Employment Arbitration Agreements Can Contain Class Action Waivers
Many employers prefer to resolve disputes with employees through arbitration as opposed to more costly litigation in court.
June 19, 2018 at 12:25 PM
8 minute read
Many employers prefer to resolve disputes with employees through arbitration as opposed to more costly litigation in court. This dispute-resolution process requires the employer and employee to enter into an agreement to arbitrate disputes. With the increase in popularity of employment class action lawsuits, employers have started including arbitration provisions in employment agreements, under which the employees waive their ability to bring or participate in class action lawsuits. While employment arbitration agreements cut across all industries, they are especially common with international employers and companies in the restaurant and hospitality industry (two prominent types of employers in this region).
The legality of employment arbitration agreements with class action waivers had been called into question in recent years. The National Labor Relations Board (NLRB) and several appellate courts had taken the position that the National Labor Relations Act (NLRA) prohibits class action waivers in the arbitration provisions of employment agreements. Conversely, other appellate courts have concluded that the Federal Arbitration Act (FAA) permits these waivers and that the NLRA does not prohibit them. These conflicting views became defined at the federal appellate level when the U.S. Court of Appeals for the Second, Fifth and Eighth Circuits permitted employers to use class action waivers in their employment arbitration provisions, but the Sixth, Seventh and Ninth Circuits had ruled class action waivers violated substantive rights of employees under the NLRA.
On May 21, 2018, the U.S. Supreme Court resolved the conflict and held that, as a general matter, class action waivers in employment agreements are enforceable. The decision, Epic Systems v. Lewis, No. 16-285, 2018 WL 2292444 (U.S. May 21, 2018), examined the interplay between the FAA and the NLRA. The Supreme Court held that Congress did not address arbitration in the NLRA. Therefore, the NLRA provided no basis for invalidating class action waivers in arbitration agreements.
Background and Review of Supreme Court's Decision
Section 7 of the NLRA gives employees the right to engage in “concerted activities,” and employers are prohibited from restricting or interfering with that right. The crux of the question, then, was whether the NLRA conflicted with and thus displaced the FAA, to the extent the latter would otherwise permit employment arbitration agreements to contain class action waivers. And if so, which statute controlled?
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