Supreme Court Affirms Class Action Waivers in Employment Arbitration Agreements

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Since the Federal Arbitration Act’s (FAA) enactment in 1925, parties have sparred over the enforceability of arbitration agreements in a number of contexts. In recent years, the battle has focused on the enforceability of class or collective action waivers, pursuant to which parties agree to forgo their right to proceed on a class basis and to pursue claims in arbitration on an individual basis instead. Between 2011 and 2013, the United States Supreme Court issued several opinions enforcing class action waivers in the consumer context, but none dealt with employment arbitration agreements. On Monday, the United States Supreme Court removed any doubt that class or collective action waivers contained in employment arbitration agreements are enforceable, affirming a potential cure for the employment class action epidemic.

The argument that employment class action waivers are different from consumer class action waivers derives from Section 7 of the National Labor Relations Act (NLRA), which guarantees employees the right to engage in collective activities for their mutual aid or protection. In 2013, the National Labor Relations Board (NLRB) ruled that employers violate the NLRA when they require employees, as a condition of employment, to agree not only to arbitrate work-related disputes, but also to do so individually, forgoing any statutory right to participate in a class or collective action. After split developed among the Circuit Courts of Appeal—with the Second, Fifth, and Eighth Circuits rejecting the NLRB’s view and the Sixth, Seventh, and Ninth sharing or deferring to it—the United States Supreme Court granted certiorari in three cases, including Epic Systems Corp. v. Lewis, to finally resolve the issue.

In a 5-4 decision authored by Justice Gorsuch, the Court rejected the argument that the NLRA trumps the FAA’s broad policy favoring arbitration, reasoning that Section 7 is concerned with the right to organize unions and engage in collective bargaining, not dispute resolution procedures in the courts. The Court further declined to defer to the NLRB’s interpretation of a second statute, the FAA, which the NLRB has no express or implicit authority to administer.

Unless Congress acts on the urging of Justice Ginsberg, who authored a vigorous dissent, Epic Systems Corp. removes the final barrier to the enforceability of class action waivers in the employment context. The decision may also have broader implications, however. By suggesting Section 7 does not guarantee employees the right to pursue or participate in class action litigation, the Court’s opinion raises a question about whether class action waivers are enforceable, even outside the context of an arbitration agreement.

Class action waivers can significantly mitigate the risk of expensive litigation, including wage and hour class actions, which employers frequently settle—regardless of the merits—to avoid the cost of defense. Employers who already require arbitration agreements as a condition of employment should seriously consider adding class action waivers to their agreements. Employers who have no arbitration program in place must weigh the pros and cons of arbitration, in the context of their businesses and employee populations. Given the compelling benefits of class action waivers to employers and the Supreme Court’s assurance this week that such waivers are enforceable, the Supreme Court’s decision in Epic Systems Corp. may well tip the scales for employers on the fence.