Class Action Waivers are Enforceable

Class Action Waivers are Enforceable

May 23, 2018

On May 21, 2018, the United States Supreme Court held that employers may require that employees consent to arbitration agreements containing class or collective actions as a condition of employment. Justice Neil Gorsuch drafted the 5-4 consolidated decision. Epic Sys. Corp. v. Lewis, -- S. Ct. --, Nos. 16-285, 16-300, 16-307 (2018).

The issue before the Court was whether the National Labor Relations Act ("NLRA"), which gives employees the right to self-organization to "engage in concerted activities for the purpose of mutual aid or protection," preempts the Federal Arbitration Act ("FAA"), which allows employers to "settle by arbitration." Acknowledging its job to find "harmony over conflict in statutory interpretation," the Court held that the FAA and NLRA "can easily [be] read . . . to work in harmony." Ultimately, the NLRA does not contain any legislative command barring enforcement of class action waivers, which are permissible under the FAA.

Issues surrounding class action waivers in arbitration provisions are not new to the Court. In recent years, the Court approved the use of class waivers in arbitration clauses in consumer agreements. Despite this line of cases allowing companies to require consumers into arbitration agreements with class waivers, uncertainty persisted in the employment agreement context.

In this case, the Court continued on the path already laid in the consumer protection context, ruling in favor of the validity and enforceability of class waivers in employment agreements. Preliminarily, the Court noted that the FAA provides an unequivocal mandate that courts enforce arbitration agreements. The Court then rejected the employees' argument that Section 7 of the NRLA creates a right to participate in a class action. Rather, the Court said, Section 7 governs an employee’s right to unionize and bargain collectively, without mentioning class or collection actions. The Court declined to interpret the NLRA as extending to reach activities beyond those "things employees do for themselves in the course of exercising their right to free association in the workplace," relying in part on the structure of the NLRA for support inasmuch as the NLRA is void of rules governing class and collective action while offering regulatory regimes for other concerted activities.  

It is also noteworthy that this decision does not render employers immune from multi-claimant litigation. Indeed, California employers may still be subject to PAGA actions, and the Department of Labor and Equal Employment Opportunity Commission may still pursue relief for employees regardless of whether those employees signed class waivers.

Employers with mandatory arbitration agreements containing class or collective action waivers can rest assured that the waiver stands as a valid defense to a collective or class action.