As we have repeatedly discussed on the Managing the Modern Workplace blog, the fate of employers’ dispute resolution programs, and other arbitration clauses that include class and collective action waivers, has long hung in the balance. Today, in a 5-4 decision authored by Justice Gorsuch, the Court resolved the question of the enforceability of class and collective action waivers in favor of employers.
Since its decision in the D.R. Horton case in 2012, the National Labor Relations Board has taken the position that class and collective action waivers in arbitration agreements are unenforceable as an unfair labor practice that interferes with employees’ right to engage in concerted activity under Section 7 of the National Labor Relations Act. Several courts of appeals — specifically, the Second, Fifth, and Eighth Circuits — have held that the Board is incorrect and class and collective waivers are enforceable under the Federal Arbitration Act, while the Seventh and Ninth Circuits have agreed with the Board.
In agreeing with the Second, Fifth, and Eighth Circuits that these waivers are enforceable, the Supreme Court has now removed the uncertainty that arose following the D.R. Horton case about the enforceability and effectiveness of employers’ dispute resolution programs. Although we have continued to caution employers about backing down from their dispute resolution programs in hopes that the Supreme Court would make the decision it did today, employers, especially those located in the Ninth and Seventh Circuits, had legitimate cause for concern when faced with the prospect of trying to enforce the individual arbitration requirements of their dispute resolution programs.
The Supreme Court’s guidance today should encourage employers to consider implementing arbitration programs or incorporating arbitration clauses in their employment-related agreements. However, employers should still remember that there remain various requirements under state and federal law for the enforcement of arbitration agreements in the workplace, both within individual employment agreements and as part of a workforce-wide dispute resolution program. Further, many state and local governments are aggressively legislating against employers’ ability to enter into binding arbitration agreements (for example, New York just passed legislation prohibiting mandatory arbitration clauses in sexual harassment settlements). Some of these laws arguably conflict with the Federal Arbitration Act — potentially rendering them invalid. But these state-specific developments and potential Congressional activity that could limit arbitration’s applicability will need to be monitored and considered when drafting and updating arbitration programs. Nonetheless, today’s decision is an important one for employers that rely on arbitration or are considering new dispute resolution programs.