December 26, 2018

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

TOP 10 EMPLOYMENT LAW DEVELOPMENTS OF 2018:

NO. 2: ARBITRATION AGREEMENTS GAIN STRENGTH — A POWERFUL DEFENSE AGAINST CLASS ACTIONS

Background

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.

Benjamin Treger is an associate in Hirschfeld Kraemer LLP’s Santa Monica office. He can be reached at (310) 255-1824, or btreger@hkemploymentlaw.com.