May 21, 2018

Labor Pains: The Joy of Being Classless

6 min

If you have no class, then life is good. On the other hand, if you have class, then you know pain. Having class is expensive, distracting, and causes misery. Those days are over, because you now can bask in the warm rays of never having any class ever again. I'm not talking about class in the sense of personal refinement, civility, or decorum – you can keep those. I'm talking about class in the sense of class action lawsuits, particularly the wage and hour variety. Moments ago the United States Supreme Court issued a ruling that permits employers to avoid class action lawsuits under the Fair Labor Standards Act (FLSA) and other employment laws. The huge lever that plaintiffs' attorneys have been using for years to try to wrench your bank account open has been shattered. Having no class, however, is not automatic – you have to work at it.

And to those employers who never had class in the first place: Be thankful – here is what you have been missing. The FLSA is long in the tooth – born in 1938 – but has grown stronger over time. Indeed, over the last decade alone, class action wage and hour lawsuits have been among the fastest-growing type of case filed in both state and federal courts. The FLSA broadly governs the amount and manner in which employers must pay their employees. The law covers minimum wage, overtime, breaks, and scores of other issues detailed in several hundred pages of regulations written in single-space, Lilliputian typeface. If you lose a FLSA lawsuit, the amount your employee wins is automatically doubled (unless you can prove a "good faith" defense), and in addition to paying your own lawyer, you also get to pay your employee's lawyer. It gets worse: The FLSA gives "similarly situated" employees the right to band together and sue you as a class. To be pluperfect, FLSA class actions are called "collective actions," but no one is going to read an article called the "Joy of Being Collectiveless."

The leverage a class action lawsuit exerts on the defendant employer is hydraulic. Assume you have one employee – Hank – who earns a $50,000 a year salary, works on average 50 hours a week, but has been misclassified as "exempt" from overtime. Hank sues you for unpaid overtime compensation. The potential time and a half overtime liability for Hank is $360 per week. With a three-year statute of limitations period, that gets us to about $56,000, which can be doubled to $112,000. Let's say you have 10 other employees in the same situation as Hank who join Hank's lawsuit as a class. Your potential liability soars to over seven figures, exclusive of interest and attorneys' fees. The rest of your workforce will see Hank's potential windfall and then call his attorney and ask, "Where's mine?" Having class is painful.

So how do I become classless, you ask? In one word: Arbitration. In 30 words: Implement a binding arbitration policy that requires your employees to assert wage and hour claims against you solely through arbitration and prohibits them from asserting claims together as a class. Earlier today, in Epic Systems Corp. v. Lewis, the Supreme Court had the final say in the matter and approved such "class action waivers" in employer arbitration policies. The details of the Epic Systems decision, while interesting, are unnecessary for our immediate discussion. In short, the Court ruled that employer arbitration agreements with individual employees that preclude them from pursuing work-related claims on a collective or class basis are not prohibited under the National Labor Relations Act. Indeed, the Court continued, such "class action waivers" in arbitration agreements are valid under the Federal Arbitration Act, a federal law that encourages the resolution of disputes through arbitration, rather than in court.

The Supreme Court has given you the right to have no class, but you have to follow a few steps to be truly classless. Implementing an enforceable workplace arbitration policy with a class action waiver is not just a matter of copying one of the 100's of sample policies that show up in an internet search and plugging it into your handbook – in fact, far from it. Almost every day, a court strikes down a workplace arbitration policy because its provisions are unfair, one-sided, or procedurally or substantively flawed. In addition, an arbitration policy that is perfectly fine for one employer's particular industry, location, and culture may be ill suited (or even unenforceable and thus worthless) for others. If you decide to go classless, you would be wise to consider these and other variables that will give your arbitration policy a custom fit to your business, workforce, and goals. You also want to consult with someone who has actually tried cases in arbitration so they can give you the benefit of specialized policy provisions that may give your company a strategic advantage in the event an arbitration claim is filed against you. Ultimately, all options present risks, and finding the right arbitration policy for your business involves balancing those risks in light of the specific facts at hand. The threat is real, but so are the solutions.

Class dismissed.

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Todd Horn has over 30 years of experience in employment litigation and compliance initiatives and is the co-author of Maryland Employment Law, a treatise that courts cite as a leading reference. Mr. Horn was selected as the Lawyer of the Year for employment law in 2016 in Maryland by the publication Best Lawyers in America. Mr. Horn also ranks as a top Band 1 employment lawyer by Chambers USA, which reported that he "is admired as a fantastic litigator – one of the best in the courtroom, with a tremendous presence" and "is particularly sought out for high-stakes litigation."

Doug Mishkin has over 30 years of experience litigating on behalf of businesses and nonprofits. He focuses on litigating about and counseling on theft of trade secrets and breach of non-competes, with significant experience as well in discrimination, harassment, wage and hour, and employment contract disputes. Mr. Mishkin is a trained mediator, and both represents clients and has served as a mediator. An experienced trial attorney, Mr. Mishkin has represented clients in state and federal courts across the country. He frequently handles matters in proceedings initiated by the Equal Employment Opportunity Commission and human rights agencies.

Lauren R. Stocks-Smith focuses her practice on employment litigation and counseling for clients in a wide variety of industries, including independent schools, financial services, and nonprofit organizations. Ms. Stocks-Smith has helped clients litigate, arbitrate, and mediate disputes relating to discrimination, harassment, and overtime pay. She has experience managing various stages of litigation, including initial investigations, discovery management, and depositions. She also works with clients to draft and update policies to ensure compliance with wage and hour, disability, and family and medical leave laws, and helps clients implement those policies in the workplace.