Nevada Supreme Court Decides Seminal Case Approving Mandatory Arbitration Of Employment Claims

Volume 14, Issue 22
October 5, 2015

Employers weary of the high costs of employment class actions have increasingly requested that their employees sign agreements mandating the arbitration of such claims - waiving not only court action but also the right to proceed in a class action. This is part of a trend in many areas of business. Plaintiff-side attorneys, unable to get these claims before a jury, have vigorously fought arbitration.

Our firm is proud to announce a victory in securing for its client, in two wage and hour cases, a unanimous ruling by the Nevada Supreme Court upholding an arbitration agreement with a waiver of class actions. In Tallman v. CPS Security (USA) and Mika v. CPS Security (USA), the Court rejected all of the arguments commonly raised by plaintiff-side attorneys to oppose arbitration. Ruling in what is likely to become a seminal case in Nevada, the Court upheld a lower-court order compelling the employees to individually arbitrate their wage and hour claims - rather than requiring the employer to defend a class action lawsuit.

The plaintiffs in these cases were former employees of a security company. At the start of their employment, they signed agreements requiring them to arbitrate all disputes with the company, as well as affiliates, agents, management and other employees. These arbitration agreements - entitled an "offer" of arbitration - provided for discovery, selection of arbitrators, the use of JAMS (a company that administers arbitrations), a hearing at a location convenient to the employee, a written award by the arbitrator, and judicial review of the award. The agreements also contained three provisions critical to employers: (1) the employee and the employer waived the right to proceed in court and the right to bring or join a class or collective action, and there was no right to a "class arbitration"; (2) the employer would pay the fees of JAMS and the arbitrator (a considerable expense); and (3) the employee had 30 days to opt out of the arbitration agreement. Finally, the employee could still file administrative charges, such as with the Equal Employment Opportunity Commission.

Although none of the plaintiff-employees opted out of these agreements, they filed class action lawsuits in state court against the company, various affiliates and two executives, alleging that they were owed minimum wage and overtime payments. Clark County District Judge Susan Johnson ordered that the employees' claims must be arbitrated under the arbitration agreements. The employees appealed to the Nevada Supreme Court.

The Nevada Supreme Court rejected all of the employees' arguments, making rulings critical to Nevada employers contemplating the use of arbitration agreements:

  • The Court reaffirmed the "strong policy" favoring the enforcement of arbitration agreements under both Nevada law and the Federal Arbitration Act. The Court noted it "encourages arbitration and liberally construes arbitration clauses in favor of arbitration."
  • The Court ruled that class or collective action waivers in arbitration agreements are enforceable under Nevada law - and not just in employment cases. The Court followed a number of U.S. Supreme Court cases that nullified a prior Nevada ruling in Picardi v. Eighth Judicial District Court, 127 Nev. 106 (2011) that class action waivers violate public policy in a consumer class action.

  • The Court also joined a number of federal and state courts that have rejected the National Labor Relations Board's (NLRB) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012), where the Board held that requiring an employee to waive the right to bring a collective or class action infringes upon the employee's right to "engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection" under the National Labor Relations Act (NLRA).

  • Although the employer had not signed the arbitration agreement, the Court enforced it. According to the justices, enforcement did not depend upon it having been signed (although there has to be a writing showing the parties' agreement). In addition, the fact that the company did not sign the agreement was consistent with making an "offer" the employee could reject or, within 30 days of signing, opt out.
  • The employees were required to arbitrate their claims against the affiliated companies and the executives sued in addition to the employer, notwithstanding the fact that those individuals did not sign the agreement.

While this new decision is a landmark for Nevada, and KZA is proud it was able to assist its client in achieving this result, Nevada employers should still proceed carefully:

  • The NLRB is still out there. An employee who does not want to arbitrate can still file an unfair labor practice charge with the Board, which will likely pursue the claim. Until the U.S. Supreme Court rules, this can be an area of some risk.
  • In drafting an enforceable arbitration agreement, only the forum should change. The arbitration agreement must be procedurally fair, affording in arbitration the right to be represented by an attorney, the ability to recover the same remedies as in a lawsuit, and other rights available to the employee in litigation (although arbitrators can rule on the amount of needed discovery). A provision requiring the employee to share in the arbitrator fees and costs will likely invalidate the agreement. As such, the arbitration agreement should require an employee to pay only the minimal fee he would pay to file a lawsuit.

The arbitration clause must be prominent and not buried in an agreement through the use of fine print. Nevada's Uniform Arbitration Act (Chapter 38 of the Nevada Revised Statutes) has a number of requirements, and it is recommended that the agreement include specific written authorization by both parties showing an agreement to arbitrate.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.