HR Management & Compliance

Class Action Waiver Ruling Expected to Have Immediate and Broad Impact

A U.S. Supreme Court ruling supporting the legality of class action waivers in employment arbitration agreements is welcome news to employers hoping to avoid the costly, time-consuming threat class and collective actions can bring. And it represents an opportunity more employers are advised to explore.

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Note: This article has been updated as of 5/23/18 to include new and expanded information.

The Court issued a 5-4 ruling May 21 upholding the legality of arbitration agreements that require employees to waive their right to file class or collective action lawsuits and instead arbitrate employment disputes individually. Some federal appeals courts have ruled such waivers legal under the Federal Arbitration Act (FAA), and others have ruled that they are unlawful under the National Labor Relations Act (NLRA). The Supreme Court’s decision resolves that split among the appeals courts.

Now that the Court has ruled, John Lovett, an attorney with Frost Brown Todd LLC in Louisville, Kentucky, is advising employers to look into including waivers in arbitration agreements since class and collective actions are such a risk for employers. “Employers now have a means to avoid this risk,” he says.” They should take advantage of it.”

Lovett expects the decision to have a quick impact. “The current [National Labor Relations Board (NLRB)] is likely to promptly resolve their pending cases by permitting employers to require only individual arbitration of employment law claims, rather than class litigation,” he says. “The NLRB often refuses to accept as binding a court of appeals rejection of the Board’s interpretation of the NLRA, but it cannot do this with the U.S. Supreme Court. The Supreme Court is the final word, and the Court has spoken.”

Charles H. Kaplan, an attorney with Sills Cummis & Gross P.C. in New York City and an editor of New York Employment Law Letter, also says that because the Court reasoned that the NLRA does not diminish the FAA’s support for arbitration, he expects decisions in cases before the Board and in the courts to reject NLRA-based arguments against arbitration.

Soon after the ruling was announced, the NLRB issued a statement saying it currently has 55 pending cases with allegations that employers violated the NLRA by maintaining or enforcing individual arbitration agreements or policies containing class and collective action waivers. “The Board is committed to expeditiously resolving these cases in accordance with the Supreme Court’s decision,” the statement said.

Wide-Ranging Effect

Kaplan says he expects the Court’s broad ruling to make it likely that employers will challenge state and local laws that seek to limit individual arbitration in such jurisdictions as New York City and California.

Paul E. Starkman, an attorney with Clark Hill in Chicago, sees the ruling as having the potential to end “virtually all forms of employment-related class and collective actions in federal and state courts,” including wage and hour disputes, pay equity and harassment claims, disability, and other discrimination claims.

Starkman says careful drafting of arbitration agreements will be required to ensure that class action waivers will be enforced. He advises employers thinking about or currently using arbitration agreements with class action waivers to do a cost-benefit analysis to make sure an arbitration program is right for them. He also advises employers to use electronic “click-through” procedures to make sure they will be able to prove that employees have agreed to the arbitration procedures. And he also advises employers to “educate their employees that arbitration is not a bad thing for them.”

Court’s Reasoning

In considering the issue, the Court consolidated three cases centering on employment agreements that required employees to waive any right to class or collective action – Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA. In each case an employee who had signed the arbitration agreement filed a lawsuit seeking to bring both individual and collective claims.

The FAA supports allowing employers to require arbitration, while the NLRA grants workers the right to join together to engage in “concerted activities for the purpose of collective bargaining or other mutual aid and protection.” The majority opinion, written by Justice Neil Gorsuch and joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito, clears up any conflict between the two laws.

In his opinion, Gorsuch wrote that the NLRB, which considers matters concerning the NLRA, didn’t note any conflict between the FAA, enacted in 1925, and the NLRA, enacted in 1935, until 2012. The majority opinion states that the FAA directs courts “to respect and enforce the parties’ chosen arbitration procedures.” It also says that the NLRA “does not even hint at a wish to displace the Arbitration Act.”

Justice Ruth Bader Ginsburg wrote the dissenting opinion and was joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan. The dissent calls the majority decision “egregiously wrong” and says it will lead to “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”