Employers’ Class Action Waivers Endorsed by the Supreme Court

In a much-anticipated opinion issued Monday, the Supreme Court enforced mandatory arbitration employment agreements as the sole method of resolution for disputes, eliminating employees’ rights to participate in class actions after signing such an agreement. Employees in the three cases at bar must now resolve their wage and hour cases through binding arbitration individually, rather than through the courts in a class or collective action.  This holding highlights the philosophy of the current majority of the Court.  Justice Gorsuch authored the opinion and throughout, emphasized the Court’s role as one of interpretation of Congress’ laws, rather than one of advocacy of presumed intentions.

The majority framed the question simply: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”  In a 5 – 4 decision, the Court answered “Yes.”  Ruling in the employer’s favor, the Supreme Court held that Congress has already –as a matter of law – instructed the federal courts to enforce arbitration agreements according to their terms.  Additionally, Congress has not altered that instruction through law specific to employment agreements, and the Court declined the invitation posed by these cases to do so.

Citing the Federal Arbitration Act’s clear mandate to enforce parties’ agreements according to their own terms, the majority held that historically, the lower courts generally enforced arbitration agreements like those at bar. The National Labor Relations Board (“NLRB”) even agreed with that pro-employer interpretation in 2010.  It was not until 2012 in a decision called D.R. Horton, Inc., that the NLRB asserted that employees’ rights contained in the National Labor Relations Act (“NLRA”) nullified the Arbitration Act’s jurisdiction over employment agreements.  As a result of the interpretation of D.R. Horton, Inc., lower courts and circuit courts began to wrangle with whether employees’ rights protected by the NLRA invalidated employee agreements to waive class action rights.

The employees’ argument centered on the rights granted in Section 7 of the NLRA –

“the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” (emphasis added)

Specifically, the employees argued that Section 7 manifested an implied congressional mandate to displace the Arbitration Act and outlaw employment agreements requiring arbitration on an individual basis. They advocated that the language “in other concerted activities… for the purpose of other mutual aid or protection” should include class/collective actions.

However, the majority dispensed with the employees’ argument, noting that Section 7 does not mention arbitration, class or collective action procedures, or even “hint at a wish to displace” the Arbitration Act. The majority further noted that previous holdings require the Court to give full force and effect to both the Arbitration Act and the NLRA.  Because the Court’s role is to interpret current law rather than to create new law – the majority reasoned – the employees’ Section 7 rights did not operate to eclipse that of the Arbitration Act.  If such a result were desired by Congress, Congress could legislate accordingly.

Regarding the employees in the three cases at bar, the decision requires them to now individually pursue their wage and hour claims through binding arbitration, rather than on collective proof as a group.

Two takeaways from this important decision:

• Employment agreements containing provisions requiring arbitration may be structured to significantly limit an employer’s risk of facing a class or collective action by requiring that employees bring claims on an individual basis. Given that class actions have become one of the most significant financial threats to sizeable employers, the Court’s holding provides a powerful defense. Employers can insulate themselves from expensive class litigation going forward by implementing appropriate mandatory arbitration provisions in their employment agreements. Employers may establish procedures for arbitration that include a requirement that employees bring claims on an individual basis. Of course, state law always must be considered as well because some states have laws that are more restrictive than federal law when it comes to arbitration agreements. Employers will need to know if and when state law may apply to any specific claim.
• Newly-appointed Justice Gorsuch espouses a philosophy of judicial restraint, which may bode well for the chances of more employer-friendly decisions. Throughout the opinion, Justice Gorsuch peppers the analysis with reminders such as: “…it’s the job of Congress by legislation, not this Court by supposition, both to write the laws and to repeal them …”; and “Allowing judges to pick and choose between statutes risks transforming them from expounders of what the law is into policymakers choosing what the law should be.”

If you’re an employer and would like to discuss implementing an arbitration provision or other protections in your employment agreements, please contact the Wooden McLaughlin Employment Law Team.

https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf

(This post is not legal advice. Consider consulting with a lawyer about any specific situation.)