On May 21, the United States Supreme Court held that mandatory arbitration agreements containing class action waivers are to be enforced as written.  In Epic Systems Corp. v. Lewis, a trio of consolidated appeals, the Court rejected arguments by employees that section 7 of the National Labor Relations Act (“NLRA”) – which permits employees to engage in “concerted activity” for the purposes of “collective bargaining or other mutual aid or protection” – grants employees a statutory right to assert legal claims (such as claims under federal and state wage and hour laws) on a class or collective basis.

This decision is significant for employers nationwide. Since 2012, the National Labor Relations Board (“NLRB”) has asserted that such waivers violate the NLRA, forcing employers to choose whether to (a) risk violation of the NLRA, (b) implement an opt-out procedure that some courts had concluded might comply with the NLRA, or (c) abandon their class-action waivers and face the threat of class and collective wage and hour suits.

In response to the NLRB’s position, some courts (including the Ninth Circuit Court of Appeals) had refused to enforce mandatory arbitration agreements with class action waivers on the grounds that they were unlawful under the NLRA and, therefore, fell within the savings clause under the Federal Arbitration Act (“FAA”).  That clause permits courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”  In reversing the Ninth Circuit and rejecting the NLRB’s position, the Supreme Court held that (a) the NLRA does not grant a statutory right to pursue legal claims on a class or collective basis, and (b) the savings clause in the FAA recognizes only defenses that apply to contracts generally and not defenses that apply only to arbitration agreements.

In light of the decision in Epic Systems, employers are now free to enter into mandatory arbitration agreements that waive the employee’s right to proceed on a class or collective basis.  Moreover, it should be noted that the Court did not require any opt-out procedure for such agreements to be valid or enforceable.

However, employers should remain mindful of their obligations under state laws that might not be affected by Epic Systems.  Notably, some state laws—such as California’s Private Attorney General’s Act (“PAGA”)—may still raise the prospect of judicial relief by a group of employees for wage and hour violations.  PAGA permits employees to step into the shoes of the state to enforce Labor Code provisions on behalf of a larger group of “aggrieved employees.”  As a consequence, California courts have concluded that such claims are not subject to arbitration at all, as they are not disputes between the individual employee and employer.

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