Assessing the Pros and Cons of Class Action Waivers in Employment Arbitration Agreements

Last year, the U.S. Supreme Court held in Epic Systems v. Lewis that class action waivers in arbitration agreements between employers and employees are enforceable under the Federal Arbitration Act. While there are significant potential advantages to incorporating class action waivers in arbitration agreements, there also are several potential disadvantages—one of which is arbitration administrative fees (see prior advisory on this topic here)—as one popular food delivery service found out the hard way.

In August and September 2019, over 6,000 delivery drivers filed individual demands for arbitration with the American Arbitration Association (AAA). Arbitration administrative fees alone amounted to about $12 million. Realizing that arbitration would prove to be way too costly, the company refused to pay the arbitration administrative fees and AAA closed the matters.

The delivery drivers then sought to compel arbitration, and the court sided with the delivery drivers:

For decades, the employer-side bar and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class action waivers upon them too, thus taking away their ability to join collectively to vindicate common rights. . . . The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. No doubt, DoorDash never expected that so many would actually seek arbitration. Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.

Key Takeaway

Arbitration agreements and class action waivers are strong risk management tools that employers should consider but are not a one-size-fits-all solution. Employers should weigh the pros and cons of whether to include class action waivers in their standard arbitration agreements.

Please consult with your legal counsel for guidance on how this issue affects your business.