25 million employees have signed employment contracts containing arbitration clauses and waivers that bar the employee from filing a class action lawsuit. Many employers favor arbitration provisions because they believe arbitrations to be quicker, cheaper, and more efficient than traditional litigation. There is anecdotal evidence on both sides of that equation, as arbitrations often have a lot of the same costs and procedures associated with litigation. In addition, arbitrations are typically final and binding, which is great … as long as you’re the prevailing party!
For the past few years, despite their regular use of class-action waivers and arbitration provisions, employers have been on edge due to one question: Will they be enforceable? The answer to that question depended on what part of the country the employer was located. For those in the Sixth Circuit, the answer was “no – they are not enforceable.”
That all changed on Monday.
In a victory for employers, the U.S. Supreme Court resolved the growing circuit split and upheld the right of employers to include class-action waivers as a part of mandatory arbitration clauses in employment agreements. As a result, an employee who signs an agreement containing this waiver is bound to pursue legal claims against the employer via individual arbitration instead of a class-action lawsuit.
In earlier cases, the Supreme Court ruled that companies can require consumers to agree to arbitration clauses which include class action waivers. The question before the justices this time was whether or not the same idea would extend to employees and employment agreements. In assessing this question, the justices examined applicable governing statutes – mainly the National Labor Relations Act (NLRA) and the Federal Arbitration Act.
Those against the use of arbitration clauses and class-action waivers argued that they violate workers’ rights under Section 7 of the National Labor Relations Act to band together and collectively improve their working conditions. However, those in favor of the provisions argued that the NLRA does not override the Federal Arbitration Act’s stance favoring agreed-upon arbitration.
In a big win for employers, the Supreme Court agreed with those in favor of the provisions and upheld the use of class action waivers and arbitration provisions in employment agreements.
There will undoubtedly be an uptick in the use of arbitration provisions and class action waivers in employment agreements – including non-competition, non-solicitation and confidentiality agreements. Employers may also consider extending mandatory arbitration provisions to cover employee claims under ERISA. However, this Supreme Court case may not be the final word on whether these provisions will be enforceable when applied to ERISA claims as there is currently a case pending in the Ninth Circuit where this issue is being litigated.
For employers who already include mandatory arbitration provisions and class-action waivers in employment agreements, the impact of the Supreme Court’s decision is more about peace of mind knowing that they are effective. For employers who do not have those provisions, the Supreme Court’s decision offers an opportunity to consider whether they might be a good fit for the company. There are compelling reasons on both sides of that coin. Now is the perfect time to assess your company’s position to make sure it is fully protected.