Mandatory Class Action Waivers in Employment Agreements Upheld by U.S. Supreme Court 

Tuesday, May 29, 2018 11:15:08 AM

On Monday the United States Supreme Court issued its long-awaited opinion in three consolidated cases, titled Epic Systems Corp. v. Lewis. In a win for employers, the Court held that class-action waivers contained within mandatory employee arbitration agreements are enforceable under the Federal Arbitration Act (the “FAA”). 

In Epic Systems, the plaintiff filed a class action complaint against his employer alleging violations of the overtime provision of the Fair Labor Standards Act. Individually, the employee’s claim was for minimal damages and cost prohibitive to litigate -- collectively, the class action claims were much larger.  The plaintiff and other class members were subject to an arbitration agreement that required the arbitration of all employment claims, and further that the arbitrations be on an individual basis.  The employer argued that the arbitration agreement was enforceable under the Federal Arbitration Act (the “FAA”.)  The Federal Ninth Circuit Court of Appeals rejected the employer’s position and determined that the arbitration agreement was unenforceable, holding that the class action waiver in the agreement violated Section 7 of the National Labor Relations Act (the “NLRA”) which protects employees who engage in “concerted activities for . . . mutual aid or protection.”  The Ninth Circuit Court held that filing a class action lawsuit on behalf of yourself and others is “concerted activity” protected by the NLRA.

The FAA was enacted in 1925, and agreements to arbitrate disputes have been in use for decades. It was only fairly recently that the Supreme Court first heard a case dealing with class-action waivers contained within arbitration agreements. Generally, a class-action waiver in an arbitration clause compels the parties not only to settle their dispute through binding arbitration, but also to settle their dispute in individual fashion, rather than allowing a group of people on one side to form a class. In 2011, the Supreme Court ruled in AT&T Mobility LLC v. Concepcion that a California law barring class-action waivers in arbitration clauses was preempted by the FAA, and that the FAA indeed allowed class-action waivers in arbitration agreements.  Following the Conception decision, the Consumer Financial Protection Bureau implemented a rule banning class-action waivers in certain consumer financial arbitration agreements.  On October 24, 2017, the United States Senate approved a resolution striking strike down the CFPB rule.  

Epic Systems follows Concepcion, with a distinctly different flavor.  Epic Systems involves claims that the employer violated federal overtime laws, and that the agreement violated the NLRA.  In prior actions, the National Labor Relations Board, along with the Sixth Circuit and other Courts of Appeals determined that such class-action waivers violate Section 7 of the NLRA.

The FAA was enacted in 1925, and agreements to arbitrate disputes have been in use for decades. It was only fairly recently that the Supreme Court first heard a case dealing with class-action waivers contained within arbitration agreements. Generally, a class-action waiver in an arbitration clause compels the parties not only to settle their dispute through binding arbitration, but also to settle their dispute in individual fashion, rather than allowing a group of people on one side to form a class. In 2011, the Supreme Court ruled in AT&T Mobility LLC v. Concepcion that a California law barring class-action waivers in arbitration clauses was preempted by the FAA, and that the FAA indeed allowed class-action waivers in arbitration agreements.  Following the Conception decision, the Consumer Financial Protection Bureau implemented a rule banning class-action waivers in certain consumer financial arbitration agreements.  On October 24, 2017, the United States Senate approved a resolution striking strike down the CFPB rule.

Epic Systems follows Concepcion, with a distinctly different flavor.  Epic Systems involves claims that the employer violated federal overtime laws, and that the agreement violated the NLRA.  In prior actions, the National Labor Relations Board, along with the Sixth Circuit and other Courts of Appeals determined that such class-action waivers violate Section 7 of the NLRA.   

The Supreme Court, in a 5 – 4 decision written by Justice Gorsuch, disagreed with the Sixth and Ninth Circuit Courts of Appeals and the NLRB and held that class action waivers do not violated the NLRA and that no conflict exists between the NLRA and the FAA.  The Court reasoned that Section 7 only applies to collective bargaining and not to class-action lawsuits since Congress did not explicitly state that in the NLRA. 

While employers may see this case as a reason to update their employment agreements and add class-action waivers to further protect against actions by employees, other factors should also be considered.  Employers should weigh the risks and benefits of class-action waivers and other arbitration provisions with counsel. If you have any questions regarding this topic, you can contact Mike Fortney or any other attorney at Stark & Knoll.

Michael R. Fortney  By Michael R. Fortney 

Stark & Knoll Co., L.P.A. 3475 Ridgewood Road Akron, Ohio 44333-3163
Phone: 330-376-3300 Fax: 330-376-6237

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