Arbitration is an alternative means to resolving a legal dispute that is less formal than a traditional court proceeding. Unlike in court, the parties select their arbitrator to oversee the case. The arbitrator is typically a retired judge or attorney who has authority to issue a final, binding decision. Generally, arbitration is a faster process than trial, and it avoids the unknown risk of a jury decision.
One benefit to employers is that arbitration agreements can contain a waiver in which individual employees waive their right to participate in class actions or collective actions under the Private Attorneys General Act (“PAGA”).
Class actions and collective PAGA claims are very expensive for employers. Wage and hour claims have a four-year statute of limitations, and the damages or penalties to employers are based on the alleged unpaid wages and the underlying errors on each of the employees’ wage statements. These damages also incur interest, which increase the value of the claims. For employers who issue paychecks on a weekly basis, these damages add up quickly. For example, in a class action against a company that employed over 100 individuals over a four-year period, and paid each employee on a weekly basis, the damages will easily exceed $100,000.
On the contrary, an individual’s wage and hour claims are easier to manage. Depending on how long the employee worked for the company, and the number of verifiable errors, these damages can be worth less than $10,000.
By including a class action and collective PAGA waiver in the arbitration agreement, companies are protected against the expenses associated with class and collective PAGA actions.
California and federal law have specific requirements for arbitration agreements to ensure they are fairly enacted. California also continues to adopt new laws through cases and legislation to continue to refine the arbitration process. To stay on top of the ever-changing laws, and make sure your arbitration agreements are up to date, contact Lanak & Hanna to assist you.