Supreme Court Upholds the Use of Class Action Waivers in Employee Arbitration Agreements

On, May 21, 2018, the Supreme Court issued its opinion in Epic Systems Corp. v. Lewis, upholding the use of class action waivers in employment agreements.  The Court has clearly stated that employers can include class action waivers in employee arbitration agreements without fear of facing NLRA claims or having the waivers invalidated by a court. This decision is certainly a win for employers as they are now able to minimize their exposure to employee class action litigation. 

The National Labor Relations Board Muddies the Waters

Many employers within the past decade have instituted policy mandating that employees execute arbitration agreements at the time of hire.  By signing an arbitration agreement, employees thereby agree to arbitrate any employment disputes instead of proceeding with protracted and expensive litigation. Many of these arbitration agreements contain a waiver of an employee’s right to join or to participate in a collective or class action.  This part of the arbitration agreement, which is often referred to as a class action waiver, was called into question by the NLRB during the Obama administration.

Prior to 2012, the NLRB did not take any interest in the legality of class action waivers. In fact, the NLRA does not address or focus upon class actions, and the NLRB had never before taken the position that this statute barred their enforcement.  Indeed, as late as 2010 the NRLB’s general counsel had opined that the validity of such waivers did not implicate the NLRA.  The Supreme Court had also previously found the Federal Arbitration Act (FAA) established “a liberal federal policy favoring arbitration agreements” and held such clauses enforceable under the FAA in other contexts.

However, in 2012 the NLRA changed course and issued its D.R. Horton decision, which held that class action waivers were not enforceable under the NLRA.  The NLRB reasoned that class action waivers would curtail the right of employees to engage in “concerted activities” for “mutual aid or protection.”  On appeal, the United States Court of Appeals for the Fifth Circuit disagreed and refused to enforce D.R. Horton.  Subsequently, the United States Courts of Appeals for the Second, and Eight Circuits agreed with the Fifth Circuit and also refused to invalidate class actions waivers.  But in 2016, the Seventh and Ninth Circuits adopted the NLRB’s position, and in 2017 so did the Sixth Circuit.  This set the stage for Supreme Court review to resolve the issue.

The Supreme Court Clarifies the NLRA Does Not Bar Enforcement of Class Action Waivers

On January 13, 2017, the Supreme Court granted review in three of these conflicting lower appeals court decisions and, on May 21, 2018, issued its opinion holding the NLRA did not bar enforcement of class actions waivers.  Writing for the majority, Justice Gorsuch focused on the FAA’s clear support for enforcing arbitration agreements.  According to Justice Gorsuch, “Not only did Congress require courts to respect and enforce agreements to arbitrate; it also specifically directed them to respect and enforce the parties’ chosen arbitration procedures.” Justice Gorsuch and the majority further rejected that the NLRA’s protection of “concerted activities” required a contrary decision, noting the NRLA does not speak to arbitration and does not mention class or collective actions.  Rather, the NLRA in pertinent part focuses on “the right to organize unions and to bargain collectively.”  Finally, the Supreme Court concluded deference to the NLRB’s interpretation was not required, because the NLRB “hasn’t just sought to interpret its statute, the NLRA, in isolation; it has sought to interpret this statute in a way that limits the work of a second statute, the Arbitration Act.”

The dissenting justices, led by Justice Ruth Bader Ginsburg, focused on the disparity in power between employers and employees with regard to issues such as this and contended it was precisely this imbalance which lead Congress to pass the NLRA.  Justice Gorsuch acknowledged that there may be a viable policy debate over this issue and Congress could revisit the issue, but concluded the law as written clearly mandated enforcement of class action waivers under the FAA.

The Practical Takeaway

Before the Supreme Court’s Epic decision, an employer risked being the target of an unfair labor practice charge, or having the waiver or all or part of their arbitration agreement invalidated, if it included a class waiver in an employee arbitration agreement.  Employers nationwide can now utilize class action waivers without this threat, and should consider whether it is appropriate to begin including such waivers in their employment agreements.  As with all employment-related decisions, employers should consult with their employment or labor counsel.

If you have any questions concerning this recent Supreme Court decision, please contact Daniel A. Krawiec at dkrawiec@clarkhill.com of any other member of Clark Hill’s Labor & Employment Law Group.