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Supreme Court Upholds Individual Arbitration Agreements
This morning, the United States Supreme Court issued a decision granting significant rights to employers seeking to limit liability in class action cases. In a 5-4 decision, the Court upheld the use of class action waivers in individual employment agreements. This means employees who sign agreements binding them to bring individual arbitration actions cannot bring or be a party to class actions in litigation, including in class action wage claims under the Fair Labor Standards Act (FLSA). In 2012, the National Labor Relations Board (NLRB) held these types of agreements were prohibited and unenforceable. Since then, courts have either agreed with or deferred to the Board and struck down the enforceability of these individual arbitration provisions. The Supreme Court has now reversed the Board’s mandate and rendered the individual arbitration provisions enforceable. This means employers are now free to place a provision in an employment and/or severance agreement waiving the right of the employee to engage in any class-action against the employer and requiring the employee instead to engage in individual arbitration to resolve any claims against the employer.
The issue before the Court was whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act (FAA), notwithstanding the provisions of the National Labor Relations Act (NLRA).
In each case, the employer entered into a contract with an employee providing for individual arbitration proceedings to resolve employment disputes. Despite these agreements, in each case, the employee filed Fair Labor Standards Act (FLSA) and related state law claims through class or collective actions in federal court. The employees argued the agreements, which required individual proceedings, violated the NLRA. The employers argued the FAA protects mandatory arbitration agreements from judicial interference and the NLRA did not require a different result. Until 2012, courts, as well as the National Labor Relations Board’s (NLRB or the Board) General Counsel, agreed the mandatory arbitration agreements were enforceable. However, in 2012, the Board held the NLRA nullified the FAA in cases like these. Since then, courts have either agreed with or deferred to the Board’s position.
In its May 21, 2018, decision, the Supreme Court rejected the Board’s position and held Congress made clear in the FAA that arbitration agreements requiring individual proceedings must be enforced and nothing in the FAA or the NLRA suggests otherwise. Justice Gorsuch delivered the opinion of the Court, joined by Justices Roberts, Kennedy, Thomas, and Alito. Justice Thomas filed a concurring opinion. Justice Ginsburg filed a dissenting opinion joined by Justices Breyer, Sotomayor, and Kagan.
The Court recognized the FAA requires courts to enforce agreements to arbitrate, including the terms of arbitration selected by the parties. By challenging the agreements because they require individual arbitration, rather than class or collective proceedings, the employees sought to interfere with this fundamental attribute.
The employees argued the NLRA overrode this directive and the savings clause of the FAA. The employees argued Section 7 of the NLRA entitled employees to engage in protected concerted activity such as class and/or collective actions. The Court rejected this position and determined Section 7 of the NLRA protected “the right to self-organize, to form, join, or assist labor organizations, to bargaining collectively …, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” However, the NLRA does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the FAA. Finally, the Court pointed to precedent and cited cases in which the Court rejected many efforts to manufacture conflicts between the FAA and other federal statutes.
This decision is a huge win for employers who utilize individual arbitration agreements with their employees and clears the way for continued use of said agreements. Should you need assistance in drafting individual employment agreements including these waivers or should you have any questions regarding this decision, please contact Joel S. Aziere at firstname.lastname@example.org or your Buelow Vetter Attorney.