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Supreme Court Confirms Use of Class Action Waivers in Employment Arbitration Agreements

    Client Alerts
  • May 28, 2018

Last week in a 5-4 decision, the U.S. Supreme Court held in favor of employers in a case that may push an increasing number of companies to use mandatory arbitration agreements with their employees. Arbitration agreements in employment began as a way for employers (and employees) to avoid the often expensive, drawn out, and increasingly unpredictable nature of litigating employment claims in court. In recent years, as the number of class and collective action employment claims has increased, employers began including provisions in their arbitration agreements borrowed from consumer contracts, requiring that employees pursue arbitration as individuals and not on a class basis.

In Epic Systems Corp. v. Lewis, the National Labor Relations Board concluded that class action arbitration waivers violate Section 7 of the National Labor Relations Act because they prevent employees from joining together to pursue claims against their employers. The employer appealed this decision, arguing that the Federal Arbitration Act (FAA) controls this issue, and that Section 7 cannot be interpreted to displace general federal legal principles favoring arbitration.

The Supreme Court majority agreed, concluding that the NLRA was never intended to regulate use of arbitration agreements. As with other federal labor laws, the congressional intent expressed in the FAA favors use of arbitration as a more efficient alternative for all parties to litigation. In its Concepcion decision, the Supreme Court upheld the use of class action waivers in commercial agreements, and it used the same reasoning in Lewis to affirm the legality of their use in the employment context.

This decision follows a long series of Supreme Court decisions affirming the use of mandatory arbitration agreements in the face of challenges questioning their fairness to employees and consumers. The court minority’s dissent said that this decision effectively means that employees have no legal recourse to challenge employer practices in situations where their individual claims do not rise to a certain monetary level.

This decision may persuade more employers to begin using mandatory arbitration agreements with their employees. Even employers that do not believe arbitration is necessarily cheaper or more efficient than litigation may be persuaded to change their minds if use of such agreements insulates them from employee class and collective action claims. Employers considering use of such agreements should carefully draft them to make sure they comply with federal and state law requirements that the agreements preserve employees’ general rights to challenge employment actions through arbitration.