Supreme Court Empowers Employer Arbitration Agreements

The Federal Arbitration Act of 1925 (FAA) and the National Labor Relations Act of 1935 (NLRA) are decades-old statutes, each playing a major role in the relationship between employers and employees. The FAA broadly encourages private dispute resolution through arbitration, while the NLRA protects employees (not just union members) who engage in “concerted activities” for “mutual aid or protection” in the workplace. For 77 years, the FAA and the NLRA peacefully coexisted, without any mention that the NLRA and bilateral arbitration agreements were incompatible.

Recently the U.S. Supreme Court granted certiorari in three cases -Epic Systems Corporation v. Lewis; Morris v. Ernst & Young, LLP; and NLRB v. Murphy Oil USA, Inc .- which were consolidated so the court could decide whether class and collective action waivers in employment arbitration agreements are enforceable, despite the NLRA’s provision protecting “concerted activity” of employees.

On May 21, 2018, the U.S. Supreme Court ruled that employers can block employees from banding together as a class to fight legal disputes in employment arbitration agreements. This case is particularly interesting because Justice Neil Gorsuch delivered the opinion on this case for the 5-4 majority, making this his first major opinion since joining the Court last spring. This decision solidified the conservative nature of the Supreme Court and gave a glimpse of the conservative decisions that are likely to follow.

Ultimately, the court decided that the right to bring a joint, collective, representative, or class-based claim is not considered a “concerted action” as understood and protected by the NLRA, and therefore the FAA labor statute does not bar any agreement requiring arbitration instead of any such claims.
Justice Ruth Bader Ginsberg read her dissent which stated, “The court today holds enforceable these arm-twisted, take-it-or-leave-it contracts — including the provisions requiring employees to litigate wage and hours claims only one-by-one. Federal labor law does not countenance such isolation of employees…”. Traditionally, workers don’t like the waivers because it’s much more expensive and intimidating to bring individual claims as opposed to bringing them with as a united front with the support of a union. Ginsburg’s position essentially is that the court’s decision would bring about “yellow dog” contracts which were used in the past to bar an employee from joining a union.

The employees in this case had the support of the National Labor Relations Board (NLRB), an independent federal agency that protects the rights of private sector employees to join together to improve working conditions. The employees challenging the arbitration agreements argued that such activity is a prime example of banding together to gain strength in numbers, which is exactly the type of concerted activity that should be protected by the NLRA, however the Court disagreed.

Further, the Court rejected the employees’ argument that the FAA’s “saving clause” (which allows contract defenses to defeat arbitration agreements) allows the NLRA to invalidate arbitration agreements. However, the Court found that the only defenses available to employees against arbitration agreements are those that could be used to thwart enforcement of other types of contracts outside the realm of arbitration. Essentially, “Congress has instructed federal courts to enforce arbitration agreements according to their terms-including terms providing for individualized proceedings”.

Message to the Employer
This decision should put employers at ease when drafting mandatory class action waivers in employment arbitration agreements. If an employer has incorporated “opt-out” provisions to accompany their arbitration agreements because of the possibility that a mandatory requirement might be held unenforceable, employers need not worry and should revisit their policy. If you need assistance reviewing your arbitration agreements to ensure they meet the new standards set by the U.S. Supreme Court or crafting new agreements to address the viability or wisdom of an “opt-out” route, please contact us.

[1]Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016).

[1]Morris v. Ernst & Young U.S. LLP, 834 F.3d 975 (9th Cir. 2016).

[1] NLRB v .Murphy Oil USA Inc., 361 N.L.R.B. No. 72 (2014).