A look at court filings in 2017 shows that there has been no decline in the pace of class action and representative filings. To the contrary, in light of recent judicial opinions on rest period policies, increased paystub obligations, and confusion regarding paid leave policies, employers can expect this year to bring an increased risk of wage and hour claims filed as class or representative actions.
Typically, these actions are filed by a single employee seeking to represent a class of employees. They can also be filed under the Private Attorneys General Act (PAGA) by a single employee to obtain penalties on behalf of the state.
Three factors are fueling the threat in 2017:
- Overlapping and sometimes contradictory mandates have made California’s statutory and regulatory environment increasingly complex and more confusing for employers.
- The courts are struggling to interpret often confusing and vague statutory language, resulting in contradictory decisions and further uncertainty. See Rest Break Pay for Commissioned Employees?
- The lucrative nature of representing hundreds or thousands of employees at once continues to draw more and more attorneys to class action practice. Plaintiffs’ attorneys, through increasingly aggressive radio, television, website and internet advertising, invite more and more employees to consider filing these claims.
Employers should move proactively to level this playing field. Two options to carefully consider this year are mandatory arbitration agreements and comprehensive exit interviews. While not the only solutions, nor perfect solutions, they may help to discourage claims and/or facilitate a reasonable and appropriate settlement.
Why 2017 May Be The Right Time To Adopt An Arbitration Agreement
This year, the U.S. Supreme Court will review Morris v. Ernst & Young LLP, a Ninth Circuit opinion holding that arbitration agreements with class action waivers are unlawful. The case was filed as a class action by two former employees of Ernst & Young LLP, both of whom signed employment agreements requiring arbitration of employment disputes and requiring that those disputes be resolved on an individual basis.
The trial court ruled that the employees had to arbitrate their claims and dismissed the action. The Ninth Circuit reversed, holding that the arbitration agreements were unlawful because they contained a class action waiver. According to the Court, the National Labor Relations Act, which provides employees the right to band together in concerted actions to improve working conditions, implicitly invalidates any agreement precluding employees from litigating on a collective basis. Ernst and Young then filed a petition to secure review from the U.S. Supreme Court. Recognizing a circuit split on this issue, the U.S. Supreme Court granted the petition. The case will be briefed in 2017.
Although it remains unclear how the U.S. Supreme Court will rule, there is a strong possibility that it will reverse the Ninth Circuit, thereby upholding the validity of arbitration agreements with class action waivers. That uncertainty will discourage some class action attorneys from litigating against employers who have obtained such waivers.
Why 2017 is a Good Time to Implement Mandatory Exit Interviews
Several state appellate cases have held that PAGA claims are not subject to arbitration because they are akin to enforcement actions by the state, and, therefore, in theory, not governed by a private agreement between the employer and the employee. On March 7, 2017, the Court in Betancourt v. Prudential Overall Supply reiterated the rule and clarified that notwithstanding various federal cases holding that PAGA claims can be arbitrated, PAGA claims must be resolved in court.
Now that it is increasingly clear that arbitration agreements will not preclude a PAGA action, employers who are seeking to minimize the risk of such claims should consider active attempts to resolve claims with disgruntled employees before they reach the litigation stage.
Mandatory exit interviews can be effective in this regard. Designed effectively, the exit interview can elicit any complaints or concerns about pay problems or working conditions. Where those concerns and complaints have merit, an employer can seek to resolve them by means of an individual settlement agreement.
While some courts have ruled that such agreements may not necessarily preclude a PAGA action, the law on this issue remains unsettled, with many courts holding that where the settlement agreement fairly apprises the employee of the claims to be compromised, the agreement bars the employee from going to court.
The Take Away
In 2017, employers will confront an increased risk of litigation on a class or PAGA basis. A renewed focus on arbitration agreements, combined with exit interviews, should reduce that risk.