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Supreme Court Says Class Action Waivers in Arbitration Agreements are Enforceable

May 23, 2018

By David J. Riewald

The U.S. Supreme Court ruled on Monday that class action waivers in arbitration agreements do not violate the National Labor Relations Act (NLRA) and are enforceable under the Federal Arbitration Act (FAA).  The Court’s 5-to-4 decision in Epic Systems Corp. v. Lewis resolved one of the most hotly-contested workplace issues in recent years, and is a significant win for employers.  The decision also is yet another reason why every employer should consider requiring that their nonunion employees sign arbitration agreements, and include a class action waiver in those agreements.

Background

Arbitration agreements require that the parties to the agreement resolve their disputes outside of court in the more informal arbitration setting.  Some of the benefits employers get from the arbitration process include quicker resolution of disputes, cost savings in defense expenses, and elimination of jury sympathy as a factor in the ultimate decision.  Indeed, the Supreme Court in Epic Systems noted that arbitration agreements provide “the promise of quicker, more informal, and often cheaper resolutions for everyone involved.”
 
Because of these benefits, in recent years there has been a dramatic increase in the number of nonunion employers that require their employees to sign arbitration agreements.  A recent study found that although only 2.1% of employers required their employees to sign arbitration agreements in 1992, that number has risen to 53.9% of employers today. 
 
Additionally, because of the tremendous cost employers incur to defend against employees’ class actions (and collective actions under the Fair Labor Standards Act), many arbitration agreements expressly state that employees waive their right to pursue class/collective actions.  One study found a significant increase (from 16.1% in 2012, to 30.2% in 2016) in the number of arbitration agreements that included such class/collective action waivers.
 
The increase in employer-mandated arbitration agreements with class/collective action waivers led the National Labor Relations Board, the federal agency that polices the NLRA, to rule in 2012 in its D.R. Horton, Inc. case that class/collective action waivers violate Section 7 of the NLRA.  Section 7 says employees must be allowed to engage in protected “concerted activities” for the purpose of their mutual aid or protection.  The issue of the validity of class/collective action waivers then proceeded up through the federal courts, with some federal courts of appeal agreeing, and others disagreeing, with the NLRB’s decision in D.R. Horton. 
 

The Supreme Court’s decision

In Monday’s decision, the Supreme Court concluded that the ability to bring a class/collective action is not a concerted activity that is protected under the NLRA. In reaching this conclusion, the Court ruled the NLRB’s position to the contrary was not entitled to any deference.  The Court also noted that the FAA (which was enacted 10 years before the NLRA) established a liberal policy in favor of enforcing the agreed-upon terms in arbitration agreements, and that an exception to enforceability found in the FAA’s so-called “savings clause” did not require a different result. 
 

What this Decision Means for Employers

The Court’s decision in Epic Systems reaffirms that every nonunion employer should consider taking advantage of the benefits of requiring their employees to sign arbitration agreements that include class/collective action waivers.  For employers that already have arbitration agreements in place but they do not include a class/collective action waiver, those employers should consider adopting new arbitration agreements that include that waiver. 
 
Bullard Law has helped numerous employers implement arbitration agreements for their employees.  If we can help you do the same, please contact Dave Riewald.
Content ©2018, Bullard Law. All Rights Reserved.
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About the Editor

Be informed, engaged and sometimes entertained

Michael G. McClory joined Bullard Law in 1997. He likes talking about employment law, debating it, proposing revisions to it and even complaining about it.  Perhaps so they could get some work done, his colleagues at Bullard Law suggested that he start a blog about employment law issues (broaden the conversation). And that is how this blog came to be. 

The blog is a forum for discussion about employment, labor and benefits law - new laws, proposed laws, case decisions and social events. Mike will share his views and invites you to respond.  Reader feedback is valuable and will be featured from time to time. Join the discussion with Mike and sign up for the Bullard Law Blog today.

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