In 2011, the United States Supreme Court held in AT&T Mobility v. Concepcion that companies may ban consumers from participating in class actions. While that case involved consumers, lower courts and businesses have extended the ruling to cover employees as well. Consequently, more companies are requiring employees to arbitrate serious complaints and adding provisions to employment agreements that bar employees from bringing class actions lawsuits.
Not surprisingly, the decision has also lead to a drop in class action suits accusing corporations of discrimination, wage theft, and other labor law violations. A study by Carlton Fields Jorden Burt surveyed almost 350 companies and found labor and employment accounted for 28% of class action lawsuits in 2011, but fell to 23% in 2014. The percentage of companies using arbitration clauses to preclude class-action claims was 16% in 2012, but rose to 43% in 2014.
Employers prefer arbitration because it is usually less formal, less expensive, and more efficient than litigation. In 2011, worker class actions cost companies $598.9 million, but in 2014 this number fell to $462.8 million.
Although employees can usually make the same claims and recover the same remedies in arbitration as they can in court, a 2011 Cornell University study found that arbitrations favor employers more often than litigation does, and result in smaller awards for employees. Though this is not always the case, employers largely benefit from arbitration, while employees lose anonymity, representation, and power of a group available in a class action.
Sears, Nordstrom Inc., Halliburton Co., and Uber Technologies Inc. are some of the large employers that ask or require employees to waive the right to sue as a class.
The National Labor Relations Board has ruled that class-action waivers violate the National Labor Relations Act. Federal appeals courts, however, have rejected the NLRB rulings, and have upheld the Supreme Court’s decision.