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Class Action Waivers in Employment Agreements Sanctioned by the U.S. Supreme Court

June 12, 2018

In a major decision rendered by the U.S. Supreme Court, the Court held that employers can require employees, in a non-union setting, to waive their right to litigate their employment claims in a class or collective action basis by agreeing to arbitrate their individual claims before an arbitrator.

The case, Epic Systems Corporation v. Jacob Lewis, No. 16-285 (along with two companion cases) was decided by a 5-4 majority.  Specifically, the question presented to the Court was whether the Federal Arbitration Act (FAA), enacted in 1925, providing for the enforcement of arbitration agreements between parties, infringed upon employees’ rights to engage in concerted activity under the National Labor Relations Act (NLRA), enacted in 1935.  The NLRA specifically empowered employees with the right to band together for their mutual aid and protection.

In each case, employees had signed individual agreements mandating that they arbitrate work-related disputes.  The employees sought to engage in litigation for what they claimed were violations of the Fair Labor Standards Act (FLSA).  They cited a clause in the FAA known as a savings clause which states that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  They claimed that their arbitration agreements were unenforceable based upon this language since the NLRA made such waivers illegal.

The majority of the Court, speaking through Justice Gorsuch, stated that Congress spoke clearly in enacting the FAA that “ . . . arbitration agreements like those before us must be enforced as written.”  The Court rejected the “savings clause” argument by stating that the intent of the FAA was to require the federal courts to enforce arbitration agreements as written.

In rejecting an argument based upon the rights granted to employees under the NLRA, the majority held that the NLRA did not specifically grant employees the right to litigate claims on a class or collective basis.  Rather, according to the Court, the purpose of the rights under the NLRA was to protect the rights of employees to unionize and engage in collective bargaining.

Justice Ginsburg issued a forceful dissent on behalf of the minority arguing that employees, out of concern for potential retaliation, may choose not to arbitrate their claims which would, in turn, result in remedies designed to protect workers not being pursued.

In light of the Court’s decision, employers may want to consider whether they want to employ class action waiver agreements in their employee agreements.  While there are certainly benefits in doing so, as set forth above, there also are drawbacks and hurdles.  For instance, such agreements may not be enforceable if no consideration is offered in exchange for the waiver.  Also, if there is an alleged widespread violation involving multiple employees, the employer may be confronted with multiple arbitrations.  The enforceability of such agreements themselves may be challenged by employees in court which would require a favorable ruling before proceeding to arbitration.

While the Supreme Court has now given the green light to enforce these agreements, each employer must consider its own, possibly unique, set of circumstances in determining whether to require its employees to agree to these waiver agreements.  No one size fits all.

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