Supreme Court Rules in Favor of Employment Arbitration Agreements Which Forbid Class Actions

On May 21st, 2018 the Supreme Court of the United States ruled in a 5-4 decision to uphold employment contract provisions that require employees to honor arbitration agreements to settle disputes as individuals rather than as a class. This is important as these arbitration agreements are also required in many cases as a condition of employment. Basically, as a condition of employment an employee agrees to waive their option of suing the employer in court as an individual or as part of a class. Given others are willing to accept the employment if one is not, then the arbitration is basically a take it or leave employment option. Much like credit card agreements or EULA agreements, you basically agree by accepting the employment.

Many times, employees often have disputes that result in low dollar amounts. In many of these cases it would be difficult to find an attorney who would be interested in taking a case which would result in a very low award. Before the Supreme Court ruling and absent an arbitration agreement, employees could work together in a class given it is found that the employer has wronged many employees and as such the attorney could represent many similar small claims as one class which may result in a bigger collective award.

In 2012, an appellate court decided that forbidding a legal class action violated the National Labor Relations Act which protects employees rights to collectively participate in “concerted activity”. The 6th, 7th and 9th circuits began to find that restricting class actions violates the NRLA (National Labor Relations Act) and are unenforceable under the Federal Arbitration Act. This decision was in dispute as other appellate courts in the 2nd, 5th and 8th Circuits continued to uphold the legality of employers to require their employees to waive the right to class actions by requiring arbitration agreements as a condition of employment.

In April 2014, Epic Systems emailed it’s employees that all employee claims would now be subject to individual arbitration. Not wanting to find another job employees consented by choosing to remain on the job. An employee later tried to file suit in a collective action and was stopped due to the arbitration agreement at Epic Systems. This decision was appealed all the way to the Supreme Court who upheld that the employees were bound by the arbitration agreement. This Supreme Court decision makes it clear that the NRLA does not protect employees in legal actions as it does in other collective activities which are protected by the NRLA.

This decision will not likely cause many employers to run out and set up arbitration agreements. Employers already considered these agreements as legal and already assumed that the Supreme Court would likely rule in their favor. As a result, employers may protect themselves from class actions by requiring, as a condition of employment, that all disputes be settled in arbitration. Disputes such as wage and hours, age discrimination, sexual discrimination… are limited to one-by-one arbitration cases.

Arbitration basically limits the parties involved to the arbitrator, the employee and the employer. The results and findings are typically required to be confidential and as such the employer is protected from bad publicity as well.

The pro’s of arbitration for the employer include:

  • Informal Procedings
  • Faster and less expensive
  • More confidentiality
  • More fact based outcomes rather than emotional jury type outcomes

The con’s of arbitration include:

  • Inability to appeal
  • Less discovery
  • Job candidates may choose not to work for employers who make such agreements required

Employers may find that arbitration is a viable solution in resolving employee disputes. They need to be mindful that the arbitration agreements do not restrict the rights of employees to bring up concerns or to be made whole if the employer is found at fault. Employers must also be sure that there are no concerns of duress due to enrollment related circumstances which would cause an employee to lose benefits if they do not agree. If done properly the agreements should be fair and benefit both sides by preventing issues from being dragged through the legal system and possibly taking years to resolve.

There may also be further legal disputes related to this decision by the Supreme Court. As a result of the #MeToo movement states have either recently enacted or have pending legislation forbidding mandatory arbitration in cases of sexual harassment. These new laws may be challenged on the grounds that they are preempted by the Federal Arbitration Act given this weeks decision by the Supreme Court.