On May 21, the U.S. Supreme Court held 5-4 that class waivers in arbitration agreements between employees and employers are valid, rejecting arguments that they violate the protection of concerted activity in the National Labor Relations Act.

Constangy filed an amicus (“friend of the court”) brief in support of the employers in the case.

The Court, in Epic Systems v. Lewis, rejected the novel argument advanced by the Obama-era National Labor Relations Board under its Democratic majority and its former General Counsel, Richard F. Griffin, Jr. Although the Federal Arbitration Act generally provides that arbitration agreements must be enforced, there is an exception when “such grounds [] exist at law or in equity for the revocation of any contract.” The NLRB argued that waivers of class or collective claims in arbitration agreements violated the NLRA and therefore that such waivers fell within this exception. Federal appeals courts had split on the issue.

In a majority opinion written by Justice Neil Gorsuch (joined by Chief Justice John Roberts, and Justices Samuel Alito, Anthony Kennedy, and Clarence Thomas), the Court held that Congress, in enacting the Federal Arbitration Act, instructed courts to enforce arbitration agreements as written, including provisions that call for individual arbitration proceedings. Among other things, the majority said that Congress’s preference for enforcing arbitration agreements could not be overridden by implication based on another statute. Further, the majority said, there was no indication that Congress intended to protect class and collective actions when it enacted the NLRA in the 1930s.

The decision is good news for employers who have or are considering the use of arbitration agreements with employees as a means to stem the expense and uncertainty-risk of civil litigation. This includes many employers who had settled cases with the NLRB involving the legality of their arbitration agreements where the outcome of those settlements were contingent upon how the Court ultimately ruled.

In a press release issued Monday, the Board (now with a Republican majority) commented, in part,

The National Labor Relations Board respects the Court’s decision, which clearly establishes that arbitration agreements providing for individualized proceedings, and waiving the right to participate in class or collective actions, are lawful and enforceable.

The Board currently has 55 pending cases with allegations that employers violated the National Labor Relations Act (“the Act”) by maintaining or enforcing individual arbitration agreements or policies containing class- and collective-action waivers. The Board is committed to expeditiously resolving these cases in accordance with the Supreme Court’s decision. Many other similar cases previously issued by the Board are pending before the federal courts of appeals.

Justice Ruth Bader Ginsberg penned a vigorous dissent, joined by Justices Stephen Breyer, Elena Kagan, and Sonia Sotomayor. The reliable pro-labor justice asserted that the majority opinion gave little heed to what she labelled as 80 years of Board precedent protecting employees from interference with their protected activity when they pursue joint, collective or class claims. She expressed concern that the effect of the decision would be to deter employees with low-value individual claims from asserting them through the mechanism of class or collective actions, arguing that the inevitable result of the decision would be “underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

On the other hand, many would argue that arbitration agreements benefit employers and employees alike. There are countless examples of class and collective actions involving employment disputes in which the per-employee recovery was nominal and arguably the only big winners were the lawyers. The Supreme Court’s ruling allows employers to more comfortably implement arbitration programs to significantly minimize their risk of exposure to class and collective claims -- claims that are cost prohibitive to defend and that often result in what feels to many like extortionist settlements in which the plaintiffs’ counsel receives a sum that is many multiples of the actual time and expense spent in pursuing the claims. Arguably, the only “harm” created by class waivers is to the lawyers who will not get to litigate class claims.

All things considered, the Supreme Court’s ruling was “epic” in more ways than one. Employers who were thinking about implementing arbitration agreements with class waivers should feel free to proceed. Employers with arbitration agreements that do not currently contain express class waivers should consider modifying the agreements to include them. Assuming Congress does not pass legislation that overrules the Court’s decision, individual arbitration of employment disputes should remain a viable alternative to expensive and time-consuming litigation of class or collective action lawsuits. However, employers must still take care that their arbitration agreements in general, and class waivers in particular, comply with applicable state standards prohibiting “unconscionable” contract provisions.

If you are interested in using arbitration agreements to resolve employment disputes, please contact any Constangy attorney.

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