Law of the Land: Class Waivers in Arbitration Agreements Are Permissible

06.06.18

The U.S. Supreme Court has ruled that requiring employees to sign class- and collective-action waivers as a condition of employment does not violate the National Labor Relations Act (the “Labor Act”). Epic Sys. Corp. v. Lewis, No. 16 285, 2018 WL 2292444 (U.S. May 21, 2018). The Court upheld employers' arbitration agreements with individual employees that many employers now require to avoid defending expensive class-action wage and hour claims. Wage and hour class actions frequently result in nominal payments to individual employees but very large defense costs and fee awards for plaintiffs' counsel.

The federal appeals courts and National Labor Relations Board (the "NLRB") had taken conflicting positions ever since the Fifth Circuit overturned the NLRB, ruling that the Federal Arbitration Act (the "FAA") mandated enforcement of the individual arbitration agreements. D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). The Second and Eighth Circuits followed the Fifth Circuit by rejecting the NLRB position that the Labor Act prohibits class- and collective-action waivers. But the Seventh, Ninth, and Eighth Circuits agreed with the NLRB. E.g., Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016).

Thus, employers in Washington, Oregon, Alaska, California, and elsewhere in the Ninth Circuit can now draft and enforce arbitration agreements with class-action waivers without worrying about employees’ filing NLRB unfair-labor-practice charges overturning the waivers.

Does Washington's new statute restricting employment arbitration agreements affect the U.S. Supreme Court decision?

Although the U.S. Supreme Court’s ruling unequivocally endorses arbitration and class-action waivers in most of the country, the situation is less clear in Washington. The Washington state legislature enacted a state statute this year undermining the enforceability of employment arbitration agreements in Washington.

In response to the #MeToo/#TheyKnew movement initiated by allegations that Harvey Weinstein sexually harassed multiple Hollywood actresses, the Washington legislature enacted laws this year limiting an employer’s ability to keep such allegations confidential through arbitration and mediation agreements. Specifically, SSB 6313 declares that provisions in employment agreements that waive an employee’s right to publicly pursue a discrimination action before a court or administrative agency, or that require an employee to resolve discrimination claims in a confidential dispute-resolution process, such as arbitration, are against public policy and unenforceable. Given the U.S. Supreme Court’s holding that the FAA, not the Labor Act, determines the enforceability of class-action waivers, federal law regarding the enforceability of class-action waivers appears likely to prevail over the new state law with respect to the enforcement of arbitration agreements. Yet confidentiality provisions within arbitration agreements may not be enforceable in Washington as a result of the new state statute.

Takeaway

Although class-action waivers are now clearly enforceable under federal law, employers that do not currently require employees to sign individual arbitration agreements must still consider whether the costs of arbitration outweigh the benefits, such as class-action waivers. Unless employers are willing to pay for the full cost of arbitration, the courts may find employee arbitration agreements an unconscionable financial burden on all but the highest paid employees.

If an employer does currently require any of its employees to sign arbitration agreements, however, there seems little reason not to maintain or add class-action waivers to those agreements. Employers that do not currently require their employees to sign arbitration agreements should consult employment counsel about the costs and benefits of such agreements before instituting a requirement that employees sign arbitration agreements with class-action waivers.

Please enable JavaScript, then refresh this page. JavaScript is required on this site.