United States: The Most Important Employment Law Decision This Term

The U.S. Supreme Court Confirms Class and Collective Action Waivers in Arbitration Agreements are Enforceable

On Monday, May 21, 2018, the U.S. Supreme Court issued a highly anticipated decision regarding the validity of class and collective action waivers in employment arbitration agreements. The high court in the consolidated appeal of Epic Systems Corporation v. Lewis held that such waivers are lawful and do not violate the National Labor Relations Act (NLRA) – rejecting  the position of the National Labor Relations Board (NLRB) and employee groups that class action waivers in arbitration agreements between employees and employers violate federal law.

The majority opinion authored by Justice Gorsuch and joined by Chief Justice Roberts and Justices Kennedy, Thomas, and Alito considered and dispensed with each argument put forth by the employees as to why class and collective action waivers are unlawful. Among the arguments raised by the employees, were that arbitration agreements requiring individualized arbitration instead of class or collective proceedings violate employees’ rights under Section 7 of the NLRA to engage in protected concerted activities. The Court disagreed, finding that the NLRA “secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” Instead, the appropriate reference should be the Federal Arbitration Act where “Congress has instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings.” Any efforts by the employees to carve out an exception within the FAA were not persuasive.

The issue had sparked considerable debate since 2012 not only among employee and employer groups, but also among the agencies of the Executive Branch with the Department of Justice filing an Amicus Curiae brief in the consolidated appeal, taking an adverse position to the NLRB in arguing that employee arbitration agreements, including those that contain class action waivers, are enforceable. The ruling not only resolved the internal disagreement in the Executive Branch but also a circuit split with the Ninth Circuit deferring to the NLRB and the Second, Fifth, and Eighth Circuits holding that class-arbitration waivers are enforceable and do not violate the NLRA.

While the underlying causes of action that were the subject of the consolidated appeal arose under the Fair Labor Standards Act (FLSA), the Court suggested that its ruling is not limited to FLSA. In the past, the Court had “heard and rejected efforts to conjure conflicts between the Arbitration Act and other federal statutes.” Additionally, the Court had previously “stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act.” Accordingly, it is likely arbitration waivers outside of the FLSA context will be enforced unless there is a relevant congressional command sufficient to displace the FAA.

So, what does this decision mean for employers?  This is a BIG win for employers. Going forward, employers who have entered into properly drafted arbitration agreements with their employees to resolve all disputes relating to employment are likely to have those enforced according to their terms including any class action or collective action waivers in those agreements. While employees may still raise contract enforceability arguments under the FAA such as fraud, duress, and unconscionability, the fact that the arbitration agreement contains a class action waiver alone is insufficient to establish these grounds.

There are also many benefits to arbitration especially when compared to class action litigation. For one, class and collective action litigation is extremely expensive. By requiring potential class and collective action disputes to be submitted to individual arbitration – which is often faster and more informal – employers will decrease their attorneys’ fees and costs. Additionally, if the employer is found liable in the underlying claim, individual arbitration awards are likely to be significantly less than class action litigation awards.

In light of this decision, employers should take proactive steps to review their employee arbitration agreements and ensure it includes a class and collective action waiver. If employers do not have an arbitration agreement in place with a class and collective action waiver, they should consult with legal counsel to put one in place.

Finally, separate and distinct from Employment Practices Liability Insurance, insurers have been issuing policies with expensive premiums to protect employers against class and collective actions. Employers with well-crafted mandatory arbitration provisions containing waivers of class/collective actions may now re-examine the need for such insurance going forward.

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