In a recent landmark opinion, the U.S. Supreme Court held that class action waivers in arbitration agreements are enforceable. On May 21, 2018, in a 5-4 decision, the Supreme Court confirmed that employers can use arbitration agreements requiring employees to waive the right to file class action lawsuits and to arbitrate employment disputes individually.
What Legal Question did the Court Answer?
The Court consolidated three cases, Epic Sys. Corp. v. Lewis, Ernst & Young, LLP v. Morris, and N.L.R.B. v. Murphy Oil USA, Inc., in considering the issue, summarized by Justice Gorsuch in the majority opinion as follows: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” Epic Sys. Corp. v. Lewis, No. 16-285, 2018 WL 2292444, at *3 (U.S. May 21, 2018). Each case involved an employee seeking to bring individual and collective claims and an employment agreement requiring the employee to waive any right to class or collective action.
The Court’s Answer – Honor the Arbitration Contract Terms
The Court held that arbitration agreements providing for individualized proceedings must be enforced. In so holding, the Court emphasized that the Federal Arbitration Act (“FAA”) directs courts to treat arbitration agreements as “valid, irrevocable, and enforceable”, and that courts are required to rigorously enforce arbitration agreements according to their terms.
The National Labor Relations Act does not Conflict with Class Arbitration Waivers
Although the National Labor Relations Act (“NLRA”), enacted subsequently to the FAA, guarantees employees the right to take part in “concerted activities for the purpose of collective bargaining or other mutual aid or protection”, the Court found no conflict between the FAA and NLRA. The Court noted that the NLRA “does not express approval or disapproval of arbitration. It does not even hint at a wish displace the Arbitration Act …” Though the NLRA was enacted in 1935, the National Labor Relations Board did not take the position that class action waivers violated the NLRA until 2012. Thus, the Court declined “to read into the NLRA a novel right to class action procedures that the Board’s own general counsel disclaimed as recently as 2010.”
What does the Court’s Decision Mean to your Business?
This decision confirms that employers can use arbitration agreements to avoid employment-related class action lawsuits including wage and hour, harassment, and other discrimination claims. Employers should take this as an opportunity to consider (or reconsider) using arbitration agreements with their employees. While this decision certainly weighs in favor of arbitration agreements, each employer should consider its own needs and interests in determining what makes the most sense for it.
In that regard, here are some pros and cons of employee arbitration agreements to consider:
- The major difference between the courtroom and the arbitral forum is that there is no jury in arbitration. Juries inherently bring some unpredictability to the ultimate outcome which may be mitigated through a private arbitrator.
- The arbitration process is more private. Confidentiality concerns are more favorable in arbitration.
- Arbitration agreements work both ways. An employer insisting on arbitration also foregoes its right to litigate federal claims (such as FLSA and Title VII claims) in federal court, which can be a more favorable forum for employers.
- Arbitration proceedings often end in an evidentiary hearing. In arbitration, there may be no dispositive motion practice and arbitrators are more likely to deny a dispositive motion even where such motion practice is allowed. Oftentimes, employers are able to dispose of employment actions in court through dismissal or summary judgment. An employer may be hampering its ability to do so by agreeing to arbitration.
- Arbitration can be more expensive. Even though arbitration is designed to be an efficient and quicker way to obtain a decision, it can be very expensive, namely, because the parties have to pay the arbitrator for the hours incurred in handling the dispute.
The Supreme Court’s decision certainly favors employers concerned with class and collective employment actions. Nevertheless, each employer should carefully consider all pertinent factors and seek individualized advice when deciding whether or not to implement arbitration agreements.