In a much anticipated ruling, the U.S. Supreme Court ruled that employers may use arbitration agreements and class action waivers to preclude most employment-based claims by employees from reaching a courthouse. If these employment documents are drafted properly and presented to employees, companies cannot be hauled to court for most claims (they need to be arbitrated) and they cannot be subject to class action lawsuits.
Specifically, the Supreme Court has ruled that employers may use mandatory arbitration provisions and class action waivers to stem off employment litigation, and make employees “go it alone” against the employer. The Court ruled in Epic Systems Corp. v. Lewis that mandatory arbitration provisions in employment contracts do not violate Section 7 of the National Labor Relations Act (“NLRA”) because the Federal Arbitration Act (“FAA”) expresses the preference of the Federal government that disputes be resolved through arbitration. Section 7 of the NLRA grants employees the right to work in concert to address grievances, and other issues such as wages, hours and conditions of employment in “concerted activity for the purposes of other mutual aid or protection.” The employees in Epic argued that the arbitration provisions and class action waivers violated Section 7 because joining a class action was quintessentially “concerted activity.”
The Supreme Court rejected those arguments, stating that the NLRA does not define class actions as “concerted activity” and that the FAA takes precedence over the NLRA. Therefore, Courts must “enforce arbitration agreements according to their terms.”
In effect, the ruling sounds the death knell for class action employment claims, which have yielded countless multi-million dollar verdicts and settlements against large employers over the past several decades.
Employers should review their “dispute resolution policies” or “ADR” provisions in light of this recent, landmark development. Contact Matthew A. Slater ( [email protected] ), partner at TKCK and head of the litigation group, to discuss strategies for risk avoidance and exposure minimization by using contractual provisions such as those ruled on in this case.