By David Barmak and Brandon Willenberg
Just last week Mintz Levin presented a webinar on how employers can use arbitration agreements as a tool to avoid exposure to wage and hour and other class actions. The thesis of the webinar was that recent Supreme Court and court of appeals rulings have consistently demonstrated that the Federal Arbitration Act (FAA) requires enforcement of most agreements to arbitrate in accordance with their terms and does not permit class arbitrations of class claims unless the arbitration agreement expressly provides otherwise. This means that a typical arbitration agreement will require employees to arbitrate their claims individually and preclude them from arbitrating (or litigating) class claims. Indeed, several months ago, we won a case for one of our clients in just this way, forcing the four plaintiffs in the case to arbitrate their individual claims and blocking their effort to pursue their claims jointly as a class action on behalf of themselves and hundreds of employees.
The Sixth Circuit Court of Appeal’s decision last week in Reed Elsevier, Inc. v. Crockett, although not an employment case, adds another nail in the coffin of class action arbitrations. First, the Court found that the question of whether an arbitration agreement permits class-wide arbitration is a “gateway” issue for the court, rather than an arbitrator, to determine unless the parties clearly and expressly provide in the arbitration agreement that the arbitrator should makes this determination. Second, the opinion provides further support for the proposition that an individual cannot pursue class-wide arbitration in the absence of a provision expressly authorizing it. Quoting the U.S. Supreme Court’s Stolt-Nielsen decision, the Sixth Circuit stated, “[t]he U.S. Supreme Court has made clear that ‘[a]n implicit agreement to authorize class-action arbitration’ should not be inferred ‘solely from the fact of the parties’ agreement to arbitrate.’” Third, the Court concluded that the failure of an arbitration agreement to allow for the arbitration of class claims does not make the agreement unconscionable. The Sixth Circuit acknowledged the one-sided nature of the arbitration clause, particularly given the practical hurdles that might preclude an individual from pursuing his or her small claim in court, whereas the ability to bring class-wide claims could provide a remedy to individuals with claims too small to pursue individually. But, the Sixth Circuit noted, the U.S Supreme Court had refused to strike down a similar provision on unconscionability grounds in American Express Co. v. Italian Colors Restaurant.
Reed Elsevier’s holdings should be applicable to arbitration agreements entered into between employers and their employees. We note that many employers simply refer to the arbitration of “all claims” or “all disputes,” in their agreements without specifically referring to class-wide claims. The Sixth Circuit’s ruling provides additional comfort for those employers who use this approach. Still, we think the current best practice for an arbitration agreement or policy for employees is for employers to expressly provide that the employee will arbitrate all employment claims individually and not as class claims, and the Sixth Circuit’s ruling provides employers with yet another opportunity to review their arbitration agreements with counsel and consider revising them to ensure they provide the greatest protection possible against potential class-wide arbitration claims. And, employers who do not now use arbitration agreements with their employees should consider doing so because, as cases like this one demonstrate, arbitration agreements can be an effective tool to reduce, if not eliminate, exposure to class action claims.