Supreme Court Upholds Class Action Waivers in Employment Arbitration Agreements

Posted by Attorney David McClurg in Employer-Employee Relationship, Human Resources, Labor Relations / Comments

The major employment-related news this month was the U.S. Supreme Court's decision, in a case one involving Wisconsin-based Epic Systems, that class action waivers included in arbitration agreements relating to employment disputes are enforceable. The Court has, based on the provisions of the Federal Arbitration Act, consistently upheld the validity of arbitration agreements in a variety of contexts over many decades. However, the National Labor Relations Board and several federal circuits, including the 7^th Circuit covering Wisconsin, had, in recent years, held that provisions in arbitration agreements prohibiting employees from arbitrating employment claims on behalf of a similarly situated group or class of employees are unenforceable because they violate employees' rights under the National Labor Relations Act to engage in “concerted protected activity."

In Epic Systems v. Lewis, decided on May 21, 2018, the Supreme Court held that there was no conflict between the NLRA and the FAA. Writing for the majority in this 5-4 decision, Trump appointee Neil Gorsuch noted that the NLRA does not mention class or collective action procedures or even hint at an intent to displace the provisions of the FAA (which generally require courts to enforce arbitration agreements “as written") or suggest rules that should govern the adjudication of class or collective actions in court or arbitration.

In her dissent for the Court's liberal wing, Justice Ruth Bader Ginsburg called the decision “egregiously wrong" and likely to lead to “huge underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers" - in part because individual claimants may well not have enough at stake to make it worth the cost of pursuing a claim on an individual basis. She bemoaned the fact that employees are often forced to accept these arbitration agreements to keep their jobs and claimed that “congressional action is urgently in order" to reverse the negative impact of this decision.

This decision will significantly increase the number of employers using mandatory arbitration policies and individual arbitration agreements containing class action waivers in order to reduce their liability exposure and litigation costs. Class action claims have increasingly been asserted in wage and hour lawsuits alleging unpaid overtime and failure to compensate employees for all hours worked as a way to leverage quick settlements from employers seeking to avoid the costs and potential liability associated with such claims.

The requirement to individually arbitrate employment related claims can be imposed both through contracts signed by individual employees and by properly drafted policies distributed to new and existing employees. While the Federal Arbitration Act requires that an arbitration agreement be in writing, it does not require that it be signed by an employee to be enforceable.

In order to be enforceable, a mandatory arbitration policy must be supported, like any contract, by adequate consideration. Some courts have held that this consideration may be provided in the form of the employer's “mutual promise" to arbitrate any claims the employer may have against its employees. Others have held that continued employment after the employee receives a copy of the policy is sufficient consideration if the policy specifically states that continued employment manifests the employee's assent to the terms of the policy.

Whether in the form of an individual contract or a mandatory arbitration policy, the arbitration provisions must be drafted carefully to ensure that the employee is not unfairly prevented from pursuing claims, remedies or damages that would be available if the matter was heard in the courts.

If you have questions about arbitration policies or agreements or other labor & employment questions, please feel free to contact Dave McClurg at (414) 223-6956 or dmcclurg@petriepettit.com.