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U.S. Supreme Court Approves Class Action Waivers In Arbitration Agreements

Volume 17, Issue 11
May 22, 2018

On Monday, May 21, 2018, the U.S. Supreme Court issued a decision in three consolidated cases that soundly supports employers' use of arbitration agreements to avert class action lawsuits. The Supreme Court specifically rejected the National Labor Relations Board's (NLRB) position that class action waivers in arbitration agreements violate the National Labor Relations Act (NLRA).

Since 2012, the NLRB has taken the position that requiring an employee to agree to arbitrate disputes on an individualized and separate basis, instead of via a class or group of employees, violates the employee's Section 7 rights to engage in "concerted activity." As we explained in Volume 15, Issue 21 of the KZA Employer Reports, the Ninth Circuit Court of Appeals agreed with this approach in the case of Morris v. Ernest & Young, LLP, as did the Seventh Circuit Court of Appeals in the case of Epic Systems Corp. v. Lewis. The Fifth Circuit Court of Appeals disagreed, however, in the case of National Labor Relations Board v. Murphy Oil USA, and the Supreme Court agreed to decide this important issue by consolidating these three cases.

Yesterday, the Court ruled in the employers' favor and overturned the anti-arbitration decisions in Epic and Morris. The Court explained that since 1925, the Federal Arbitration Act (FAA) has established "a liberal federal policy favoring arbitration agreements" that requires courts to "respect and enforce the parties' chosen arbitration procedures." It rejected the argument that the FAA's "savings clause" (which allows courts to refuse to enforce defective contracts obtained via fraud, duress or unconscionability) exempts class action waivers from the FAA's protections.

The Court then rejected the Obama Board's position that class action waivers violate Section 7 of the NLRA. The Court refused to broadly interpret Section 7's protection to engage in "other concerted activities" to apply to activities, such as litigation, conducted outside the workplace. The Court explained that Section 7 protects "things employees 'just do' for themselves in the course of exercising their right to free association in the workplace, rather than 'the highly regulated, courtroom-bound 'activities' of class and joint litigation.'" The Court summarized:

Union organization and collective bargaining in the workplace are the bread and butter of the NLRA, while the particulars of dispute resolution procedures in Article III courts or arbitration proceedings are usually left to other statutes and rules- not least the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA. It's more than a little doubtful that Congress would have tucked into the mousehole of Section 7's catchall term an elephant that tramples the work done by these other laws; flattens the parties' contracted-for dispute resolution procedures; and seats the Board as supreme superintendent of claims arising under a statute it doesn't even administer.

The Court concluded that while Congress is free to enact language addressing matters concerning dispute resolution between employers and employees, it has not done so in the NLRA, and the FAA clearly requires that "arbitration agreements like those before us must be enforced as written."

In response to the Court's decision, the Trump NLRB quickly issued a press release to state that the 55 pending cases with allegations that employers violated the NLRA by maintaining or enforcing individual arbitration agreements or policies containing classand collective-action waivers will be "expeditiously resolv[ed] in accordance with the Supreme Court's decision." It also announced an end to its 6-year rule against class action waivers, stating "employers are [now] permitted to maintain and enforce such class-action waiver agreements."

This is a huge victory for employers interested in arbitration agreements and class action waivers. While arbitration agreements must be carefully drafted and obtained, the Supreme Court's decision ensures that employers who choose to use this dispute resolution method can do so with confidence their agreement is more likely to be enforced by a reviewing court. If you have questions about this decision or arbitration agreements, please contact a KZA attorney.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.