United States Supreme Court Issues “Epic” Decision for Employers
For the past six years, employers have challenged the National Labor Relations Board’s (“NLRB”) position that the National Labor Relations Act (“NLRA”) prohibits employers from requiring employees to forego class and collective action and instead individually litigate their employment-related claims. (Our prior coverage on this issue has been extensive – see here.) After a long battle, the United States Supreme Court resolved the question in a highly anticipated decision on May 21, holding that employers can require employees to bring claims in arbitration, and to do so only on an individual basis, without violating employees’ NLRA-protected right to engage in concerted activity for their mutual aid or protection.
The Court’s decision came in the context of three consolidated cases (Epic Systems v. Lewis; Ernst & Young v. Morris; and NLRB v. Murphy Oil USA, Inc.) in which employees challenged their employers’ arbitration agreements that required them 1) to use arbitration as the sole forum for their employment disputes; and 2) prohibited them from joining other employees in a class or collective litigation action. The employees in these cases (and the NLRB in Murphy Oil) argued that the arbitration agreements were unenforceable to the extent they prohibited them from bringing claims on a class or collective basis because Section 7 of the NLRA protects the right of employees to engage in concerted activity, which, they contended, includes litigating in a class or collective manner to seek redress for an employer’s alleged unlawful act. Although the employees and NLRB recognized that the Federal Arbitration Act (“FAA”) encourages the enforcement of most arbitration agreements and provides that arbitration agreements ordinarily should be enforced on their terms, the employees and NLRB argued that the FAA’s savings clause – which exempts from enforcement contracts that are unlawful under other laws – applied and the agreements were invalid because they offend the NLRA.
The employers in these cases responded that a reasoned interpretation and the history of the NLRA did not support the employees’ and NLRB’s position, that the FAA’s strong presumption of enforcement of arbitration agreements should apply, and that the NLRB has no expertise in interpreting the FAA or otherwise enforcing arbitration agreements, therefore its interpretation of the lawfulness of class waivers in arbitration agreements was not entitled to deference.
As expected, the Supreme Court split along ideological lines, with the five conservative justices forming a majority and the four liberal judges dissenting. The majority opinion, authored by Justice Gorsuch, recognized that the FAA liberally protects arbitration agreements, including parties’ choice of arbitral forums and rules, and that the Court’s precedent firmly supported that interpretation. The Court rejected the position that the FAA savings clause could be used to invalidate the agreements, largely because neither the text nor context of the NLRA suggests that class or collective actions were intended to fall within the scope of NLRA “concerted activity.” The Court was persuaded that class and collective litigation procedures are not created by the NLRA, but rather by the Federal Rules of Civil Procedure and the Fair Labor Standards Act. The Court concluded that Section 7 of the NLRA applies to actions and conduct that employees “just do themselves,” and does not cover when employee disputes “leave the workplace and enter a courtroom or arbitral forum.” The Court’s opinion tacitly criticized the NLRB for attempting to create an inconsistency between the NLRA and the FAA when, for nearly 70 years, and as recently as 2010, the NLRB never asserted any such conflict existed.
After years of uncertainty on the continued viability of class and collective action waivers in arbitration agreements, employers now have the clarity they have been seeking. Employers may lawfully condition employment on an employee’s agreement to resolve any dispute in arbitration and solely on an individual, non-class, non-collective action basis. Recognizing that the issue has been finally resolved, the NLRB issued a news release shortly after the decision issued, stating that it “respects the Court’s decision” and confirming that “arbitration agreements providing for individualized proceedings, and waiving the right to participate in class and collective actions, are lawful and enforceable.”
Employers should now consider whether to adopt arbitration programs as a strategy to reduce the risk of costly class and collective employment-related litigation, particularly in the context of alleged wage and hour violations, without any lingering concerns about the validity of such agreements. Though now undisputedly lawful, such agreements are not beyond criticism (i.e., that they are designed to shield employment disputes from view and keep disputes such as those involving claims of harassment or underpayment of wages secret) and may not be consistent with all companies’ corporate culture. Employers are urged to consult with counsel about whether and, if so, how to structure arbitration programs to best meet their cultural and risk management goals.