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An epic victory on class action waivers

In a significant win for employers, the United States Supreme Court has issued a landmark decision upholding the use of class action waivers in employment arbitration agreements.  This ruling permits employers across the country to enforce individual arbitration agreements with employees, even where the agreement requires an employee to pursue legal claims on an individualized, rather than class or collective, basis.

The Court’s decision in Epic Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018), returns to the status quo that existed for decades until the National Labor Relations Board, or NLRB, reversed course in 2012 and held that employment agreements that require employees to individually arbitrate disputes violate the National Labor Relations Act, or NLRA.  The NLRB reasoned that the right to join in a class or collective action against an employer fell within the NLRA’s guarantees to “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Some federal appellate courts followed the NLRB’s reasoning, while others disagreed and continued to permit class action waivers.  The Supreme Court has now resolved all uncertainty.

The Court’s newest member, Justice Gorsuch, authored the 5-4 opinion.  The Court held that “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  It reasoned that the “NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”
Requiring employees to submit class or collective claims to arbitration on an individualized basis has become increasingly common. The practice can be an effective means to curtail class and collective actions (class-like claims usually brought to recover unpaid overtime) that have proliferated in recent years. By eliminating class arbitration, the employee must individually arbitrate their claim. The chances an employee would pursue an individual claim decrease substantially when the amount at issue is small and it cannot be joined with others.

Requiring employees to arbitrate claims individually and not as a class requires the employer to impose an arbitration clause forgoing certain judicial relief. Employers would be wise to consider the implications of such move before jumping on the arbitration bandwagon.

Arbitration is a dispute resolution process that exists as an alternative to a lawsuit and is brought outside of the judicial system. While arbitration is often heralded as faster and less expensive than going to court, the gap is narrowing. Administrative expenses and the arbitrator’s fees, which the employer will usually pay along with the bill for its own lawyer, can quickly mimic the costs of litigation. If several employees choose to pursue individual arbitrations, a tactic employment lawyers may utilize (and finance), the costs and demands on management’s time can increase exponentially and the claim can still eventually end up in court.

On occasion, disputes arise about whether a claim is subject to arbitration or the agreement is enforceable and a court may be required to settle that issue first. Following arbitration, a party can ask the court to throw out or modify the arbitrator’s decision. Like court cases, the arbitration process can include a discovery and deposition phase, motion practice and ultimately a hearing before an arbitrator paid to perform this service and render an decision. Importantly, states can also impose some restrictions on the requirement that employees pursue individual arbitration. Generally speaking, requiring that employees pursue individual arbitrations may be most effective and economical for businesses with a sizeable number of employees.

Without question, the Supreme Court’s Epic decision is just that: epic, and it may provide a powerful hedge against the threat of a prolonged and expensive class action lawsuit. Employers that have not yet adopted such agreements should consult experienced legal counsel to better understand the legal risks and rewards of such a program.

James Dale is a partner in Stoel Rives’ Boise office. He advises and represents some of Idaho’s largest private employers on virtually every aspect of labor and employment law and litigation, including discrimination, harassment, wrongful termination, contract, and wage and hour class and collective actions. Contact him at 208-387-4282 or james.dale@stoel.com.

About James C. Dale