Labor & Employment Law Advisory: Supreme Court Upholds Class- and Collective-Action Waivers

The law has long permitted employers to require employees to sign arbitration agreements waiving their right to sue in court and waiving their right to a jury. With the steady rise in costly multi-plaintiff litigation, including class and collective actions under state and federal wage-and-hour laws, employers are implementing arbitration agreements that waive the employee’s ability to bring claims on anything other than an individual basis. Put another way, an employee could be forced to arbitrate only his/her claims; there would be no class action procedure in arbitration. Plaintiffs’ attorneys and the NLRB mounted their challenge.

The issue in Epic Sys. Corp. v. Lewis, Ernst & Young LLP et al. v. Morris et al., and NLRB v. Murphy Oil USA, Inc., was well-framed for an employer victory: “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?” In a 5-4 decision, the Supreme Court held that employees are not permitted to maintain class or collective actions if they have waived the right to do so in an arbitration agreement.

Employees have argued that the forced waiver of class- and collective-action procedures violate the Federal Arbitration Act’s savings clause and the NLRA’s protection of “concerted activity.” The Court held that the Arbitration Act’s savings clause, which allows courts to refuse to enforce arbitration agreements if grounds exist to revoke the contract (e.g., fraud, duress, unconscionability), may not be used to interfere with the fundamental attributes of arbitration (i.e., individualized arbitration). As for the NLRA, the Court held that Section 7’s right to form and join a union and to bargain collectively does not mention or hint at a clear intent or desire to displace the Arbitration Act. The right to engage in “other concerted activities,” the majority wrote, “serve[s] to protect things employees ‘just do’ for themselves in the course of exercising their right to free association in the workplace, rather than ‘the highly regulated, courtroom-bound ‘activities’ of class and joint litigation.’” The term does not include class and collective legal actions.

The Court’s ruling leaves intact a useful tool for employers to avoid costly multi-plaintiff actions. Arbitration agreements are not for everyone and need not be used for all employees. There are advantages and disadvantages that employers should carefully weigh before implementing such agreements. Employers who have not yet included class-action waivers in their arbitration agreements should consider adding them. In many situations, it is the best course of action, particularly if the employer is in an industry heavily targeted by plaintiffs’ attorneys pursuing real or imagined wage-and-hour violations. As the Court noted in its opinion—and as many employers know all too well—class actions can place unfair pressure on the defendant to settle even unmeritorious claims. For now at least, individual arbitration still provides a fair way for employers to defend such claims.

If you have any questions about this Advisory, please contact a member of our Labor & Employment Group.

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation and does not create an attorney-client relationship between any reader and the Firm.

May 21, 2018