U.S. Supreme Court Upholds Class Action Waivers In Arbitration Agreements
Posted May 21, 2018

Hot off the presses! The Supreme Court of the United States, in a 5-4 ruling issued on May 21, 2018, declared that the Federal Arbitration Act (FAA) protects employers’ rights to enforce class action waivers in arbitration agreements – and, to require individualized arbitration of claims.

The ruling today resulted from three separate (but consolidated) cases before the Court – Epic Systems Corporation v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA, Inc. However, according to Justice Gorsuch’s majority opinion, there was really only one issue on the table: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or, should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed to with their employers?”

The answer, according to the majority, is this: “The policy may be debatable but the law 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.” An employer victory!

In reaching this decision, the Court shot down the employees’ arguments that (1) the FAA’s savings clause removes its enforcement obligation “if an arbitration agreement violates some other federal law …” (in these cases, the law claimed to be violated was the National Labor Relations Act (NLRA)) and (2) even if the savings clause did not save the day, the NLRA, standing alone, overrides the FAA’s enforcement mandate. Not so, said the Court, Instead, the FAA savings clause only allows courts to “refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract,’ ” and recognizes only “generally applicable contract defenses, such as fraud, duress, or unconscionability”. The Court found harmony between the FAA and the NLRA: “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’ agreements unlawful.” Rather, the Court said that the NLRA has nothing to do with arbitration rights or how courts rule to enforce arbitration agreements. Instead it secures employees’ right to organize unions. The dissenting justices heavily criticized the majority decision, with Justice Ginsburg going so far as to call it “egregiously wrong”. She was joined in her dissent by Justices Breyer, Sotomayor, and Kagan (an expected divide on ideological lines). According to the dissenters, the NLRA should trump the FAA protections because, “There can be no serious doubt that collective litigation is one way workers may associate with one another to improve their lot.” So what does this mean for employers? Well, as Esme Squalor of Lemony Snicket fame would say, arbitration is “IN”! Indeed, a prominent think tank has projected that in light of this decision today, the number of employers utilizing arbitration agreements with class action waivers will skyrocket to 80% in the next few years.

If you are an employer considering adopting arbitration in your workplace, or you currently use arbitration agreements but your process hasn’t been reviewed in the past few years, this is the time to update or create your agreement. Here is a list of key items to consider based on recent court decisions:

  1. DO include a class action waiver provision;
  2. DO update your old arbitration agreement – the law on arbitration is constantly in flux; annual updates with qualified employment law counsel are highly recommended!
  3. DO properly implement arbitration agreements (a quick reminder – proper implementation is different for current versus new employees);
  4. DO include a provision that the arbitrator will rule on enforceability – silence means the court decides.
  5. DO include a provision that allows for provisional relief in court without voiding the arbitration agreement, but draft it carefully to ensure its enforceability.
  6. DO Include third parties related to your company (staffing agencies, for example);
  7. DON’T: When it comes to Labor Commission claims, don’t push arbitration;
  8. DON’T draft arbitration agreements into the employee handbook;
  9. DON’T take translating your agreement into another language lightly, use certified translators;
  10. DON’T try to waive Private Attorney Generals Act (PAGA) claims;
  11. DON’T sit on your rights to arbitration – if there is litigation and you delay, you risk voiding your rights to enforce arbitration;
  12. DON’T use e-signatures, if at all possible.

LightGabler is an employment defense firm working with employers and management to proactively prevent litigation. Our employment attorneys are dedicated to providing employment law advice to a broad range of clients of all sizes in numerous industries. When litigation is unavoidable, we work with our clients to defend and resolve employee claims. If you have any questions regarding arbitration agreements or any other employment law matter, please call LightGabler at 805-248-7208.

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