On May 21 the U.S. Supreme Court ruled that employers can require employees to resolve their disputes via individual arbitration. The Court’s 5-4 decision is an important victory for businesses, in that it allows employers to require their employees to waive their right to pursue class actions as a condition of employment.
The Court considered a trio of cases in which the plaintiff-employees had previously entered into agreements to arbitrate their disputes on an individual basis. However, these employees subsequently filed class or collective actions in court, claiming that their arbitration agreements were unenforceable because they required the employees to arbitrate their disputes on an individual basis. In two of the cases (from the Seventh and Ninth Circuits), the appellate courts ruled that the arbitration agreements were not legal, while another (from the Fifth Circuit) ruled that the agreement was valid. At the Supreme Court, the plaintiff-employees and the National Labor Relations Board argued that contracts requiring employees to waive their right to class and collective actions conflicted with labor laws, such as the National Labor Relations Act. Previously, the lower courts had been split on the enforceability of class action waivers in employment arbitration agreements. However, in this new opinion, the high Court said that the Federal Arbitration Act requires courts to “rigorously” enforce arbitration agreements according to their terms, even those providing for individual proceedings. The key takeaway is that going forward, unless another defense applies, arbitration agreements with employees containing a class action waiver will likely be enforceable.
The dissent called the majority’s opinion “egregiously wrong,” stating that small claims of employees will fall through the cracks where it does not make financial sense for an employee to bring an individual claim. While congress could ultimately change the law, for now, businesses may require their employees to agree to class action waivers and to arbitrate individually.
So, what should businesses do now? In light of the Supreme Court’s ruling, employers should take a fresh look at their arbitration and employment agreements with their attorneys, and consider modifying them to include class action waivers.