Top 10 Employment Law Developments of 2018: #2 - Arbitration Agreements Gain Strength - A Powerful Defense Against Class Actions

Hirschfeld Kraemer LLP

Hirschfeld Kraemer LLP




Contractual arbitration is essentially private court; it is an agreement by the parties to submit disputes to binding arbitration before a neutral arbitrator (often a retired judge), rather than to pursue such claims in a court of law.

While used in many contexts, arbitration agreements are particularly prevalent in the employment setting, as they can provide substantial benefits both to employers and employees. One particular benefit to employers is the ability to limit a party’s right to bring their claims on a class or collective action basis, requiring instead that such claims be brought on an individual basis in arbitration. Whether these “class action waivers” are permissible remained in dispute, until recently.

Case Holding

On May 21, 2018, the United States Supreme Court in Epic Systems Corp. v. Lewis settled a circuit split over whether arbitration agreements restricting employees’ rights to pursue class and collective actions violate Section 7 of the National Labor Relations Act (NLRA) and are therefore unenforceable under the Federal Arbitration Act (FAA). With Justice Neil Gorsuch writing for the 5-4 majority, the Supreme Court held that they do not, upholding the enforceability of mandatory arbitration agreements containing class and collective action waivers.

The Court noted that on the one hand, the NLRA provides that “employees shall have 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.”

However, the Court noted that on the other hand the FAA’s “liberal federal policy favoring arbitration agreements” and the requirement that courts “rigorously . . . enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted.” The Court further noted that the FAA “specifically direct[s] [courts] to respect and enforce the parties’ chosen arbitration procedures” and ultimately held that the NLRA does not render arbitration agreements with class action waivers unenforceable.

What Does This Mean?

With the Court’s ruling, employers now have the green light to implement mandatory arbitration agreements that include class action waivers; doing so could potentially save employers enormous amounts of money by sidestepping costly class actions.

Employers who have not yet implemented arbitration agreements should consult with legal counsel as to the potential benefits and drawbacks. Similarly, employers who have existing arbitration agreements will want to review their existing agreements to ensure their enforceability, as well as to determine whether they provide the maximum possible coverage given the now clarified state of the law.

Importantly, to be enforceable, it is critical that arbitration agreements be properly drafted, and, just as importantly, properly distributed and implemented in the workforce. Employers are strongly encouraged to consult with legal counsel before implementing such agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hirschfeld Kraemer LLP | Attorney Advertising

Written by:

Hirschfeld Kraemer LLP

Hirschfeld Kraemer LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.