Arbitration agreements are quickly becoming employers’ best and most common defense against class action lawsuits by their employees. As discussed in the recent New York Times article “Arbitration Everywhere, Stacking the Deck of Justice,” in addition to depriving employees of the opportunity to have their claims heard in court, arbitration agreements often waive employees’ right to participate in class actions, a crucial means of redressing wrongdoing that affects large groups. Given the ubiquity of arbitration agreements, workers may assume they have no option but to acquiesce. But many workers actually do have a choice: opting out.
Some arbitration agreements are, by their terms, effective unless the employee chooses for them not to be. This is called “opting out.” It is a (usually simple) process that exempts workers from the terms of the arbitration agreement, usually by merely checking a box or sending a letter. However, employees need to act quickly as the window for opting out is usually brief. The opt-out process may require the employee to indicate her desire to opt out directly on the agreement itself, or it may allow the employee a period of several days or weeks in which to notify the employer of the intention to opt out. Employees who do not follow the strict requirements of an opt-out provision will likely find themselves bound by these agreements.
Voluntary and opt-out arbitration agreements are more common than workers might realize. Approximately 20 percent of the motions to compel arbitration decided by the Federal District Court for the Northern District of California in the last year involved an opt-out arbitration agreement. The employers who used such agreements were large companies, usually employing over 1000 workers. While more research would be needed to compare this number to other regions, the fact that the opt-out agreements were used in larger companies suggests that more than 20 percent of the workforce in this region may have the choice of opting out.
Because courts often consider the voluntariness of an arbitration agreement when determining whether it is enforceable, employees who fail to opt out of arbitration agreements when given the opportunity may be more likely to be held to the agreement than if the agreement had been mandatory. For example, in California, mandatory arbitration agreements are vulnerable to being invalidated because many courts will find the circumstances under which the agreements were signed coercive. If the agreement is invalidated, employees will be free to pursue their claims in court and as a class. By contrast, when employees appear to have a choice in whether to agree to an arbitration agreement, they typically must put forth additional evidence of coercion.
But it is easy to bury opt-out clauses amidst pages of monotonous text, or to impose inconvenient or intimidating hurdles to opting out, such as writing and mailing a letter to the employer, companies may assume that workers are unlikely to take advantage of the opportunity to opt out. Therefore, opt-out agreements may actually benefit employers by protecting the enforceability of the agreement while generally binding workers to arbitrate their claims.
The practice of construing opt-out arbitration agreements as evidence of affirmative consent should be challenged. In many cases, employees may not understand the full import of the arbitration agreement or the practice of opting out. Further, as several courts have recently found, where the opt-out process is particularly inconvenient or burdensome, it is also unfair to construe a failure to act as voluntary consent. The court reached just such a conclusion in Mohamed v. Uber Techs., Inc., decided in June of this year. There, the court found that an arbitration agreement that only permitted employees to opt out by hand-delivering or sending by overnight mail their letters indicating their desire to opt out did not provide a meaningful opportunity to avoid the terms of the agreement.
It is clear that new laws are needed to limit employers’ abilities to strip their workers of access to courts while tilting the balance of the litigation in their favors with class action waivers and similarly unfair terms. However, in the meantime, it is critical that employees who have the option of opting out know about this right. When faced with an opt-out arbitration agreement, employees have both greater opportunity and greater risk than when faced with a mandatory version of the same agreement. By opting out, they can avoid the terms of the agreement entirely, but by failing to do so, they risk creating an inference of voluntary consent that will support the agreement’s enforcement.