Tesla workers' lawsuit over layoffs likely belongs in arbitration, judge says

A logo of car manufacturer Tesla is seen at a branch office, amid the coronavirus disease (COVID-19) outbreak, in Bern, Switzerland December 10, 2020. P REUTERS/Arnd Wiegmann
  • Arbitrator should hear claims that arbitration pacts are invalid
  • Tesla accused of not giving 60 days' notice ahead of mass layoffs
  • Company says it was "right-sizing"

(Reuters) - A U.S. magistrate judge has recommended that a proposed class action accusing Tesla Inc of failing to give factory workers the advance notice of layoffs that is required by law be sent to private arbitration.

U.S. Magistrate Judge Susan Hightower in Austin, Texas said on Monday that an arbitrator, and not a judge, should decide whether agreements Tesla workers signed in which they agreed to arbitrate legal disputes with the company are invalid, as the plaintiffs in the June lawsuit claim.

Magistrates are appointed by federal judges, who can accept or reject their reports. The two named plaintiffs suing Tesla have two weeks to file objections to Hightower's decision.

The plaintiffs, who were laid off earlier this year, claim the arbitration pacts they signed are invalid because they were forced to agree to them in order to keep their jobs. They also say confidentiality provisions in the agreement are illegal.

Tesla's lawyers at Morgan Lewis & Bockius did not immediately respond to a request for comment.

Shannon Liss-Riordan, who represents the plaintiffs, said she did not plan to object to the decision and would pursue the claims on behalf of former Tesla workers in individual arbitration.

The federal Worker Adjustment and Retraining Notification (WARN) Act requires businesses with 100 or more workers to notify them of mass layoffs at least 60 days in advance unless they are caused by natural disasters or "unforeseeable business circumstances."

The lawsuit accuses Tesla of violating the WARN Act by abruptly laying off more than 500 workers at its Sparks, Nevada gigafactory as part of a nationwide purge of its workforce.

Tesla has laid off hundreds of employees since June, when chief executive Elon Musk in an email told company executives to freeze hiring and cut about 10% of salaried staff. Musk later clarified that he expected Tesla's total workforce to grow in the coming year.

Tesla moved to dismiss the case, arguing that former employees must individually arbitrate their claims. The company also said it was merely "right-sizing" by firing poorly performing workers and not engaging in layoffs that require advance notice.

Hightower on Monday said that because the plaintiffs are challenging the substance of the agreements, and not their formation, those claims must first be reviewed by an arbitrator.

Earlier this month, Hightower said Tesla should notify factory workers who have been laid off since June about the lawsuit before asking them to sign severance agreements that include waivers of legal claims.

In a filing on Monday, Tesla said that decision was "unprecedented, over-reaching, and flawed" and asked U.S. District Judge Robert Pitman, who is presiding over the case, to reject it.

The case is Lynch v. Tesla Inc, U.S. District Court for the Western District of Texas, No. 1:22-cv-00597.

For the plaintiffs: Shannon Liss-Riordan of Lichten & Liss-Riordan

For Tesla: Robert Sheeder and Thomas Wallace of Morgan Lewis & Bockius

(NOTE: This article has been updated to include a comment from Shannon Liss-Riordan.)

Read more:

Tesla moves to push lawsuit over mass layoffs out of court

Laid-off Tesla workers file emergency plea, allege small severance pay

Tesla sued by former employees over 'mass layoff'

Tesla must tell laid off workers about lawsuit, judge rules

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Dan Wiessner (@danwiessner) reports on labor and employment and immigration law, including litigation and policy making. He can be reached at daniel.wiessner@thomsonreuters.com.