Supreme Court Upholds Validity of Class Waivers in Employment Agreements

May 24, 2018

By Robert C. Boisvert and Bryan J. Morben

Gavel over arbitration agreementThe United States Supreme Court handed an important victory to employers wishing to avoid employee class and collective actions by requiring individualized arbitrations. In a 5-4 decision authored by new Justice Gorsuch, the Court held that employment agreements requiring employees to bring individual arbitrations and forego joining together in class or collective employment actions are enforceable.

The decision, Epic Systems v. Lewis, resolved three consolidated cases involving employees who had signed employment agreements requiring individual arbitrations, but who later sought to bring class or collective wage-and-hour lawsuits in federal court.  The employees argued, and some lower courts had agreed, that requiring employees to waive the right to bring a class or collective action violated their right, under the National Labor Relations Act (NLRA), to engage in “concerted activities” for their “mutual aid and protection.” The employees argued that the NLRA’s protections trumped the Federal Arbitration Act (FAA), which generally instructs federal courts to enforce arbitration agreements according to their terms.

A majority of the Court disagreed, and concluded there is no actual conflict between the two statutes. The Court noted that the text of the FAA clearly requires enforcing the terms of an agreement to arbitrate. The majority emphasized that Congress enacted the FAA “in response to a perception that courts were unduly hostile to arbitration.” Therefore, Congress not only instructed courts to enforce arbitration agreements, but “also specifically directed them to respect and enforce the parties’ chosen arbitration procedures,” including the use of “individualized rather than class or collective action procedures.”

The Court found that nothing in the NLRA trumps the FAA’s requirement that arbitration agreements be enforced. The Court reasoned that the NLRA provision at issue, Section 7, “focuses on the right to organize unions and bargain collectively.” The provision “does not express approval or disapproval of arbitration” and “does not mention class or collective action procedures.” In fact, the majority contended, the NLRA “does not even hint at a wish to displace the [FAA]—let alone accomplish that much clearly and manifestly, as our precedents demand.”

Justice Ginsburg, in a blistering dissent, called the decision “egregiously wrong.” She criticized the historical “extreme imbalance” in the employer-employee relationship, which prompted Congress to pass the NLRA in the hope that employees could take collective action to “match their employers’ clout in setting terms and conditions of employment.” Justice Ginsburg wrote that the ruling will lead to “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers” because it will rarely be worthwhile for individual employees to pursue their own claims and may fear retaliation if they do.

Arbitration is not a panacea, but it can be an important tool in managing the risk and expense of class and collective action lawsuits. For those employers that would prefer to defend employment claims by individualized arbitration proceedings rather than face class or collective action suits, Epic Systems upholds the enforceability of arbitration agreements that include class and collective action waivers. Employers wishing to adopt or enforce arbitration agreements that include class and collective action waivers should review their agreements to ensure they are clear, include waiver language, and are otherwise enforceable.