The Federal Arbitration Act (FAA) has long permitted employers to require employees to agree to arbitrate legal claims that may arise out of their employment. Today, the United States Supreme Court ruled that this extends to class and collective actions.
Employers nationwide can now include in their arbitration agreements a waiver of the employee’s right to participate in class and collective actions. This would require each employee to individually arbitrate any claims he or she might have against the employer.
The employees, in three separate cases presenting the same issue, each signed agreements to arbitrate any claims they might have against their employer through individualized arbitration. Regardless, the employees sought to participate in class and collective action lawsuits asserting wage and hour claims. The employees argued that they could not be held to their arbitration agreement—specifically, their promise to arbitrate separately—because they had a right under the National Labor Relations Act (“NLRA”) to engage in concerted activities. They claimed the NLRA made it illegal to restrict their right to participate in class and collective actions, and the arbitration agreements were therefore unenforceable under the FAA.
The Supreme Court disagreed. Specifically, in Epic Systems Corp. v. Lewis, Case No. 16-285, it held that the NLRA does not grant employees the right to participate in class and collective actions in court. For this and other reasons, the Supreme Court held, the parties were free to agree to individualized arbitration and that the FAA requires those agreements be enforced.
This ruling stands to shield employers from high stakes class litigation, including FLSA collective actions, sometimes called “company killers.” Employers should review their existing arbitration agreements and ensure that they are crafted to take advantage of this new ruling.
Click here for the full text of the Supreme Court's decision.