On May 21, the U.S. Supreme Court upheld employers’ use of class-action waivers in employment arbitration agreements.
Writing for the majority, Justice Neil Gorsuch ruled that arbitration agreements mandating individualized proceedings for resolution of employment-related disputes are valid and enforceable under the Federal Arbitration Act (FAA).Thus, employers may legally require employees to sign class- and collective-action waivers housed in arbitration agreements as a condition to employment, and such waivers will effectively prevent workers from pursuing class- or collective-action lawsuits for claims arising out of the employment relationship.
The 5-4 decision in Epic Systems Corp v. Lewis, 2018 WL 2292444, involved a trio of cases from the Fifth, Seventh, and Ninth circuits courts of appeals. Each plaintiff employee had signed an employment contract containing an arbitration clause that required the employee to submit any disputes with his employer to a mandatory individualized arbitration proceeding. Nonetheless, all three workers attempted to pursue class or collective actions in federal court by arguing that the class-action waivers contained in the arbitration clauses violated their rights under federal labor law.
The Court held that mandatory arbitration agreements must be enforced under the FAA, a federal statute that requires arbitration agreements to be enforced pursuant to their terms, “including terms providing for individualized proceedings” as the Court pointed out. However, the FAA also contains a savings clause that renders arbitration agreements invalid to the extent they conflict with other statutes or laws. Thus, the FAA savings clause “saves” or protects rights guaranteed under other statutes in the event of a direct conflict between the FAA and another law.
Under the National Labor Relations Act (NLRA), a federal statute that protects workers’ rights, employees have a right to engage in “concerted activities.” Based on this provision, the plaintiff employees argued that bringing a class-action lawsuit was a “concerted activity” that they were guaranteed to participate in under the NLRA and that their rights guaranteed under the NLRA trump the conflicting language of the FAA, which requires the arbitration agreements to be enforced as written.
The Court ultimately disagreed and concluded that no conflict was present between the NLRA and the FAA. Rather, the Court highlighted Congress’s explicit intent in the FAA that arbitration agreements providing for individualized proceedings “be enforced as written.” Thus, using traditional rules of statutory construction, the Court concluded that absent manifest Congressional intent in the NLRA to limit the FAA’s mandate, the Court could not imply a right for employees to participate in class actions. The Court went on to emphasize that a worker’s right to participate in “concerted activity” under the NLRA only extends to protect workers right to “free association in the workplace,” not the activity of “class and joint litigation.”
This decision brings an end to the circuit divide and reverses the NLRB position that such waivers are invalid and unenforceable under federal law. Although the plaintiff employees argued that the NLRB’s interpretation is entitled deference under the Chevron doctrine, the Court rejected this argument.
In light of this decision, employers who wish to avoid defending expensive and time-consuming class-action suits will likely re-evaluate their current employment agreements and begin incorporating class-action waiver language into arbitration provisions. A significant increase in the use of arbitration agreements containing class- and collective-action waivers is to be expected, leaving employees bound by such waivers with no choice but to individually arbitrate employment-related disputes.
For assistance with issues arising from class action waivers and arbitration agreements in employment contracts, contact Clouse Brown PLLC. Our attorneys are available to counsel executives and employees who need assistance enforcing their rights under employment and arbitration agreements. We also advise employers and business owners who need to draft or revise arbitration and employment agreements.