U.S. Supreme Court Approves Use of Class Action Waivers in Arbitration Agreements
On Monday, in a 5-4 majority decision in Epic Systems Corp. v. Lewis, No. 16-285, the U.S. Supreme Court found class action waivers in arbitration agreements to be valid and enforceable, settling a long-standing split among federal courts of appeals.
By way of background, the Supreme Court years ago allowed employers to use arbitration clauses as a way to resolve employment disputes outside of court by requiring employees to agree to arbitration as a condition of employment. In recent years, employers have included class action waivers in such arbitration agreements. These waivers prevent employees from joining a class or collective action lawsuit/arbitration against their employer.
Prior to the Supreme Court’s decision, federal courts of appeals were divided on the legality of such class action waivers. Though the Federal Arbitration Act (FAA) deems arbitration agreements enforceable as written, in 2013 the National Labor Relations Board (NLRB) ruled that class action waivers in employment arbitration agreements violated the National Labor Relations Act (NLRA). The NLRA prohibits infringement of employees’ rights to engage in “concerted activity” for a common cause. Until relatively recently, the NLRA was not considered to affect processes like class actions, arbitration or litigation.
As previously discussed, over the years the Department of Justice and courts of appeal have grappled with the validity of class action waivers in arbitration agreements. A majority of courts, including the Second Circuit Court of Appeals, have upheld class action waivers, determining that they did not violate the NLRA.
For employers in New York, Connecticut, and Vermont, the Supreme Court’s decision affirms the existing Second Circuit precedent. For employers with operations in jurisdictions across the country, the Supreme Court has provided a measure of clarity, ensuring that class action waivers are legal and can be enforced.
Moving forward, the number of arbitration agreements including class action waivers will increase substantially and will have a profound effect on wage and hour claims, which are typically asserted through class and/or collective action lawsuits. Employers should consider including class action waivers in their arbitration agreements. Absent legislation to the contrary, class action waivers are here to stay and employers should consult with their counsel to implement arbitration agreements with class action waivers.