On May 21, 2018, the Supreme Court of the United States ruled that employment arbitration agreements requiring employees to waive their right to pursue class or collective action claims are legal and enforceable. The Court’s 5-4 decision in Epic Systems Corporation v. Lewis holds that such class action waivers contained in individualized arbitration agreements are enforceable under the Federal Arbitration Act (FAA) and that the National Labor Relations Act (NLRA) does not otherwise bar their enforcement.
In Epic Systems, the employees signed employment agreements that required them to submit employment disputes to binding arbitration. The agreements required employees to waive their right to pursue class or collective actions for such disputes and instead resolve them through individualized arbitration proceedings. Despite this requirement, the employees sought to litigate Fair Labor Standards Act (FLSA) and related state law claims through class or collective actions in court. The employees argued that the arbitration agreements requiring individualized proceedings violated Section 7 of the NLRA’s protection of concerted activity and were therefore unenforceable under the FAA’s savings clause. The National Labor Relations Board (NLRB) agreed and ruled that such class action waivers violate the NLRA and are not enforceable under the FAA.
The Supreme Court majority soundly rejected these arguments and held that the NLRA does not override the general enforceability of class or collective action waivers in employment arbitration agreements. The Court emphasized that Section 7 of the NLRA is completely silent regarding class or collective action procedures and does not provide any indication of an intent to displace the FAA. Recognizing that Congress has previously specified when other laws are meant to override the FAA’s enforcement of arbitration agreements, the Court found the NLRA’s silence on the issue to be determinative. Absent any “clear and manifest” congressional intent to displace the FAA, the Court concluded that the NLRA does not prevent enforcement of class or collective action waivers in employment arbitration agreements. The Court further noted that the NLRB is not entitled to deference on the issue, since it does not administer the FAA and was interpreting the NLRA in a way that limited the statute’s enforcement of arbitration agreements.
The Court’s ruling, a significant victory for employers, reaffirms the broad enforceability of employment arbitration agreements under the FAA, which now specifically applies to waivers of employees’ rights to pursue class or collective actions. For this reason, employers may continue to include these types of waivers in their employment arbitration agreements, and instead require employees to resolve employment-related disputes through individualized arbitration proceedings.