US Supreme Court Will Decide on Class Action Waivers in Arbitration Agreements
On January 13, 2017, the US Supreme Court agreed to determine whether arbitration agreements that include class action waivers are legally enforceable under the National Labor Relations Act (NLRA). In doing so, the Court granted the petitions for certiorari, and consolidated, three cases from the US Court of Appeals for the Fifth, Seventh and Ninth Circuits. While the Fifth Circuit has ruled that class action waivers are enforceable, the Seventh and Ninth Circuits have disagreed and held that class action waivers violate the NLRA. The National Labor Relations Board (NLRB) has also continued to hold that class action waivers violate the NLRA and interfere with employees' rights to engage in concerted activity. A ruling by the Supreme Court on the issue should resolve the Circuit Court split, provide nationwide guidance, and end the patchwork approach that has been adopted by US employers who utilize arbitration and class waivers. The Supreme Court's decision is expected before the end of June 2017.
US employers have long used binding arbitration agreements with employees as a chosen dispute resolution mechanism to avoid the time consuming and costly formalities of court litigation. Such arbitration agreements are largely enforceable in the US under the 1925 Federal Arbitration Act. In response to the rise in employee class and collective action litigation in the early 2000s, many US employers began including class action waivers in their arbitration agreements with employees. Over the past decade, the federal agencies and courts have grappled with whether such employee class action waivers are enforceable under the Federal Arbitration Act, or impermissibly waive employees' substantive rights to bring class or collective actions under federal labor laws. By the end of 2016, the NLRB, and the federal appellate courts in the Seventh and Ninth Circuits - covering twelve (12) states, have rejected such waivers and held they are unenforceable. Meanwhile, other federal appellate courts in the Second, Fifth and Eighth Circuits - covering thirteen (13) states, have enforced such waivers. With such a division, nationwide employers who use arbitration are currently faced with a fragmented approach across US locations with respect to class action waivers.
The Supreme Court granted and consolidated review of this issue in three cases: NLRB v. Murphy Oil, a case from the Fifth Circuit enforcing class action waivers and rejecting the NLRB's argument that such waivers illegally interfere with employees’ rights to engage in concerted activity under the NLRA; and Epic Systems Corp. v. Lewis and Ernst & Young, LLP v. Morris, cases from the Seventh and Ninth Circuits respectively, which joined the NLRB and refused to enforce such waivers finding they run afoul of employees’ rights under the NLRA to engage in concerted activity via participating in class or collective actions.
Impact on Employers
Until the Supreme Court issues its decision, it is unclear how trial courts or the NLRB will handle such waivers. It is likely that the NLRB will stay such decisions pending the Court's ruling. Trial courts may stay litigation or arbitration, or might continue the patchwork approach and follow the appellate rulings in their circuit to date.
In the meantime, US employers should:
- Wait to revise or adopt arbitration agreements containing class action waivers until the viability of such clauses is resolved by the Supreme Court; and
- Develop alternative action plans, to be able to quickly amend existing and future employee arbitration agreements depending on the Court's ruling later this year.
How We Can Help
Our US Employment & Compensation Law attorneys understand the complexities of today’s workforces and the underlying risks involved in employee dispute resolution. Our attorneys routinely provide advice to companies regarding options for US employee agreements and handling US employee disputes. Our US Employment & Compensation Law attorneys can help weigh the risks to your company regarding arbitration and class action waivers, and identify a pragmatic approach for your company to be prepared to react once the Supreme Court rules.