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A Potentially Epic Alternative To Class-Action Waiver Arbitration Clauses

In the aftermath of Monday’s Supreme Court decision in Epic Systems Corp. v. Lewis, as discussed on this blog, employers are free to include class-action waivers as part of their arbitration clauses in employment agreements.

There is, however, a difference between whether employers can include such clauses and whether all employers should include them.  Some of the assumed benefits of arbitration are that it is less formal, less expensive, and leads to faster resolutions that are much more likely to be final relative to litigation.

These assumptions may not apply to every situation.  Arbitrators, unlike judges, must be compensated for their services directly by the parties, usually at an hourly rate that is comparable to or greater than an attorney’s hourly billing rate.  In employment cases, for example, the employee often may only be responsible for paying an initiation or filing fee, while the employer picks up the remainder of the tab.  In situations after the Epic decision where an employee-side attorney files several individual arbitrations in lieu of class arbitration, it is not difficult to see how these fees could easily exceed the typical cost of litigation.

To fend off these situations, employers may wish to consider including jury-trial waivers instead of class-action arbitration waivers in their employment contracts.  As background, there is a general constitutional right under the Seventh Amendment to a jury trial in federal civil cases, with many states having their own analogues.  (In Maryland, for example, Article 23 of the Maryland Declaration of Rights permits jury trials by right in all state court cases where more than $15,000 is in dispute.)  That said, courts will generally enforce contract clauses waiving this right if the employer can establish that the waiver was knowingly and intelligently given.

What are the pros and cons of including jury-trial waivers?  It is often advantageous to have employment disputes resolved by a judge, particularly in cases that hinge on issues of law and often technical interpretations of labor and employment statutes.  Trial judges have often seen many more employment disputes before relative to juries and can draw helpfully on this experience.  To be sure, bench trials are more susceptible to appeals than either jury trials or arbitration.  That can, however, be a benefit in those instances when the trial judge makes a legally unsupportable decision.

Moreover, even in cases where liability is established, judges tend to be moderating influences on damage awards.  By contrast, juries may be more prone to awarding plaintiffs bigger damages awards based on personal sympathies.  (As one recent highly-publicized example, a Georgia jury awarded a plaintiff $1 billion in damages – and left the jury box without the judge’s permission to hug her individually – against the security company who employed the man who victimized her.)

Bottom line: Each employer should embrace the freedom that exists to include class-waiver arbitration clauses.  That freedom includes the ability of employers to choose not to include such waivers, as well as to choose alternatives such as jury-trial waiver clauses.

[UPDATED 5-29-18] In response to a reader question, Maryland’s recently passed Disclosing Sexual Harassment in the Workplace Act of 2018 — which is set to take effect on October 1, 2018 — would invalidate employment agreement provisions that waive “any substantive or procedural right or remedy” in future sexual harassment claims, “[e]xcept as prohibited by federal law.”  Employers who attempt to enforce such provisions may be found liable for attorney’s fees and costs.

Employers who choose to include jury trial waiver clauses in their agreements, therefore, may well wish to provide language that the waiver is effective “except as prohibited by law.”  Employers may also wish to include severability clauses stating that the remainder of an agreement should remain in effect even if one or more clauses is found unenforceable.

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