Supreme Court: Class and Collective Action Waivers OK in Arbitration Agreements

In a landmark decision in Epic Systems Corp. v. Lewis, the Supreme Court this week empowered employers by ruling that class and collective action waivers in arbitration agreements are valid and enforceable, invalidating the National Labor Relations Board’s stance that an employee’s right to concerted activity under the National Labor Relations Act (“NLRA”) prevents employers from including such waivers in employment agreements. In its holding, the Court upheld the Federal Arbitration Act’s general requirement of the enforcement of arbitration provisions, and determined that the NLRA, which focuses on an employee’s right to collective bargaining through a union, does not apply to this issue.

The ruling has an important impact on employers, who can now be certain that, where such clauses already exist, they will be enforced, and that the inclusion of such clauses in future contracts is unlikely to cause a legal issue.

The plaintiffs in the underlying cases that led to Epic Systems[1] were attempting to bring collective actions in federal court under the Fair Labor Standards Act (“FLSA”), despite having entered into agreements with their employers in which they agreed to (1) resolve disputes through arbitration; and (2) that claims pertaining to different employees would be heard in separate proceedings (i.e., they would not be part of collective actions). The Circuit Courts had ruled that the NLRA’s preservation of the right to concerted activity prevented employees from waiving their right to proceed collectively. The Supreme Court, in a 5-4 decision authored by Justice Neil Gorsuch, disagreed. Justice Gorsuch held that the employees’ theory – “that one statute (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the Arbitration Act)” – was an “interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow.”

Although the case specifically discussed arbitration and waiver of FLSA claims, it will likely be used to interpret and enforce class action waivers under other employment statutes, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the Age Discrimination in Employment Act. However, Congress could intervene, and it is currently considering the Ending Forced Arbitration of Sexual Harassment Act, which could curtail an employer’s right to compel arbitration for harassment claims.

If you have questions about how the Epic Systems ruling may affect you, please contact Lisa Scidurlo or the Stevens & Lee attorney with whom you regularly work.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

[1] Two separate cases were consolidated into a single matter in Epic Systems because they were asking the Court to resolve the same issue.