U.S. Supreme Court Waves Goodbye to Class Actions
On May 21, 2018, in a highly anticipated decision to resolve a federal circuit court split, the U.S. Supreme Court issued its opinion in Epic Systems Corp. v. Lewis, No. 16-285, Ernst & Young LLP v. Morris, No. 16-300, and NLRB v. Murphy Oil USA, Inc., No. 16-307. In these related cases, the Court held that the Federal Arbitration Act (the "FAA") allows employers to maintain arbitration agreements with their employees that contain class and collective action waivers. In so doing, the Court rejected the employees' argument that class and collective action waivers violate Section 7 of the National Labor Relations Act (the "NLRA"), which grants employees the right to engage in concerted activity.
In its 5-4 opinion, which contained a blistering dissent by Justice Ginsburg, the Court followed its prior precedent, including AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), and stuck to its long-standing rule that arbitration agreements must be enforced according to their terms as Congress intended in the FAA. The employees argued, among other things, that class and collective action waivers are unenforceable under the NLRA because joint efforts to seek redress in the judicial system constitute "concerted activity." The Court emphasized that such a rule would impermissibly disfavor arbitration. Recalling its decision in Concepcion, the Court again declined to adopt a rule that it believed would operate to disfavor arbitration.
The Court also reasoned that the NLRA does not displace the FAA because there is no clear intent in the NLRA to do so. To the contrary, the NLRA centers on employees' rights to organize with unions and to bargain collectively. The Court explained that there is nothing in the NLRA about arbitration generally, or that expresses approval or disapproval of arbitration. Accordingly, the NLRA could not override the clear goals of the FAA to allow parties to agree to individualized arbitration.
Implications for Employers
One important caveat for California employers -- the U.S. Supreme Court's decision covers only class and collective action waivers. The decision does not cover claims brought under California's Private Attorneys General Act ("PAGA"), which allows many wage/hour type claims to be brought in a "representative" capacity. Under current California law, PAGA waivers in arbitration agreements generally are still unenforceable.
Those employers that already maintain arbitration agreements should review them to ensure that they are up-to-date and to determine the advisability of including a class-action waiver. That decision is dependent on the circumstances of each individual employer. Employers that have not implemented arbitration agreements may wish to reevaluate whether to do so. There are pros and cons of arbitration agreements depending upon a particular employer's industry, type and size of workforce, resources and personnel strategies.