Hunton Employment & Labor Perspectives

In a major win for employers, the U.S. Supreme Court held that arbitration agreements with class action waivers do not violate the National Labor Relations Act (“NLRA”).  The Court’s narrow 5-4 decision paves the way for employers to include such waivers in arbitration agreements to avoid class and collective actions.

The case, Epic Systems Corp. v. Lewis, presented a rather straightforward, yet hotly disputed question—whether class action waivers violate employees’ rights under Section 7 of the NLRA’s catch-all provision, which permits employees to engage in “other concerted activities for the purpose of . . . other mutual aid or protection.”  29 U.S.C. § 157.

In resolving this issue, the Court was forced to balance the Federal Arbitration Act’s requirement to “respect and enforce agreements to arbitrate” with Section 7 rights to engage in “other concerted activities.”  The Court held that Section 7’s catch-all provision referred to organization-related activities similar to those listed in the statute—not joining class litigation.

As held by the Court, “[the NLRA] does not express approval or disapproval of arbitration.  It does not mention class or collective action procedures.  It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.”

The decision repeatedly cited GC Memorandum 10-06, authored by Ronald Meisburg, the National Labor Relations Board’s (“Board”) then-General Counsel and current Special Counsel at Hunton Andrews Kurth LLP.  In this Memorandum penned eight years ago, Meisburg took the now-adopted position that the NLRA does not bar such class waivers.

The case resolves a circuit split that had been brewing for six years.  In 2012, a plurality of the Board first held that class action waivers violated Section 7.  See D.R. Horton, 357 NLRB 2277 (2012).  The Sixth, Seventh, and Ninth Circuits followed the Board’s lead, while the Second, Fifth, and Eighth Circuits found such waivers to be valid.

As a result of the Supreme Court’s decision, employers may now include class action waivers in arbitration agreements without fear of violating the NLRA.    Employers are reminded, however, that arbitration agreements are subject to state-specific requirements governing contract formation.  In some states, employers may be required to offer additional consideration to modify their agreements to include class action waivers.