In a much-anticipated decision, the United States Supreme Court (“SCOTUS”) has ruled that employers may require that employees waive their right to pursue class or collective employment claims as part of a mandatory arbitration program. In general, this is a very favorable ruling for employers and one that might signal a trend as to how SCOTUS might rule on employee/employer issues arising in the near future.

SCOTUS’ decision on this issue is also expected to prompt many employers — some of whom have been waiting for this very ruling — to consider implementing programs requiring that employees use individual binding arbitration for employment disputes rather than bringing such claims in court.

Background

In recent years, amid a continuing wave of wage and hour litigation under the Fair Labor Standards Act (FLSA), many large employers have adopted a requirement that all employees agree to arbitrate any employment dispute that may arise. (In theory at least, arbitration provides a less expensive way to handle legal claims, but see below for our discussion of the pros and cons.). This type of agreement would normally happen at the early stages of employment, but agreements to arbitrate can be made anytime.  Previous Supreme Court cases established that employers may lawfully demand that employees enter into such arbitration agreements as a condition of employment.  Having lost that battle, employee advocates pursued a new challenge:  asserting that the class action waiver provision contained in most employment arbitration agreements was itself a violation of federal labor law.

The employees’ theory was this:  because the National Labor Relations Act (NLRA) protects employees who engage, not just in union organizing, but in “other concerted activities” for their mutual aid and protection, an agreement that waives the ability of employees to join together in a class or collective legal action cannot be made a condition of employment. Not surprisingly, the National Labor Relations Board agreed (in a case called D.R. Horton), but the Circuit Courts of Appeal across the U.S. were divided over whether class and collective legal claims were really protected concerted activity under the NLRA. Thus, the Supreme Court was called in as the great tie-breaker.

Decision

The Court’s ruling in Epic Systems, Inc. v. Lewis, authored by Justice Neil Gorsuch, resolved the split in the Circuit Courts and established a new standard for the validity of class action waivers. The Court held that employers may continue to include the challenged provisions requiring that employees litigate employment claims through the arbitration process, and that they do so on an individual basis. While there was an impassioned dissent from Justice Ginsburg that accused the Court of reading the NLRA’s protection of concerted activity too narrowly, the majority rejected the employees’ arguments, finding that nothing in the history of the NLRA suggests that it should overrule Congress’ expressed preference for enforcing arbitration agreements, especially in cases brought under completely different statutes such as the FLSA.

Employer Takeaways

(Not so fast, there is a cost-benefit analysis to engage in.)

Although many larger employers have already adopted arbitration programs, clearly there will be another wave of employers evaluating their options. The prospect of having employees promise not to join a class action may be enticing, but employers who currently have low to moderate litigations costs under the current system need to consider whether their employees may view arbitration as less intimidating than going to court. Some studies have shown that employees may have fewer inhibitions about invoking arbitration rights, and that lower costs per case can be offset by an increase in the number of employees challenging employment decisions.

In any case, we are here to help.  WRs’ Labor & Employment lawyers are prepared to advise clients on these issues, and to assist in the development of mandatory arbitration programs when their adoption makes sense.

Article brought to you by:

Victor Cardwell
Principal and Chair
Labor and Employment Practice Group

King F. Tower
Of Counsel
Labor and Employment Practice Group