U.S. Supreme Court's Epic Decision Validates Class Action Waivers

On May 21 the U.S. Supreme Court resolved the question whether the National Labor Relations Act prevents an employer from enforcing an employee’s contractual waiver of the right to sue the employer on a class or collective basis. In a 5-4 decision, the Court held that arbitration agreements requiring the processing of claims one-by-one and prohibiting class actions must be enforced, and neither the Federal Arbitration Act’s saving clause nor the National Labor Relations Act “permits this Court to declare the parties’ agreements unlawful.”  Epic Systems Corp. v. Lewis; Ernst & Young v. Morris; NLRB v. Murphy Oil USA, Inc.

In each of these three cases, the employee signed a contract mandating the resolution of workplace disputes through arbitration on an individualized basis, and later brought collective action claims under the Fair Labor Standards Act for unpaid wages.  In seeking to void their class action waivers, the employees relied on the NLRB’s 2012 decision in D. R. Horton, Inc. and also argued that the FAA’s savings clause allowed the Court to deny enforcement of the arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”

In the D. R. Horton case, the NLRB ruled that the NLRA effectively nullified the FAA in cases where an employer seeks to compel arbitration of employee claims on an individual basis only, by expanding the definition of “concerted activity” to include the right to bring a class or collective action. The NLRB ruled that an agreement not to bring a class or collective action is unenforceable as violative of the NLRA, even though waivers of other NLRA rights are enforceable.

The Court majority rejected the NLRB’s holding and held that the NLRA focuses on the rights to organize unions and bargain collectively. The Court commented that it “has never read a right to class actions into the NLRA – and for three quarters of a century neither did the [NLRB].” Justice Gorsuch, writing for the majority, reasoned that it is “pretty unlikely” that the NLRA was intended to protect the right to bring class or collective actions, especially since the NLRA makes no mention of them, and as recently as 2010 the NLRB’s General Counsel opined that the NLRA does not protect these rights.

The Court also relied on the FAA’s policy favoring arbitration agreements and legal precedent acknowledging the “unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.” To hold all such provisions unenforceable, the Court stated, would cause arbitration to “wind up looking like the litigation it was meant to displace.”

This sweeping decision will likely eliminate some of the reservations and indecision that the employer community has had regarding including in their new employee orientation paperwork agreements requiring arbitration of employment-related claims on an individual basis only.

For more information regarding the value that mandatory arbitration agreements and class action waivers may add to your organization and how to design and roll out arbitration procedures that will survive legal challenge, please contact one of the Partners in the firm’s Labor Law Practice Group: James J. McGovern III, Esq., at jmcgovern@genovaburns.com, Patrick W. McGovern, Esq., at pmcgovern@genovaburns.com, Douglas E. Solomon, Esq. at dsolomon@genovaburns.com, or John R. Vreeland, Esq., at jvreeland@genovaburns.com  — or call us at 973.533.0777.