Consternation grows as Supreme Court arbitration hearing draws near

The Supreme Court will rule on the class-action waiver dispute in February 2018.

On Oct. 2, the U.S. Supreme Court fielded oral arguments on three consolidated cases where it is being called to reconcile class-action waivers, as well as the National Labor Relations Act. While a final decision won’t be made until February, the ultimate decision of the court will carry the potential to alter how employers draft and enforce employment agreements. 

The case, titled Epic Systems Corp. v. Lewis, will determine whether an “agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.” In layman’s terms, the case will decide whether or not class-action waivers violate the National Labor Relations Act. If they are deemed to be in violation, countless arbitration agreements built into employee contracts will be rendered null, and employers will be forced to update these agreements.

So how did the arguments go down? According to Dana Kravetz, firm managing partner at Michelman & Robinson, the Supreme Court is split on the issue, but he suspects the decision will lean in favor of employers. However, at this time he doesn’t feel comfortable advising employers to relax. Kravetz has a different caution for if the court rules in employers’ favor: do not pressure employees to sign new contracts to keep their jobs.

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“Let’s assume the decision is favorable to employers,” Kravetz said. “Hotel companies will then be able to implement an arbitration agreement with a class-action waiver. You aren’t going to amend your agreements if you already have one in place, and if you amend the agreements to include a waiver you, have to convince employees to re-sign. The question then becomes, what can be done to have employees sign it?”

For newly hired employees, employers can include signing a class-action waiver as a condition for signing on, which works well if a hotel wants to implement such a waiver. Implementing something like this in a newly opened or renovated hotel may make sense, but suddenly implementing a new contract with a class-action waiver in it may raise some eyebrows from employees, and may lead to them questioning the process.

“I wouldn’t be surprised if many employees refuse to re-sign in a case like that,” Kravetz said.

Convincing employees to sign new contracts may be more difficult than it seems.

Papers, Please

If operators do want to coax some signatures out of their workers, they are able to offer compensation as per any other contractural provisions. However, signing a forced-arbitration waiver means an employee is essentially giving up a constitutional right in a trial by jury. Kravetz said compensation in the $300 to $500 range is reasonable in some cases, but once again hoteliers cannot make signing a stipulation to retain employment.

“Many employers run the risk of saying ‘hey, well you sign and you keep the job,’” Kravetz said. “If that wan’t a condition of employment for when these workers arrived at your property, then it won’t hold up in court. The worst-case scenario is here is that your hotel may end up with a false sense of security, and operators could find themselves back in court potentially with a class-action lawsuit that wasn’t coming their way before.”

According to Kravetz, arbitration is a hot topic in the workforce for a few reasons. First of all, these agreements deal with a constitutional right, similar to confidentiality agreements, and so they receive more scrutiny than normal. Second, arbitration is frequently implemented incorrectly, and mistakes are made during initial drafts of arbitration waivers.

“This area of the law is given more scrutiny because of what you’re giving up,” he said. “Even the most comprehensive arbitration language, with its proper font size and requirements going back 16 to 17 years, all that still gets scrutinized. If not properly drafted, the entire agreement can be invalidated, so I imagine most employment lawyers will be very busy in the coming months. Phones will be ringing, I’m sure.”

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The company expects to open more than 30 new Comfort properties in the market by 2033 via its existing franchising agreement with Choice Hotels Japan.

While consolidated revenue for the quarter was up 10.9 percent as reported, it was up 4.1 percent on a like-for-like basis compared to Q3 2018.

Sam Schwartz has spent more than four years with First Hospitality, including most recently as a general manager.