Supreme Court Holds Class Action Waivers in Arbitration Agreements are Enforceable - a Victory for Employers

By Zebulon Anderson, Susan Hargrove and Patrick Lawler

The U.S. Supreme Court held on May 21 that class action waivers in employment arbitration agreements are enforceable. This is a major victory for employers. The Court consolidated three cases, Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, National Labor Relations Board v. Murphy Oil USA, Inc., Nos. 16-285, 16-300, 16-307, and ruled 5 to 4 that requiring class action waivers is not a violation of the National Labor Relations Act (NLRA) and that the Federal Arbitration Act (FAA) requires arbitration agreements providing for individual arbitration proceedings to be enforced as written. 

Background 

The consolidated cases each presented the same set of key facts – as a condition of employment or continued employment, the employer required employees to sign an arbitration agreement that waived the right to sue the employer collectively with other employees in a court of law and required the resolution of employment disputes individually by arbitration. In each case, the employees attempted to sue the employer for Fair Labor Standards Act violations and related state law claims through a class or collective action in federal court, ignoring the arbitration agreements’ requirements that the claims be brought in individual arbitration. When the employer sought to enforce the arbitration agreements, the employees claimed the agreements were unlawful under the NLRA. 

The Seventh Circuit Court of Appeals in Epic and the Ninth Circuit Court of Appeals in Ernst & Young agreed with the employees, holding that the class action waivers violated the NLRA by restraining “concerted activity.”  The Fifth Circuit Court of Appeals in Murphy Oil came to the opposite conclusion and enforced the arbitration provisions. The Second and Eighth Circuits subsequently adopted the Fifth Circuit’s reasoning.

The Supreme Court’s Decision 

Resolving the split among the circuit courts of appeals, the Supreme Court held that arbitration agreements providing for individualized proceedings must be enforced as written and the NLRA does not suggest otherwise.  Justice Neil Gorsuch, writing for the five justices in the majority, explained that the NLRA protects employees’ rights to unionize and collectively bargain, but its protections do not encompass an employee’s right to participate in a class or collective action.  

The Court rejected the argument that the FAA’s savings clause, 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,” invalidates class action waivers contained in mandatory arbitration agreements. That clause, explained Justice Gorsuch, only permitted the invalidation of arbitration agreements based on contract defenses, not defenses that apply only to arbitration. The Court concluded:

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written.  While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA – much less that it manifested a clear intention to displace the Arbitration Act.

Justice Ruth Bader Ginsburg authored a critical dissent and described the majority’s decision as “egregiously wrong.”  Justice Ginsberg warned, “Employers, aware that employees will be disinclined to pursue small-value claims when confined to proceeding one-by-one, will no doubt perceive that the cost-benefit balance of underpaying workers tips heavily in favor of skirting legal obligations.”

Implication for Employers

Employers can continue to incorporate class action waivers in employment arbitration agreements and make such agreements a condition of employment, and, absent Congressional action, can rely on the enforceability of the waivers.  Employers who do not currently require employees to execute such waivers in arbitration agreements may want to consider doing so. Of course, the Court’s decision does not limit the ability of state and federal agencies to pursue employment-based claims on behalf of classes of employees.   

If you have any questions on the Supreme Court’s decision or any impact the decision may have on your workplace, please contact the Smith Anderson lawyer with whom you normally work.