Hunton Employment & Labor Perspectives

The United States Supreme Court has granted consolidated review of three cases to determine whether arbitration agreements that waive employees’ rights to participate in a class action lawsuit against their employer are unlawful. The Court’s decision to address the uncertainty surrounding class action waivers of employment claims follows a circuit split last year in which the Fifth and Eighth circuits upheld such waivers and the Seventh and Ninth circuits found that such waivers violate the National Labor Relations Act. Given the increasingly widespread use of class action waivers by employers to stem costly class and collective actions, the high court’s ruling is likely to have a significant nationwide impact.

In Lewis v. Epic Systems Corp., employees brought a collective action alleging misclassification of workers in violation of the Fair Labor Standards Act. The Seventh Circuit denied the employer’s motion to compel arbitration, finding that the employer’s arbitration agreement requiring employees to waive their right to bring collective actions violated Section 7 of the NLRA, which protects the right of employees to engage in “concerted activity” for “mutual aid and protection.”  The Ninth Circuit has ruled similarly in cases where employees alleged denial of overtime wages in FLSA collective actions.  Both circuit courts agreed with the position of the National Labor Relations Board that the NLRA protects an employee’s ability to join together with co-workers to bring class action lawsuits regarding wages and makes unlawful any agreement requiring employees to individually arbitrate disputes with their employer.

To the contrary, in NLRB v. Murphy Oil, the Fifth Circuit granted an employer’s motion to dismiss an FLSA collective action and compel arbitration. The Fifth Circuit held that the use of collective action procedures is not a substantive right protected by the NLRA, and class action waivers requiring employees to individually arbitrate claims are enforceable under the Federal Arbitration Act and do not constitute an unfair labor practice under the NLRA.

The Supreme Court has demonstrated favor towards arbitration in the past, such as in AT&T v. Concepcion, where the court ruled that state laws banning class action waivers, in the consumer context, were preempted by the Federal Arbitration Act, opening the door to allow businesses to require that consumers individually arbitrate claims.  President Donald Trump’s nominee to the Supreme Court, Judge Neil Gorsuch, could cast the deciding vote if confirmed by the Senate.  In the past, Judge Gorsuch  has consistently expressed the view that the NLRB should have a more limited scope of authority and has expressed skepticism toward aggressive agency actions, leading many to anticipate he would rule in favor of employers and  uphold the legality of class waivers.

The Supreme Court will hear the case next term. In the meantime, employers that seek to utilize arbitration agreements with class waivers should consult with counsel  to review or draft such agreements and ensure they are enforceable.