U.S. Supreme Court Finds Waivers In Arbitration Agreements Are Lawful

us-supreme-court-Employers scored a win on May 21, 2018, when the United States Supreme Court issued an opinion in a trio of cases which challenged whether an employer can enforce an arbitration agreement which contains a class-action waiver. The Court held in a 5 – 4 decision, that the Federal Arbitration Act (FAA) allows enforcement of arbitration agreements, limiting proceedings to an individual basis only, and that the Arbitration Act’s savings clause and the National Labor Relations Act (NLRA) did not prevent this enforcement.

The Court rejected the argument that such “class action waivers” violated Section 7 of the NLRA, which generally protects employees’ rights to act “in concert” with one another.

The Court addressed a split by decisions from three Federal Circuit Courts of Appeal: Epic Systems Corp. v. Lewis (7th Circuit), Ernst Young v. Morris (9th Circuit) and National Labor Relations Board v. Murphy Oil USA, Inc. (5th Circuit). All thee cases involved employees who sought to bring collective or class action under the Fair Labor Standards Act (the “FLSA”), and their respective employers who sought to enforce pre-dispute arbitration agreements which waived such collective actions and mandated “one-on-one” arbitrations of wage disputes.

Justice Neil Gorsuch wrote for the majority, finding that Congress has instructed that arbitration agreements written, like the ones before the Court, must be enforced as written. The majority also found that nothing in the National Labor Relations Act suggested that Congress had the intention to displace the Arbitration Act. As the Supreme Court has done with almost universal consistency in the past, their decision applied the strong federal presumption in favor of arbitration to determine that the agreements were valid.

Justice Gorsuch was joined by Chief Justice John Roberts and Justices Anthony Kennedy and Samuel Alito. Justice Clarence Thomas wrote a concurrence, and Justice Ruth Bader Ginsberg authored a dissent, joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.

Collective actions lawsuits filed under the Fair Labor Standards Act have, for some years been the fastest growing type of litigation in employment law. Over a recent 15-year period, the number of such lawsuits has increased more than 350 percent.

The Court both began and ended its opinion by expressing concern about the effect of class-action waivers, opening by saying, “As a matter of policy these questions are surely debatable” and ending by reasserting that “The policy may be debatable, but the law is clear!” Based on the Court’s statements, it is possible that Congress could enact legislation designed to limit or reverse the Court’s decision.

The Court’s decision provides much needed clarity for employers. In light of this ruling, companies without arbitration agreements containing class and collective action waivers, might reconsider whether implementing such an arbitration agreement may be in their best interest. Should employers desire to prohibit class-action litigation through arbitration agreements, they should ensure that the agreements are carefully and clearly worded to inform employees of the class-action waiver.

Frank Botta has extensive experience in advising companies regarding labor and employment matters. Please contact Frank at (724)776-8000 or fbotta@lynchlaw-group.com for guidance regarding arbitration agreements or for assistance in understanding the current state of employment laws, rules and regulations.

 

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