On May 21, 2018, the Supreme Court of the United States handed down a highly anticipated ruling clarifying that employers can require employees to sign class action arbitration waivers. It may not sound like a big deal, but employers should recognize that it is.
Now, for some background.
The United States passed the Arbitration Act in 1925, to protect and promote arbitration. At that time, arbitration was viewed with suspicion by some courts, and many arbitration agreements were invalidated by the courts. Now, though, arbitration is viewed as a useful alternative to judicial proceedings – often cheaper and faster than a lawsuit.
A criticism of class action arbitration waivers is that it unfairly benefits employers, because employees may not be incentivized to individually foot the bill for each small infraction. If an employee wanted to charge the employer with underpayment, for example, it may be cost prohibitive for that one employee to allege being underpaid by one cent an hour (for an extreme example). However, if that employee could split costs with thousands of other employees who were also underpaid by one cent an hour, via a class action, it becomes much more attractive to bring the claim.
Despite this criticism, it was clear that these class actions waivers were allowed. Until 2012.
In 2012, the National Labor Relations Board, which is charged with the enforcement of the National Labor Relations Act (“NLRA”), suddenly broke with precedent and held that the NLRA allows employees to bring class actions despite the Arbitration Act. The NRLA is designed to protect workers and their ability to engage in concerted activities. The 2012 change was based on the theory that the Arbitration Act had a “savings clause,” which does allow courts to invalidate an arbitration agreement “upon such grounds as exist at law or in equity for the revocation of any contract.” § 2. The argument was that not allowing class actions violated the NLRA, which triggered the savings clause of the Arbitration Act, meaning waivers were illegal.
The Supreme Court disagreed. Resolving a circuit split that resulted after the 2012 NLRB decision, the Court held that neither the NLRA nor the savings clause in the Arbitration Act overcome the Arbitration Act’s provision for individualized arbitrations. The decision was issued for three consolidated cases before the Court: Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP et al. v. Morris et. al., No. 16-300; National Labor Relations Board v. Murphy Oil USA, Inc., et al., No. 16-307 (May 21, 2018).
In other words: employers can require and enforce class action waivers from its employees.
How does this affect you?
Employers need to check for compliance with the new Supreme Court ruling. Some circuits, including the Seventh Circuit, had previously ruled that class action waivers were not allowed. If you updated or revised any waivers to reflect that language, now is the time to change it back. If you want to consider adding a waiver as a condition of employment, now is the time to do this too.