As a follow up to our post last year, this week, in a 5-4 decision, the Supreme Court rejected the National Labor Relations Board’s position that class waivers in arbitration agreements violate federal labor law. The Court held that employers can legally require their employees, as a condition of employment, to agree that they will not pursue class action claims against their employers, but rather address legal issues through individual arbitration.
Writing for the majority, Justice Neil Gorsuch stated simply that, “The [Federal] Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select.” In support of the decision, he compared the “simplicity and inexpensiveness” of arbitration to “slower, more costly” class actions, which are, in the view of the majority, “more likely to generate procedural morass than final judgment.”
The effects of the decision remain to be seen – Justice Ginsberg read her dissent from the bench, calling for Congress to address the matter. For now, though, employers with arbitration agreements in place will want to add a class-action waiver, and those that do not use arbitration agreements at all may want to reconsider that approach.
Last month, the Supreme Court agreed to resolve a circuit split over whether class action waivers — mandating that any claims brought against the employer be brought individually rather than as a class — contained in employment arbitration agreements violate employees’ rights under the National Labor Relations Act. The Court recently announced that it would decide the highly-anticipated case in its 2017 term, beginning in October. Both the Seventh and Ninth Circuits have struck down class action waivers in arbitration agreements. The Fifth, Second, and Eighth Circuits have held the opposite. We will update when the Supreme Court has made its decision. In the meantime, companies should consider the rule in their circuit before rolling out new employment arbitration agreements.
On March 21, 2014, the Eleventh Circuit Court of Appeals (which covers Alabama, Florida, and Georgia) became the fifth federal circuit court to reject arguments against arbitration agreements containing class waivers, joining the Eighth, Second, Fifth, and Ninth circuits in enforcing such agreements.
In the Eleventh Circuit case (Walthour v. Chipio Windshield Repair), employees brought a class action alleging their employer violated the Fair Labor Standards Act by not paying them required minimum and overtime wages. The defendants moved to compel arbitration, citing agreements the plaintiffs had signed which stipulated that all employment disputes were to be resolved through individual arbitration. In the end, the court sided with the employer and the lower court, ruling that the arbitration agreements were enforceable and that the class action could not move forward.
As discussed in our earlier post Tide Continues in Favor of Class Action Waivers in Arbitration Agreements, more employers are using these types of agreements to reduce the risk of class claims. The Walthour decision continues a trend of court cases in favor of the agreements.
There are advantages and disadvantages to arbitrating disputes with employees, but for employers that fear class claims, either because of the nature of their workforce or their industry, arbitration agreements can make a great deal of sense.