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Will Employers Have to Wave Goodbye to Class Action Waivers?

01.30.2017

On January 13, 2017, the United States Supreme Court granted a request to address the question of whether employers could contractually require employees to waive the right to bring employment disputes as a class or collective action (Epic Systems Corp. v. Lewis, Docket No. 16-285). Class/collective action waivers are generally included in arbitration agreements or arbitration clauses within other employment agreements requiring the resolution of employment disputes through arbitration, rather than through the court system or administrative process. Such waivers require employees to give up their right to bring class or collective actions with other employees against the employer.

In recent years, employers have increasingly turned to arbitration to resolve disputes with employees because arbitration is usually much faster and cheaper for both sides, as discovery, motion practice, and appeal rights are more limited than in the court system or administrative process. Thus, a mandatory arbitration agreement combined with a class/collective action waiver can significantly reduce an employer’s exposure to expensive and time-consuming class or collective actions, which is a very powerful risk management tool for employers.

The underlying issue that the Supreme Court will (hopefully) resolve is a potential conflict between two federal statutes: The Federal Arbitration Act (“FAA”) and the National Labor Relations Act (“NLRA”). The FAA generally requires courts to enforce arbitration agreements unless another federal statute overrides it or enforcement of the agreement would impinge upon a substantive right afforded to a party under that statute. The NLRA provides employees with the right to engage in protected concerted (i.e. group) activity for their mutual benefit and protection. The National Labor Relations Board (“NLRB”), the agency responsible for enforcing the NLRA, takes the position that employees joining together in a class/collective action against their employer is protected concerted activity and, thus, any attempted waiver of the right to engage in such activity violates the NLRA. The United States Court of Appeals for the Seventh and Ninth Circuits have agreed with the NLRB, while the Second, Fifth, and Eighth Circuits (which includes Nebraska and Iowa), as well as several state supreme courts (California and Nevada), have held these provisions valid and enforceable and, thus, paving the way for the Supreme Court to address the issue.

Since the Supreme Court still only has eight justices, a 4-4 tie vote would mean that the lower courts’ decisions would stand. That is, employers in circuits recognizing class/collective action waivers could continue to include such waivers in employment agreements, subject to the caveat that the NLRB has indicated that it will continue to enforce its own interpretation of the law until either Congress or the Supreme Court addresses the issue.

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