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Arbitration Agreements with Class Action Waivers Are Enforceable

“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” Judge Gorsuch posed these questions in the U.S. Supreme Court’s answer – employees and employers are permitted to agree to one-on-one arbitration. On May 21, 2018, in the consolidated cases Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA, Inc., SCOTUS declared that class action waivers are valid and enforceable.

The Opinion

The Court rejected the employees’ argument that the Savings Clause of the Federal Arbitration Act (“FAA”) rendered arbitration agreements unenforceable because they are illegal under Section 7 of the National Labor Relations Act (“NLRA”). The Court held that Section 7, in protecting employee rights to engage in other concerted activities, did not address nor protect an employee’s absolute right to pursue claims through class and collective actions. In addition, the Court held that the Chevron case did not require the Court to defer to the National Labor Relations Board’s interpretation of this issue.

The U.S. Supreme Court specifically addressed an employee’s right to pursue his or her wage and hour rights under the Fair Labor Standards Act (“FLSA”) through class action and collective actions, and held arbitration agreements in such instances are enforceable. In Morris, the former employee, despite having agreed to arbitrate claims against the firm, sued Ernst & Young in federal court. Morris alleged that the firm had improperly misclassified and paid its junior accountants in violation of the FLSA. In enforcing the arbitration agreement, the Court noted the peculiarity of the argument that the NLRA protects an employee’s right to bring a collective action under the FLSA.

What This Means for Employers

First, perhaps more sleep. Any persisting anxiety related to whether your company’s arbitration agreements including class action waivers will be upheld, may be laid to rest. Employers can now enter into agreements that require individualized arbitration with their employees with the blessing of the High Court. Further, this decision affords employers greater security in the enforceability of existing agreements.

Second, employers have an unequivocal answer that their arbitration agreements may be enforced in the face of potential wage and hour class and collective actions. Wage and hour disputes are commonly filed as class and collective actions, and this opinion specifically offers clarity to employers in these situations.

However, this does not mean that any and every arbitration agreement will be upheld, as the choice of language in these clauses is still important to ensure enforceability. An agreement will still be analyzed for clarity and mutual assent, even under the liberal policy of enforcement within the FAA. Now is a good time to review or create arbitration agreements using the Supreme Court’s guidance.



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