By Mark F. Kluger and William H. Healey
We rarely, if ever, mention U.S. Supreme Court decisions here. That’s because we try not to read them; they’re really long, boring and use a lot of big words that we don’t understand. On May 21, 2018, though, the Court issued a ruling that we thought important enough to down some double shots of expresso, grab our dictionaries and sort out for you.
The Court ruled that employers can, as a condition of employment, lawfully require employees to sign arbitration agreements that waive their right to bring or participate in class or collective actions. The 5-4 decision came in a consolidated case brought by the National Labor Relations Board against 3 separate employers, all of which required their employees to sign arbitration agreements that mandated that claims could only be brought on an individual basis. The Board pursued the cases on behalf of the employees arguing that the National Labor Relations Act (“NLRA”) establishes the right of employees to join together for their “mutual aid and protection,” and that class action waivers in arbitration agreements deprive them of that right. Keep in mind that this is yet another effort by the Board to exert its authority in a non-union context. The employers argued that the Federal Arbitration Act (“FAA”) allows parties to agree to arbitrate employment claims (waving the right to go to court) and to determine the scope of the arbitration proceeding (waving the right to sue as a class). Very heavy stuff!
A recent study by The Economic Policy Institute found that more than half of non-union, private-sector employers, 53.9%, impose mandatory arbitration for employment disputes. Roughly 30% of those employers also include class action waivers in the agreements, meaning that last week’s Court decision impacts approximately 25 million employees.
The gist of the Court’s ruling is that the NLRA cannot wipe out Congressional intent expressed in the FAA to allow employees and employers to contract for alternative dispute resolution and agree upon the procedures by which the arbitrations will be governed, including the use of individual rather than collective actions. In an absolute body slam to the Board, the Court wrote:
It’s more than a little doubtful that Congress would have tucked into the mousehole of [a section of the NLRA]…an elephant that tramples the work done by these otherlaws; flattens the parties’ contracted-for dispute resolution procedures; and seats the Board as supreme superintendent of claims arising under a statute it doesn’t even administer.
Only the Supremes can reign supreme. That is clear!
While we strongly favor jury trial waivers, we have never been big fans of arbitration for employment cases because: (1) there is rarely a summary dismissal, so almost all claims go to trial; (2) the discovery process is just as long as in court; and (3) paying the arbitrators gets very expensive (judges are free, if you don’t count taxes). On the other hand, class and collective actions, most of which these days are in the wage and hour category, can be overwhelming and extremely costly for employers to defend.
Now that the law is clear, despite our other reservations, we think it’s a good idea to have an arbitration agreement with a class and collective action waiver that is limited to wage and hour disputes. One caveat to keep in mind though is that without the ability to bring class or collective actions, employees can still use the same lawyer to bring many individual arbitration claims all dealing with the same underlying issue and all of which would require a separate defense and arbitration fees.
Let us know if you’d like to consider this option– but hurry, the expresso is wearing off.