Supreme Court Upholds Use of Class Action Waivers in Arbitration Agreements

In Epic Systems Corporation v. Lewis, No. 16-285 (May 21, 2018), the Supreme Court ruled that employers can continue to include class and collective action¹ waivers in arbitration agreements. In short, this means that employers can limit their exposure to potential class and collective actions by requiring their employees to arbitrate disputes as single cases, rather than as class or collective actions.

The Decision

In Epic, the employees, along with the National Labor Relations Board, argued that Section 7 of the National Labor Relations Act, which gives employees the right to act collectively, prohibited employers from including, in mandatory arbitration agreements, provisions that waived an employee’s right to pursue arbitration claims in the form of a class or collective action.

In a 5-4 decision, the Supreme Court ruled in favor of the employers. Justice Gorsuch, writing on behalf of the Court, summarized the Court’s decision as follows:

"As a matter of policy these questions are surely debatable. But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings. Nor can we agree with the employees’ suggestion that the National Labor Relations Act (NLRA) offers a conflicting command …. The NLRA secures to employees rights to organize unions and bargain collectively but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum …. Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties’ agreement unlawful.”

Employers Should Act Quickly

Employers with mandatory arbitration agreements can now continue to use or consider adding class and collective action waiver provision. Employers without mandatory arbitration agreements can now consider whether to begin requiring such agreements. The benefits of arbitration can include, but are not limited to: a reduction of overall cost and exposure; no jury trial; privacy; control over selection of the fact finder; and faster resolution. However, there are other factors to consider, such as:

• Limited right of appeal; curtailment of motion practice; the tendency to admit all evidence; potential arbitrator bias in favor of proceeding to trial; and a tendency to “split the baby” in an effort to secure future work.
• Whether seeking to bind current employees to an arbitration agreement requires additional consideration (typically a state law issue).
• Employee relations issues arising from demands for current employees to sign a mandatory arbitration agreement.
• Appropriate terms to include to help insure the agreement is otherwise enforceable (e.g. ability to still file a charge with the NLRB, who pays fees and expenses, excepted claims, etc.).
• Whether to use the American Arbitration Association or some other similar dispute resolution organization, which can be expensive, but has formal procedures, or the Federal Mediation and Conciliation Service, which simply provides a panel of arbitrators and allows the parties to agree upon their own procedures.

In short, employers can now use mandatory arbitration agreements to reduce or eliminate the risk of being sued by their employees or former employees in a class or collective action.