The Law @ Work

Supreme Court Upholds Enforceability of Class Action Waivers in Arbitration Agreements

by Kimberly A. Klimczuk

In a 5-4 opinion, the U.S. Supreme Court held yesterday that arbitration agreements that require employees to pursue their claims individually, instead of through class or collective action, are enforceable.  The Court’s decision addressed three separate cases: Epic Systems Corp. v. LewisErnst & Young LLP et al. v. Morris et al., and National Labor Relations Board v. Murphy Oil USA, Inc., et al.  In each of these cases, the employees had entered into a contract with their employer that required the parties to resolve any disputes relating to their employment through arbitration, rather than the courts.  Those contracts also stated that disputes pertaining to different employees must be heard in separate proceedings; in other words, that employees could not combine their disputes to be determined in a single arbitration or bring claims on behalf of other employees.  Despite entering into these agreements, the employees in these cases filed collective actions to pursue wage/hour claims on behalf of themselves and other employees under the Fair Labor Standards Act (FLSA).

The employees argued that their arbitration agreements’ prohibition on collective actions was not enforceable because it violated Section 7 of the National Labor Relations Act (NLRA), which gives employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  According to the employees, filing a collective action constitutes “concerted activit[y] for the purpose of … mutual aid and protection.”  The employers, however, argued that the arbitration agreements must be enforced under the Federal Arbitration Act, which states that arbitration agreements or clauses “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Justice Neil Gorsuch, writing for the majority, disagreed that the NLRA’s definition of concerted activity included collective or class actions.  He noted the ejusdem generis rule of contract interpretation, which states that where a more general term follows more specific items in a list, the general term is interpreted to include only things that are similar in nature to those specific, listed items.  Applying that rule, Gorsuch determined that “other concerted activities” should be interpreted more narrowly to include activities related to union organization and collective bargaining, rather than “the highly regulated, courtroom-bound ‘activities’ of class and joint litigation.” Justice Gorsuch also noted that, until as recently as 2010, the National Labor Relations Board itself had taken the position that class action waivers did not violate the NLRA.

According to the Court, even if collective actions constituted concerted activity, NLRA’s protection of concerted activity did not override the Arbitration Act’s direction to enforce arbitration agreements.  The employees argued that the NLRA’s protections created “grounds…at law or in equity for the revocation” of the arbitration agreements, but the Court rejected that argument, citing its 2011 decision in AT&T Mobility LLC v. Concepcion, in which the Court held that the Arbitration Act’s “savings clause” “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.”  Since the argument against arbitration was specific to arbitration, and was not an argument that could be used to revoke any contract, the Court held that such argument could not be used to invalidate their arbitration agreements.

Finally, the Court pointed out that, where two independent federal laws appear to address the same issue, the Court must strive to give effect to both laws, rather than to allow one to override the other absent clear Congressional intent to do so.  Here, the Court considered the Arbitration Act, which sought to ensure the enforceability of arbitration agreements, with the NLRA, which protects employees’ rights to engage in protected, concerted activity.  Since the NLRA (which was enacted after the Arbitration Act) makes no mention of arbitration or class or collective actions, the Court held that it could not infer any Congressional intent to displace the Arbitration Act.

Bottom Line

This Supreme Court decision continues a line of cases upholding the enforceability of arbitration agreements in a variety of contexts.  Although this case dealt with wage/hour claims, arbitration agreements can be useful for employers to limit exposure to costly litigation in numerous areas of employment law, including claims of discrimination and harassment.  The use of arbitration agreements in the context of harassment claims will be a topic of discussion in Skoler Abbott’s upcoming round table discussion on harassment in the workplace in the era of #MeToo.

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