Class Action Waivers Upheld in Employment Arbitration Agreements

In a rare victory for employers, the U.S. Supreme Court recently ruled that companies may require workers, as a condition of employment, to sign arbitration agreements that waive the right to participate in workplace-related class action claims. Epic System Corp. v. Lewis.

An arbitration agreement is a contract requiring both sides to resolve their disputes through a private neutral decision-maker rather than a judge or jury. Arbitration has many business-related advantages, including a more efficient, time-saving process that does not involve a potentially more subjective jury process.

A class action is a court case in which a judge allows one or several plaintiffs to sue for a larger group of persons with common claims.  For example, a single individual may file and pursue a class action alleging she and all other similarly situated employees were improperly paid for overtime or denied their meal and rest breaks.

A class action “waiver” in an arbitration agreement would preclude the employee from participating in a class action claim, instead limiting that worker to an individualized arbitration proceeding to resolve his or her particular employment complaints.

The National Labor Relations Board (NLRB) has contested the validity of employment-related class action waivers, alleging they unlawfully hinder employees from their rights under the National Labor Relations Act (NLRA) “to engage in … concerted activities” for their “mutual aid or protection” (i.e., the right to join together to sue their employer). However, other laws, particularly the Federal Arbitration Act (FAA), and related court decisions have upheld the validity of such waivers.

The U.S. Supreme Court has addressed this discrepancy in its Epic decision, narrowly ruling in favor of such class action waiver provisions.  The Court concluded that nothing in the NLRA would prohibit such waivers and that courts must enforce them under the FAA.

There are still a number of unanswered questions for California employers, including whether similar “representative claims” under this state’s Private Attorneys General Act (PAGA) remain exempt from such class actions waivers.

Regardless, the enforceability of an employment-related arbitration agreement – particularly in California – requires terms that satisfy a demanding set of very specific fairness standards.  Some employers, particularly those with smaller workforces who are not at risk of class action suits, may choose not to require arbitration agreements for their workers out of cost considerations.

Thus, employers must proceed carefully before implementing or modifying arbitration agreements to existing employees. For further assistance, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Cindy Bamforth

June 6, 2018