On May 21, 2018, a divided U.S. Supreme Court held that employers can force employees into individual arbitration and avoid class action lawsuits involving those same employees.
By way of background, in 1925, Congress passed the Federal Arbitration Act (“FAA”), which validated arbitration clauses. In 1935, Congress passed the National Labor Relations Act (“NLRA”), which gave employees the right to work together for “mutual aid and protection.” The case of Epic Systems Corp. v. Lewis shed some light on how those two laws are supposed to co-exist.
Epic and its two sister cases centered on employment contracts that contained arbitration clauses which required individual arbitration of all claims. The employees in question wanted to bring both individual and class action claims in court against their employers. They argued their NLRA rights to group activity trumped the FAA, permitting them to avoid arbitration the clauses and proceed with a class action.
The Supreme Court majority ruled that the FAA required the enforcement of arbitration clauses, regardless of the NRLA. The majority noted that it wasn’t until 2012 that the National Labor Relations Board began to argue that the NRLA’s right to group action nullified the FAA and prevented arbitration clauses that limit class claims – a 77-year delay in making the argument. The Court’s majority read the NLRA’s “concerted activities” provision (known as Section 7) as giving employees the right to unionize and bargain collectively, but not to avoid the FAA or ignore arbitration clauses.
The dissenting opinion in the case criticized it as undermining federal law (the NLRA) meant to “advance the well-being of vulnerable workers.” The dissent fears that arbitration clauses will chill employment claims if class actions are barred because an individual claim would either not be worth pursuing or the individual employee would fear retaliation. The NRLA was designed to give employees an equal place at the table when setting the terms and conditions of employment, and, according to the dissent, this decision allowing arbitration clauses that forbid class claims undermines that purpose.
This Supreme Court ruling means that employers can continue to insert arbitration clauses forbidding class claims in written contracts. The arbitration process is familiar to employers who have collective bargaining agreements with unions. It, however, may not be as familiar to non-union employers. If an employment contract has an arbitration clause, or an employee signs one as well at of employment, then typically all claims that arise from the contract or relationship subject to the clause must go to arbitration. The selected arbitrator will then hold a hearing similar to a trial, but typically with more relaxed standards and often less discovery, and then will issue a ruling. This is certainly different in many ways from a class action or individual lawsuit filed in federal or state court.