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Wave hello to more individualized arbitration: SCOTUS says class action waivers in employment agreements valid
By Lauren Daming, Heather Mehta on May 21, 2018 at 2:40 PM EDT

Supreme Court buildingIn a 5-4 decision written by newcomer Justice Gorsuch, the U.S. Supreme Court upheld employment agreements that require employees to individually arbitrate disputes with their employers.

The May 21, 2018, opinion in Epic Systems Corp. v. Lewis resolves a trio of cases before the Supreme Court in which employees brought suits against their employers alleging state and federal wage and hour violations. In each situation, the employees had signed contracts agreeing to resolve any employment-related disputes in individualized arbitration. Nevertheless, they sought to litigate their claims in class or collective actions. 

The Federal Arbitration Act (FAA) generally requires courts to enforce such arbitration agreements as written. Yet the employees argued that the National Labor Relations Act’s (NLRA) guarantee that employees may engage in concerted activities conflicts with the FAA’s directive. As a result, the employees argued that the class waivers in question were unenforceable.

The court disagreed, explaining that courts are only relieved of their obligation to give effect to arbitration agreements when a traditional rationale for the rescission of a contract is presented, such as fraud or duress. Additionally, the court found that the NLRA gives no indication that Congress intended to displace the FAA’s general scheme: The NLRA does not mention class or collective procedures and those methods of dispute resolution were, in fact, “hardly known” when the NLRA was adopted.

The court also explained that participation in class or collective actions does not qualify as “concerted activities” under the NLRA because that term only refers to actions that “employees ‘just do’ for themselves in the course of exercising their right to free association in the workplace.” In other words, the NLRA’s protection does not extend to the “highly regulated, courtroom-bound ‘activities’ of class and joint litigation.”

The court explained that its conclusion was entirely in line with its longstanding precedent of rejecting efforts to “conjure conflicts between the [FAA] and other federal statutes.” The court also emphasized that its decision is consistent with nearly 80 years of case law that remained largely untouched until the National Labor Relations Board asserted for the first time in 2012 that the NLRA nullifies the FAA in some cases.

As a result of this ruling, employers are free to incorporate class and collective action waivers into agreements with employees, although as Justice Gorsuch recognized, “Congress is always free to amend this judgment.”

If crafted properly, then such an agreement also would apply to claims employees may bring under the Employee Retirement Income Security Act of 1974 (ERISA). However, employees have successfully argued that claims for fiduciary breaches brought under ERISA § 502(a)(2), 29 U.S.C. § 1132(A)(2), are not subject to arbitration agreements with class action waivers. ERISA § 502(a)(2) claims, employees assert, are brought on behalf of the plan, and employees cannot waive the plan’s rights to litigation. The Ninth Circuit will soon decide this issue in Munro v. USC, and it is likely that issue will continue to be litigated in district and circuit courts.

For more information about this case or for assistance in drafting enforceable arbitration or other employment agreements, contact our attorneys in the Employment & Labor or Employee Benefits Practice Groups. 

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