The Supreme Court of the United States Rules in Favor of Employment Arbitration Contracts Waiving Class Actions

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By: Rubeena Sachdev

On May 21, 2018, the Supreme Court of the United States ruled in favor of upholding employment arbitration contracts. In a 5-4 decision, the Court ruled that class action waivers do not violate the National Labor Relations Act (NLRA) and are enforceable under the Federal Arbitration Act (FAA). Section 7 of the NLRA gives employees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Prior to Monday’s decision employers could have been held to violate Section 7 by requiring employees to sign arbitration agreements that waived collective or class-based claims.

The Court ruled that the right to bring a joint, collective, representative, or class-based claim is not regarded as a concerted action within the protection of the NLRA, and therefore, requiring arbitration of employment-law claims does not violate the NLRA. The Court stated that concerted activity protected by the NLRA includes employees’ rights to organize unions and bargain collectively, but not to bring class actions. While the law continues to develop in this area, the holding protects employers and minimizes the threat of expensive litigation that an employer would incur because of class actions brought by employees.

Below are important takeaways that employers need to consider following this decision:

  • Employers can contractually require their employees to waive their rights to bring a class action in court and instead bind the employees to mandatory arbitration, assuming the arbitration provision is drafted correctly;
  • Employers should consider revisiting their current employment agreements if they include “opt out” provisions out of fear that blanket mandatory requirements that would be deemed unenforceable.
  • In California, many wage and hour claims include claims based on the Private Attorneys General Act (PAGA). Under California Supreme Court precedent and binding authority, a PAGA claim is not subject to an employer-employee arbitration agreement because a PAGA claim is brought on behalf of the state.

If you would like for our office to review your current arbitration agreements or draft and implement new arbitration provisions within your existing agreements, please contact us at info@chugh.com, and we will connect you with one of our attorneys to best serve your needs.

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