Employers May Require Class Action Waivers in Arbitration Agreements

May 30, 2018

By: Kimberly Klein and John Vincent Baranello

The U.S. Supreme Court ruled on May 21, 2018 that employers can require their workforce – as a condition of employment –  to sign arbitration agreements waiving their right to sue collectively. The ruling expressly rejects the National Labor Relations Board’s (NLRB) stance that such agreements violate workers’ rights to organize.

The ruling is a significant victory for employers and resolves an area of law that has been unsettled since 2012 when the NLRB held in D.R. Horton, Inc. and Cuda, 357 NLRB No. 184 (Jan. 3, 2012) that the Federal Arbitration Act (FAA) does not preempt employees’ right to engage in concerted activity under the National Labor Relations Act (NLRA).  The D.R. Horton ruling, which found class action waivers in arbitration agreements unlawful, was viewed as highly controversial in light of the U.S. Supreme Court’s then recent ruling in AT&T Mobility LLC vs. Concepcion, 131 S.Ct. 1740 (2011) upholding class action waivers in consumer arbitration agreements. See our prior articles:  NLRB: Employees Cannot Waive Right to Class Actions; New York’s Top Federal Court Upholds Class Action Waivers in Wage and Hour Suits.

WHAT THIS DECISION MEANS FOR EMPLOYERS:

  • For companies that do not require employees to arbitrate disputes, employers should revisit such policies;
  • Consider revising existing arbitration agreements to include class action waivers;
  • Make sure arbitration policies comply with state, federal and local law.

On May 21, 2018, SCOTUS made clear that its ruling in Concepcion applied in the employment context as well.  In EPIC Systems Corp. v. Lewis, and two similar cases involving Murphy Oil USA Inc. and Ernst & Young, the U.S. Supreme Court ruled that the NLRA does not override the FAA, which requires courts to enforce agreements to arbitrate.  Each of the lawsuits involved individuals challenging arbitration agreements that prevented them from bringing federal wage and hour claims as a class.  SCOTUS rejected the plaintiffs’ argument that the savings clause in the FAA, which allows courts to refuse to enforce arbitration agreements on grounds such as fraud, duress or unconscionability, also precludes employers from requiring employees to waive their right to sue collectively.

The Supreme Court further held that the right to engage in concerted activity under the NLRA focused “on the right to organize unions and bargain collectively,” not to bar collective and class actions in contravention of the FAA.  Indeed, SCOTUS noted that the NLRA does not mention class or collective action procedures and “does not even hint at a wish to displace the [FAA].”  It was only in the D.R. Horton ruling, issued some 70 years after the enactment of the NLRA and FAA, where the NLRB attempted to argue that precluding employees from filing class or collective actions violated an employees’ right to engage in concerted activity if such agreement is a condition of employment.  As such, the majority concluded that the NLRA neither displaces the FAA nor confers a right to a class or collective action.

Writing for the dissent, Justice Ruth Bader Ginsburg called the decision “egregiously wrong,” arguing that Congress recognized “strength in numbers” when enacting the NLRA.  She claimed that the ruling “ignores the destructive consequences of diminishing the right of employees to band together in confronting an employer” and noted that this right now “would be worth precious little if employers could condition employment on workers signing away those rights.”

Justice Ginsburg tried to limit the impact of the decision on discrimination claims, writing “I do not read the Court’s opinion to place in jeopardy discrimination complaints asserting disparate-impact and pattern-or-practice claims that call for proof on a group-wide basis…It would be grossly exorbitant to read the FAA to devastate Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., and other laws enacted to eliminate, root and branch, class-based employment discrimination.”

Without specifically addressing this concern, Justice Gorsuch noted that it is not the Court’s role to change the law, only to enforce it.  It remains to be seen whether these waivers will be challenged in the discrimination context in light of the #MeToo movement.

There are many factors to consider in drafting arbitration agreements and determining whether such agreements are right for your company.  See our article: Despite Fee Splitting Agreements, Employers May Still have to Pay Arbitration Costs in New York. Please contact us to ensure your policy best protects your business.

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