The single greatest uninsured risk facing employers these days is the wage and hour class/collective action. Virtually all employment practices liability insurance policies attempt to exclude coverage for both wage and hour claims and class and collective actions. This is due to the potential for large classes of employee/plaintiffs and the expansive recoveries available under state and federal wage and hour laws.

So what is an employer to do to guard against these business-threatening claims? In addition to conducting a wage and hour audit and educating management on wage and hour best practices, some companies are considering requiring employees to sign arbitration agreements containing class action waivers. These agreements seek to prevent employees from asserting wage and hour claims in the form of a class action lawsuit.

Class action waivers received a boost by the U.S. Supreme Court last year in a widely publicized consumer class action case in which the court found them to be legally enforceable in a mandatory arbitration agreement. The AT&T Mobility v. Concepcion decision has caused some employers to consider including class action waiver language in employee arbitration agreements to prevent class/collective wage and hour lawsuits. However, courts are still struggling with the issue of whether the right to proceed as a class/collective action can be waived under the Fair Labor Standards Act. The issue will likely see U.S. Supreme Court review. Before you decide to venture into these waters, there are a few things you should consider.

First, class action waivers may not preclude employees from filing “joint, collective, or class action claims addressing their working conditions,” according to a recent ruling by the National Labor Relations Board. Waiver language must clearly provide that the employee is not waiving his or her right to pursue working conditions litigation or unfair labor practice actions.

Second, waivers will be more likely to be upheld where they contain provisions providing fair relief for the employee, such as:

  • Employee chooses the venue for dispute resolution;
  • Employee is entitled to injunctive relief and punitive damages, if applicable; or
  • Employer pays some or all of the costs of the dispute resolution and/or waives claims for its own costs and fees.

Requiring employees to arbitrate their employment disputes and waive class/collective action litigation may be a less costly means of limiting liability and resolving workplace disputes for some employers. However, these agreements must be both carefully considered and carefully drafted to avoid challenges, especially where they seek to waive participation in wage and hour class/collective actions. Employers must stay alert to the legal developments in this area to ensure that their agreements are enforceable