May 31, 2018
Compliance Matters
U.S. Supreme Court Approves the Use of Class Action Waivers in Mandatory Employment Arbitration Agreements
In a long-awaited decision issued last week, the United States Supreme Court has given a "green light" to employers who want to require employees to sign arbitration agreements waiving  the employee's right to pursue or participate in a class action lawsuit.  In Epic Systems Corp. v. Lewis, the Court ruled that these agreements are enforceable under the Federal Arbitration Act, and do not violate another federal labor law known as the National Labor Relations Act ("NLRA").

The High Court first approved these so-called "class action waivers" in its 2011 decision AT&T Mobility LLC v. Concepcion. Though the AT&T case involved a consumer arbitration agreement, most labor law experts believed that the ruling should allow employers to require employees to enter into private arbitration agreements which bar employees from pursuing or joining a class action. 

However, one year later the National Labor Relations Board (NLRB) stunned employers with its controversial D.R. Horton decision. In D.R. Horton,  the NLRB  found that employers who ask employees to sign such agreements run afoul of provisions in the NLRA that specifically permit employees to engage in "concerted" action. The NLRB found that being able to participate in a class action was quintessential "concerted" action that the union-management law was designed to protect. The NLRB even went so far as to rule that the employer violated the NLRA merely by keeping a previously-signed copy of the arbitration  agreement in the employee's personnel file. Notably, the D.R. Horton case involved a non-union employer.

The majority of state and federal courts - including our own California Supreme Court - rejected the Board's D.R. Horton decision and upheld class action waivers in mandatory agreements to arbitrate employment disputes. But the Chicago-based Seventh Circuit U.S. Court of Appeals sided with the Board on this issue in the Epic Systems case. The Ninth Circuit, which covers California and several other Western states, agreed with the Board and the Seventh Circuit in Morris v. Ernst & Young LLP.

The U.S. Supreme Court decided to review a trio of conflicting lower court rulings about whether to follow the NLRB's D.R. Horton ruling. The Supreme Court designated Epic Systems as the "lead case" and decided all three of them together. By a divided 5-4 decision, the Supreme Court ruled that the NLRB was simply wrong when it outlawed these class action waivers.  In doing so, the Supreme Court reaffirmed its 2011 decision in AT&T Mobility, and found that the Federal Arbitration Act permits enforcement of class action waivers in an agreements to arbitrate employment disputes. Thus the Supreme Court upheld the right of an employer to insist that employees sign and abide by arbitration agreements, including those that require employees to give up their right to initiate or participate in a class action against their employer. 

What This Means For You

The Epic Systems decision confirms that employers may condition employment on the employee signing an arbitration agreement that includes a class action waiver. (Note: these class action waivers are not enforceable unless they are part of an arbitration agreement.)

Special alerts for CA employers: 
  • Several years ago, the California Supreme Court ruled that California employers must pay 100% of the arbitrator's fees and costs, which easily can be many thousands of dollars in a hotly-contested case. This would be especially expensive if the class action lawyer opted to file numerous individual claims in lieu of filing a class action, leaving the employer to foot the bill on all of them.
  • Under California law, there is almost no right to appeal an arbitrator's ruling. This means that the losing party in arbitration is stuck with the ruling in most cases - even if the arbitrator makes erroneous factual or legal findings. 
  • California employers remain covered by our state's Private Attorneys General Act (PAGA), which allows employees to bring so-called "representative claims" on behalf of other "aggrieved employees," without having to meet all of the legal requirements for class actions. PAGA authorizes penalties of up to $200 per employee, per pay period, for violations of wage and hour laws, including minimum wage, overtime, meal/rest periods, paystub rules, and the like.  Both the California Supreme Court and the Ninth Circuit U.S. Court of Appeals have said that arbitration agreements cannot place any limits on an employee's right to bring or join in a PAGA claim.  The U.S. Supreme Court has yet to  weigh in on this issue.
  • For the time being, this means that California employers continue to face burdensome and expensive PAGA representative claims when brought by employees who have signed an arbitration agreement with class action waiver. Despite this drawback, larger companies may still find arbitration agreements with class action waivers an attractive option because class actions are costly to defend and can result in massive damage awards that may far exceed the penalties available under PAGA. Even for smaller companies, arbitration may be appealing because arbitrators tend to be less likely to issue excessively high monetary awards in employment cases.
The Supreme Court's ruling permits employers with arbitration agreements to add a class action waiver. Employers without arbitration agreements may now safely revisit the benefits of having one at all. Either way, we highly recommend that you consult with expert labor counsel before adopting or revising an arbitration agreement with your employees.

If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700, or visit us online at .

John J. Manier 
Richard S. Rosenberg 
Jeffrey P. Fuchsman 
Ballard Rosenberg Golper & Savitt, LLP 

15760 Ventura Blvd.
Eighteenth Floor
Encino, CA 91436
(818) 508-3700

6135 Park Drive South
Suite 510
Charlotte, NC 28210
Matthew Wakefield:
(704) 846-2143 


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