U.S. Supreme Court Rules That Class Action Waivers in Employment Arbitration Agreements Are Enforceable

Photo credit: iStock.com/BCFC

By Stephen Rossi

Last week, in an important win for employers, the U.S. Supreme Court resolved a circuit-split on whether class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA), holding that they are.

The Court decided three cases, Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc., and answered the question of whether class or collective action waivers contained in employment arbitration agreements violate the National Labor Relations Act (NLRA).  In 2012, the National Labor Relations Board (NLRB) ruled that employers violate the NLRA when they require employees, as a condition of employment, to agree to arbitration provisions containing class or collective action waivers, or clauses stating that employees must arbitrate any employment-related claims on an individual basis only (rather than on behalf of a class of other employees).  The U.S. Courts of Appeals for the Second, Fifth, and Eighth Circuits did not follow the NLRB’s ruling. The U.S. Courts of Appeals for the Seventh and Ninth Circuits reached the opposite result.

In a 5-4 decision, the U.S. Supreme Court held that neither the FAA nor NLRA prohibit class and collective action waivers in employment arbitration agreements.  The Court’s majority opinion, written by Justice Neil Gorsuch, first ruled that the “savings clause” in the FAA, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” applies only to general contract defenses (such as fraud, duress, or unconscionability).  It does not apply to defenses that specifically target arbitration, “either by name or by more subtle methods.”  The Court next held that class and collective actions are not “concerted activities” protected by Section 7 of the NLRA and that, for a variety of reasons, the NLRA does not trump the FAA in this instance.  Finally, the Court ruled that the NLRB’s decision was not entitled to the usual deference given to an administrative agency’s statutory interpretation because the decision interpreted the NLRA in a way that limited the FAA, which is not “administered” by the NLRB.  Justice Ginsburg authored a dissent joined by three other Justices.

The decision is a victory for employers, particularly those who already have such arbitration agreements in place.  Employers who do not have class or collective action waivers in their arbitration agreements should strongly consider adding them after consulting with qualified counsel.

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