Jagler: Should you force your employees to give up their right to sue you?

Steve Jagler
Milwaukee Journal Sentinel
Attorney Laura Lindner of Littler Mendelson P.C. provides legal advice for employers in Milwaukee.

You aced the interview with the company, and you are offered the job.

Then, as a condition of employment, you are told you must sign a binding agreement that will forbid you from ever joining any class-action lawsuit against your new employer.

Would you? Or would you be suspicious because the company is requiring you to sign such an agreement before you even start the job?

A recent court ruling makes it more likely that thousands of American workers will face such a decision.

The U.S. Supreme Court in May affirmed employers’ rights to restrict workers from filing class-action lawsuits against them, which could open the doors for more large companies to adopt such policies.

The case, Epic Systems Corp. v. Lewis, ruled it is lawful for employers to require employees to sign an agreement that any employment claims they file must be settled through arbitration, waiving the option to pursue class-action claims in court.

As a condition of employment, a mandatory binding arbitration agreement also may require employees to waive specific rights, including the ability to appeal an arbitrator’s decision.

About 80 percent of the companies in the Fortune 100 have used mandatory binding arbitration agreements in connection with workplace disputes since 2010, according to a 2017 report by the Institute For Law & Policy, an employee rights advocacy organization.

The group contends that the recent court ruling could prompt more large companies to enact such arbitration agreements to avoid class-action suits.

“The ability to access courts is disappearing for workers in America because arbitration clauses have permeated the majority of the leading companies in America,” the institute said in the report. “Personal injury claims, wage claims, civil rights claims, sexual assault claims and other claims involving the workplace and vulnerable workers may never be heard in a public court, with broad procedural protections for employees, because of the use of arbitration clauses. Further, through the use of class waivers, it is impossible for employees to join together in a class or collective action against their more powerful and far better-resourced employers. Access to courts has become increasingly more difficult for workers, and the vast majority of America’s top companies have tried to block workers from entering the courthouse door.”

Attorney Laura Lindner at Littler Mendelson P.C. in Milwaukee, said the institute’s report may be an “overstatement.”

Employees actually win more cases in arbitration than they win in courts, although the awards in arbitration tend to be smaller, Lindner said.

However, in the aftermath of the court ruling, at this #MeToo moment, employers need to give careful consideration to a variety of factors, Lindner said.

In an economy with full employment, when the war for talent is fierce, employers should weigh the need to protect themselves from class-action lawsuits with the risks of projecting themselves as being “heavy handed” by requiring applicants to sign a mandatory binding arbitration agreement, Lindner said.

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I asked Lindner to provide guidance about the wisdom of an employer using a mandatory binding arbitration agreement — or not.

Here are four cases that could merit use of such an agreement, according to Lindner:

  1. A company has frequent wage and hour disputes. “Many companies with arbitration agreements in place originally did so because of the proliferation of wage and hour lawsuits. For companies where wage and hour disputes regularly arise or that are in industries that are particularly prone to these types of lawsuits (e.g., retail, hospitality, companies employing remote workers, etc.), it may be best to require arbitration to avoid class-action lawsuits. It may also be advantageous for companies that use independent contractors to implement these agreements as this is another active area of class-action litigation,” Lindner said.
  2. A company is active in making acquisitions. “Companies that acquire other companies with some frequency are particularly vulnerable to employment disputes, given that the companies typically have different employment policies and practices that need to be integrated.”
  3. A company has a large volume of claims. “Although arbitration proceedings aren’t always a cheaper option, the payouts are typically less than in the courtroom. If your company tends to face a fair amount of claims, it may be best to implement an arbitration agreement to avoid the stress of hefty courtroom payouts.”
  4. A company has a large workforce. “Large companies have more at stake in avoiding class-actions as the size of their workforces increases the financial risk when faced with class-action claims. In addition, these large organizations are vulnerable to suffering reputational damage resulting from a public employment dispute,” Lindner said.

Her are four cases in which such an agreement may not be prudent, according to Lindner:

  1. A company needs to preserve its corporate culture. “Although arbitration agreements can actually be beneficial to employees, it can feel very heavy handed given that it’s mandatory. Companies that feel this runs counter to their culture may want to avoid these agreements.” 
  2. A company needs to avoid the high costs of arbitration. “Although litigation typically results in larger payouts to employees, it is technically cheaper to go to court if you successfully litigate your case. Going to arbitration requires the company to pay an arbitrator throughout the process. ... In addition, courts will throw out bad claims, whereas arbitrators are not incentivized to do so, which can also drive costs way up for companies.”
  3. A company is small. “Companies with smaller workforces tend to have less risk of class-based litigation, so they are less inclined to adopt these policies.”
  4. A company has a need for transparency. “In the #MeToo era, companies may not implement arbitration agreements to avoid being accused of hiding harassment claims in arbitration,” Lindner said.

Steve Jagler is the business editor of the Milwaukee Journal Sentinel. C-Level stands for high-ranking executives, typically those with “chief” in their titles. Send C-Level column ideas to him at steve.jagler@journalsentinel.com.

Laura Lindner

Title: Shareholder

Company: Littler Mendelson, Milwaukee

Expertise: Labor and employment attorney

Hometown: Brookfield

Education: Bachelor of arts, University of Notre Dame; J.D., University of Wisconsin Law School

Family: “Not married, no kids, no pets. But many godchildren.”

Best advice ever received: “From my parents, who borrowed it: If at first you don’t succeed, try, try again.”

Favorite movie: “Fargo”

Favorite band: Pink Martini

Favorite Wisconsin restaurant: Harbor House, Milwaukee 

Extra credit: “I would like to write a play that gets produced by a professional theater company.”