As we previously discussed here, the United States Supreme Court’s May 2018 decision in Epic Systems v. Lewis was a clear win for employers that seek to avoid the expense and disruption of class litigation by resolving disputes individually through binding arbitration. As explained by the Supreme Court in AT&T Mobility LLC v. Concepcion, “[i]n bilateral arbitration, parties forego the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.”

For employers looking to take advantage of the benefits of individual arbitration, there are several drafting nuances to consider before rolling out or updating existing arbitration agreements.

You complete me. 

First and foremost, employers who are continuing to use arbitration agreements that are silent on class or collective arbitration should consider including an express class waiver in their agreements. Notwithstanding the Supreme Court’s statement that “the parties’ mere silence on the issue of class-action arbitration” does not signify assent, Stolt-Nielsen S.A. v. AnimalFeeds, Int’l Corp., agreements that do not explicitly state that class or collective proceedings are impermissible leave the issue open to differing judicial interpretation, and may cause what many consider the worst of all worlds—claims being subject to class-wide arbitration. To remove any doubt, employers should consider including an explicit class action waiver.  In other words, show me the class action waiver!

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Besides an explicit class action waiver, here are several other drafting tips that employers choosing to use arbitration agreements in California should consider:

  • Specifically provide that the Federal Arbitration Act governs the parties’ arbitration agreement. The FAA mandates that courts enforce arbitration agreements according to their terms, including terms that preclude class proceedings, notwithstanding state laws or policies to the contrary. Although a reference to the FAA is not required, it will clarify that the parties intend the FAA to govern their agreement, and not another statutory scheme (such as the California Arbitration Act) that may not provide for the same enforcement of class action waivers.
  • Specifically state that a court, and not an arbitrator, will determine whether an arbitration agreement permits the possibility of class arbitration. Absent contractual language that assigns this question to the court or the arbitrator, the presumption of “who decides” varies by jurisdiction. The majority of federal courts (including the Third, Fourth, Sixth, Seventh, Eighth, and Eleventh Circuits) have determined this is presumptively a gateway issue for the courts, but the California Supreme Court has held that it is presumptively an issue for the arbitrator to decide, and other courts have not yet spoken on this issue. To remove any ambiguity and the risk of differing judicial interpretation, arbitration agreements should expressly state that a court, and not an arbitrator, will determine whether an agreement permits the possibility of class-wide arbitration.

From help designing your company’s arbitration program, please reach out to your Baker McKenzie employment lawyer.