Gallet Dreyer & Berkey, LLP | Employers Can Now Require Employees To Sign Arbitration Agreements Waiving the Right to Bring a Class Action
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Employers Can Now Require Employees To Sign Arbitration Agreements Waiving the Right to Bring a Class Action

7/11/18 | By: David T. Azrin, Esq. | 2018 Summer Newsletter
The U.S. Supreme Court recently announced that employers can require employees to sign arbitration agreements in which employees agree that they will never bring a class action or collective action in court against their employer, and that they can only pursue any claims against the employer on an individualized basis in a private arbitration proceeding.    

In its decision, Epic Systems Corp. v. Lewis, issued in May, the Court reasoned that the Federal Arbitration Act -- which generally provides that parties should be permitted to enter into agreements to resolve their disputes privately through arbitration – takes precedence over federal labor law, and requires that such agreements be upheld even between employers and their employees.     

The decision is significant because, prior to this decision, since 2012, the National Labor Relations Board and several appellate courts had held that requiring employees to sign such agreements violated the federal National Labor Relations Act. This Act, which governs the formation of unions, protects the right of employees to engage in any group “concerted activities” directed toward working conditions. 

The Board and the courts had previously held that requiring employees to waive the right to bring a class action in court interfered with employees’ rights under this federal labor law to engage in “concerted activities.” 

Generally speaking, employees have more leverage against employers if they are able to bring class action or collective actions in court, because it is more difficult, and potentially more costly, for an employee to pursue an individual action.  Employees are more likely to be able to find an attorney representing a group of employees in a class action or collective action than just a single employee with only one claim. 

In the past few years, the National Labor Relations Board had regularly taken administrative action to invalidate such agreements and impose penalties against such employers that required employees to sign arbitration agreements that waived class action rights.

As of the date of the Supreme Court’s decision, the NLRB had 55 active cases against employers claiming that employers violated federal law by maintaining or enforcing individual arbitration agreements or policies containing class-and collective-action waivers.   The Board also had several cases pending before the federal courts of appeals to enforce prior Board decisions against employers invalidating such agreements. 

Immediately after the Supreme Court’s decision, the Board announced that it would be “expeditiously” dropping all of these enforcement actions.

Given that such agreements are now legal, employers who have arbitration agreements with their employees may want to review their agreements to determine if they contain class action waivers, and if not, they may want to consider adding such waivers. 

Employers who do not have arbitration agreements with their employees may want to consider asking their employees to sign such agreements, and to include a class action waiver in such agreements.