• Overview
  • Services
  • Professionals

The Case for Class - Class Action Waivers in Arbitration Agreements
June 11, 2018
Last month, in Epic Systems Corp. v. Lewis, the Supreme Court of the United States decided class action waivers in employment arbitration agreements do not violate the National Labor Relations Act (“NLRA”). A class action waiver requires an employee to arbitrate disputes with his or her employer, such as discrimination or wage payment claims, on an individual basis rather than in court through a class action. The Supreme Court’s opinion blessed the use of class action waivers in employment arbitration agreements by eliminating a significant roadblock for the enforcement of class action waivers. As we previously wrote, employers must decide whether to require arbitration agreements with class action waivers from their employees. Their use may add another level of protection from bet-the-company class litigation. In addition to clearing the way for employers’ use of class action waivers, the Court’s opinion provided helpful pro-employer commentary on the scope of the NLRA.

The debate over class action waivers arose in 2012. For 77 years, the National Labor Relations Board ( “NLRB” or “Board”) had never claimed class action waivers violated the NLRA. The Board then altered course and claimed for the first time that the NLRA overrides the Federal Arbitration Act ( “FAA”) and renders class action waivers unenforceable. According to the NLRB, arbitration agreements that require individualized proceedings are unenforceable because they violate employees’ rights to join in concerted activity. Opponents to the NLRB’s position argued that class action waivers included in arbitration agreements should be enforceable because the FAA generally requires courts enforce arbitration agreements as they would any other contract. The Supreme Court sided with opponents to the NLRB’s position and concluded the NLRA could not override the FAA.

The Supreme Court reasoned courts must read the NLRA and FAA harmoniously. While Congress could have drafted the NLRA to supersede the FAA, it chose not to do so. According to the Court, the NLRB’s efforts to expand the scope of concerted activity (which the NLRB aggressively litigated during the Obama administration) to class actions did not have support in the NLRA. According to the Court, “the NLRA secures to employees rights to organize unions and bargain collectively, but says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” In other words, the NLRA does not give employees the right to pursue collective actions or class actions in court, but rather protects what employees do for themselves in the workplace. The Court suggested if employees wished to avoid arbitration agreements with class action waivers, they should collectively bargain around them. Because, the Court interpreted the NLRA's protection of “concerted action” not to expressly create a right for employees to bring class actions, it concluded it must respect Congress’s decision-making authority and the Court is bound to, “give effect to both” the NLRA and the FAA.

For most employers, it would be prudent to include class action waivers in arbitration agreements. By requiring individualized arbitration, an employer can effectively mitigate the risk of class action litigation and the attendant significant costs. The ruling also gives employers, especially those in sectors that are ripe for collective or class actions, an additional incentive to include arbitration agreements during the onboarding process.  Interestingly, while the Supreme Court’s opinion includes encouraging pro-employer language regarding the NLRA, it potentially gives unions a roadmap for challenging arbitration agreements and class action waivers. In an effort to rebut the dissent’s claim that the opinion would eviscerate employees’ right to join together for mutual protection, the Court went out of its way to provide an avenue to challenge class action waivers: union organizing and collective bargaining. It will be interesting to see if and how unions use class action waivers and arbitration agreements as bargaining chips or organizing issues.

Please contact us if you have any questions about this issue.
Labor & Employment Law Mitchell J. Rhein