needed."

Meanwhile, California employees should expect the legal focus to shift more toward Private Attorneys General Act, or PAGA-only, cases, following the Supreme Court's decision in Epic coupled with the California 6th District Court of Appeal's May 23 decision in Huff v. Securitas Security Services USA, McGuire Coats said. 

The appeals court decision "broadened PAGA's reach in holding that PAGA permits a plaintiff pursue penalties for all proven Labor Code violations, even if specific violations did not affect the plaintiff," she said.

California employers still face labor litigation risks that the Epic case did not cover, Grover said. 

"The bigger risk for California employees remains collective actions under the Private Attorneys General Act (Labor Code Sections 2698-2699.5), which allows an aggrieved employee to seek penalties under the Labor Code on behalf  of themselves, other employees, and the State of California," Grover said. "When the aggrieved employee is acting on behalf of the state, who is not a party to the arbitration agreement, the employer may not compel arbitration. In addition, the California Supreme Court has determined that an arbitration agreement cannot be used to waive the right to seek public injunctive relief, such as an order compelling the employer to pay minimum wages and overtime, and to provide meal and rest breaks in the future."

And the Epic decision will not be the end of arbitration litigation, Grover said. 

"There will continue to be litigation over individual arbitration agreements, including whether they provide basic fairness," she said.

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