In a unanimous decision on September 24, 2015, the Supreme Court of Nevada ruled that federal law and U.S Supreme Court precedent broadly mandate the enforcement of arbitration agreements and class action waivers in employment contracts. Tallman v. Eighth Judicial Dist. Ct., 131 Nev. Adv. Op. No. 71 (Sept. 24, 2015). With this decision, the Nevada high court has made it much more difficult for employees to circumvent an employer’s arbitration agreement and class action waiver.
In Tallman, the plaintiffs filed a class action complaint against their employer for unpaid minimum and overtime wages. However, at the beginning of their employment the plaintiffs had signed a long-form agreement to arbitrate and waive class and collective action for any and all disputes arising from their employment. Therefore, when the employer asserted that the plaintiffs’ claims had to be arbitrated on an individual basis, the trial court agreed, denied class certification, and ordered individual arbitration of the plaintiffs’ claims. The plaintiffs appealed and the Supreme Court of Nevada upheld the trial court’s ruling, compelling individualized arbitration.
The plaintiffs raised multiple arguments for invalidating the class action waivers they signed, none of which persuaded the Court. First, their employer failed to sign the long-form agreements. The Court responded that the enforceability of an arbitration agreement and class action waiver is not contingent on being signed by the party seeking enforcement. Nevada law requires that an arbitration agreement be contained in a written record, but does not require that the record be signed by the parties.
Next, the plaintiffs argued that the agreements should be set aside based on considerations of Nevada public policy that were previously endorsed by the Nevada Supreme Court in Picardi v. Eighth Judicial Dist. Ct., 127 Nev. 106 (2011). In that case, the Court held that if a class action waiver in a consumer contract “precludes any form of class action relief, it is contrary to public policy and is therefore unenforceable.” This public policy was based on the fact that many consumer class actions are initiated on behalf of class members whose individual claims are too small to be litigated individually. In such cases, denying class action is tantamount to denying any and all forms of relief to the class members.
However, in response to the plaintiffs’ public policy argument, the Nevada Supreme Court expressly recognized that its decision in Picardi had since been invalidated by the U.S. Supreme Court’s decision in AT&T Mobility LLC v.Concepcion, 563 U.S. 333 (2011). There, the U.S. Supreme Court held that state courts must enforce arbitration agreements and class action waivers based on general contract principles, and therefore cannot set such agreements aside on the basis of state public policy considerations.
The Nevada Supreme Court recognized that the class action waiver at issue in Tallman might prevent many potential class members from receiving any relief due to the small value of their individual claims. The Court also acknowledged that this may inhibit the class members’ ability to enforce their fundamental, constitutional right to minimum wage. However, the Court ultimately upheld the waiver, finding that under general principles of contract law, it was a valid and enforceable agreement.
What This Means for Nevada Employers
This decision should come as welcome news to employers who wish to resolve employment-related disputes with their employees through individualized arbitration proceedings. The Nevada Supreme Court’s decision in Tallman provides a strong presumption in favor of the enforceability of arbitration agreements and class action waivers in employment contracts.
Employers who do not currently include arbitration agreements and class action waivers in all employment contracts should strongly consider it. However, if such provisions are included, the contract should also contain a severability clause to save the remainder of the agreement should any individual provisions be held invalid. Also, even though the agreements in this case were not fully signed, it is still recommended that employers make sure to keep a record of a fully signed agreement. Employers who are unsure about the legality or enforceability of any terms of their employment contracts should seek advice from legal counsel.