Employers may require employees to enter into arbitration agreements that waive such employees’ ability to participate in a class or collective action lawsuit, the U.S. Supreme Court ruled this week. In a long-awaited decision that represents a significant victory for employers, the Court in Epic Systems Corp. v. Lewis held that such agreements do not violate the National Labor Relations Act and are enforceable.
The employees in the case argued that the NLRA statutorily prevents employees from waiving their right to assert claims as a class or collectively, thus falling within the “saving clause” of the Federal Arbitration Act (FAA), which permits courts from enforcing arbitration agreements that are illegal. At the outset, Justice Neil Gorsuch, writing for the Court’s majority in a 5-4 decision, rejected the employees’ contention, reasoning that the “saving clause” recognizes only defenses that apply to “any” contract, such as fraud, duress or unconscionability. In reaching this holding, the Court emphasized the FAA’s mandate that courts generally enforce, not override, the terms of arbitration agreements.
The Court likewise rejected the employees’ position that the NLRA creates a protected right to pursue a class or collective action. The Court noted that the “catch-all” provision of Section 7 – permitting employees to engage in “other concerted activities for the purpose of . . . other mutual aid and protection” – does not include the right to participate in a class action. Rather, it encompasses only those activities similar to those expressly listed in Section 7, i.e. “things employees “just do” for themselves in the course of exercising their right to free association in the workplace.” Moreover, Justice Gorsuch noted that class and collective actions were “hardly known” as of the time the NLRA was passed in 1935, and therefore, it was exceedingly unlikely the drafters of the NLRA intended it to cover such procedural litigation vehicles.
The dissenting opinion, however, authored by Justice Ruth Bader Ginsburg, took direct aim at the majority’s holding, calling the majority’s decision “egregiously wrong.” In the dissent’s view, Section 7 of the NLRA includes the right of employees to pursue class and collective litigation, as ‘concerted activities,’ and consequently, class action waivers should be unlawful. The dissent also expressed concern that the Court’s holding will cause nominal claims employees might have, namely for minimum wage and overtime violations to go unpursued, thereby emboldening employers to ignore their legal obligations. The majority referred to this as a “false alarm,” with Justice Gorsuch adding that the dissent’s “real complaint lies with the mountain of precedent” supporting the majority’s holding.
The Supreme Court’s decision in Epic Systems confirms that, at least under federal law, employers can require their employees to sign arbitration agreements in which they waive the ability to bring a class or collective action. Although Congress could elect to amend the Federal Arbitration Act to preclude the enforceability of class waivers, such legislation would not likely pass Congress, let alone be signed into law by the current Administration.
Nevertheless, it is imperative that employers seeking to utilize class action waivers in arbitration agreements ensure that such agreements conspicuously and explicitly state that the employee is agreeing to waive his or her right to participate in a class or collective proceeding.
Moreover, while the majority’s decision in Epic Systems strongly suggests that Section 7 of the NLRA does not protect employees’ rights to pursue class or collective action claims under any circumstances, the Supreme Court did not specifically address the issue of whether class or collective action waivers that are not part of an arbitration agreement may be enforceable.
As a final point, some state laws may prohibit arbitration and/or class waivers in certain circumstances. For instance, the 2018-19 New York State Budget, recently signed into law by Governor Andrew Cuomo (Senate Bill S7507C), precludes pre-dispute agreements that require employees to arbitrate sexual harassment claims. However, this provision also provides that it is effective only to the extent it is not “inconsistent with federal law.” It is likely that disputes over the validity of such state laws will make their way into the courts over the coming year.