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Supreme Court Sides With Employers on Individual Arbitration, Class Action Waiver Agreements

Supreme Court Sides With Employers on Individual Arbitration, Class Action Waiver Agreements

The United States Supreme Court in a 5-4 decision ruled that employment agreements forcing workers to forgo pursuing class action claims are legal and do not violate the National Labor Relations Act. Specifically, the court held that arbitration agreements that include class waiver provisions as a condition of employment do not violate federal labor law.

The Federal Arbitration Act, which was enacted by Congress in 1925, provides that an agreement to arbitrate a dispute “shall be valid, irrevocable, and enforceable.” In 1935, Congress enacted the National Labor Relations Act, which makes clear that employees have the right to work together for “mutual aid and protection.”

The decision resolves three cases that raised the issue but resulted in divergent rulings in their respective circuit courts. In two of the cases, Epic Systems Corp. (Case No. 16-285), and Ernst & Young (Case No. 16-300), the Seventh and Ninth Circuits adopted the labor board’s long-standing position that such arbitration agreements are not legal. However, the Fifth Circuit in the Murphy Oil case (No. 16-307) ruled they were valid. Each case involved an employee who signed an employment agreement that contained an arbitration provision and sought to bring both individual and collective claims. The employers argued that under the terms of the arbitration agreements, the employees were required to go to individual arbitration, and the Supreme Court agreed.

Writing for the majority, Associate Justice Neil M. Gorsuch stated that the “law is clear” that pursuant to the Federal Arbitration Act, federal courts are required to enforce arbitration agreements as written. The majority opinion stated that while Congress is “free to amend this judgment,” there is nothing in the National Labor Relations Act manifesting a clear intention to displace the Federal Arbitration Act.

In a lengthy dissent, the minority led by Justice Ruth Bader Ginsburg and joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan, called the majority’s decision “egregiously wrong” adding that the majority “pays scant heed” to nearly 80 years of precedent that the National Labor Relations Act protects employees from employer interference under joint, collective, and class actions related to the terms and conditions of their employment. Justice Ginsburg also was concerned that the majority’s holding would cause small claims, such as overtime violations, to fall through the cracks. She reasoned that “[E]mployers, 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.”

The impact of this decision is significant as it will require some workers to accept individual arbitrations for wage and other workplace disputes rather than band together in collective, class actions.

By Elizabeth A. Chang & Caroline J. Berdzik of Goldberg Segalla

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