U.S. Supreme Court Holds Class Action Waivers In Employee Arbitration Agreements Enforceable

May 22, 2018 Advisory

On May 21, the United States Supreme Court issued a landmark decision in favor of employers on the important issue of whether employees may agree to waive their rights to pursue class and/or collective actions against employers in arbitration agreements. Employers can now take comfort in the knowledge that otherwise enforceable arbitration agreements containing class and collective action waivers will be enforced. The Court’s decision provides employers with another important tool for protecting their businesses against the significant legal costs involved in defending class and collective action litigation with employees.

The National Labor Relations Board (NLRB) has taken the position since 2012 that arbitration agreements containing class action waivers are unenforceable and violate the National Labor Relations Act (NLRA), despite the Federal Arbitration Act’s (FAA) broad mandate for enforcement of arbitration agreements. In fact, according to the NLRB, it currently has 55 pending cases against employers for maintaining or enforcing arbitration agreements or policies containing class and/or collective action waivers.

The Court’s decision settles the dispute over whether such agreements violate the NLRA, or any other federal law, and clarifies once again that arbitration agreements between employers and employees must be enforced under the FAA. This should be seen as both a major victory for employers, as well as a strong reminder about an important tool for employers who wish to further mitigate potential liability from employee-related class and collective action litigation.

To that end, the key takeaways for employers are:

  • class and collective action waivers in otherwise enforceable arbitration agreements between employers and employees are enforceable;
  • employers should strongly consider including class and collective action waivers in their arbitration agreements as a way to prevent such litigation; and
  • arbitration agreements must still meet the other requirements for enforceability, including consideration.

The Supreme Court’s decision presents a prime opportunity for employers to work with experienced legal counsel to review, amend, and/or implement arbitration agreements with employees to take advantage of this significant development in the law.

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