Significant Victory for Employers: Supreme Court Upholds Class Action Waivers in Arbitration Agreements

In a significant win for employers, the United States Supreme Court has issued a landmark decision upholding the use of class action waivers in employment arbitration agreements.  This ruling permits employers across the country to enforce individual arbitration agreements with employees, even where the agreement requires an employee to pursue legal claims on an individualized, rather than class or collective, basis.

Background

The Court’s decision in Epic Systems Corp. v. Lewis, No. 16–285 (U.S. May 21, 2018) (consolidated cases), returns to the status quo that existed for decades until the Obama National Labor Relations Board (“the Board”) reversed course in 2012 and held that employment agreements that require employees to individually arbitrate disputes violate the National Labor Relations Act (“NLRA”).  The Board reasoned that the right to join in a class or collective action against an employer fell within the NLRA’s guarantees to “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157.

Some federal appellate courts followed the Board’s reasoning, while others disagreed and continued to permit class action waivers. (We discussed the split here.)  The Supreme Court has now resolved all uncertainty.

The Court’s Decision

The Court’s newest member, Justice Gorsuch, authored the 5-4 opinion (as we predicted).  The Court held that “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  It reasoned 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.”

What This Means for Employers

Requiring employees to submit class or collective claims to arbitration on an individualized basis is increasingly common and just got the Supreme Court’s stamp of approval.  Going forward, companies already employing this practice can be confident that the agreement is enforceable.    This is new for employers in the Ninth Circuit (Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, the Northern Mariana Islands, Oregon, and Washington), where such agreements—until now—have been unenforceable.

Employers who have not yet adopted such agreements should consider the benefits of doing so. 

 

By: Ryan Kunkel & Jim Shore