The U.S. Supreme Court has ruled that employers may require new hires to agree that any employment disputes must be resolved by taking their claims to an arbitrator on an individual basis. The Court’s ruling allows employers to proactively prevent workers from later joining together to file class-wide lawsuits or arbitration claims, which can be extremely complex and expensive. The Court said the Federal Arbitration Act (FAA) generally favors the enforceability of private arbitration agreements, with very limited exceptions (Epic Systems Corp. v. Lewis, U.S., May 2018).
We previously reported that the U.S. Ninth Circuit Court of Appeals had agreed with a 2012 ruling from the National Labor Relations Board that the National Labor Relations Act (NLRA) gives most non-management employees the right to band together for mutual aid and protection by filing a class action lawsuit. The Supreme Court reviewed three cases on this same issue, overruling the Ninth Circuit and resolving a split in the federal circuit courts of appeal. The Board issued a statement acknowledging the Court’s decision and promising to quickly dispose of pending cases where these class-action waivers were challenged.
Tips: The decision on whether to require new hires to agree to take any employment claims to an arbitrator, rather than to a court, is a judgment call that may or may not be right for your organization. For example, arbitrations are usually quicker and more private, but you don’t have the option of appealing the decision if it goes against you, and you may have to pay the arbitrator’s fees, depending on state law. If you already have individual employment arbitration agreements in place, and they don’t provide a waiver for class-wide claims, you should speak with the attorney who drafted your agreement. Together you can consider whether to add that provision to your agreements for new hires going forward and/or when requesting new agreements from current employees with this added provision. Keep in mind you may need to provide additional “consideration” (money, property, or rights) beyond continued employment in exchange for new agreements with current employees.
Also, be aware that there are some employment situations and claims that aren’t affected by the Court’s ruling. For example, the Federal Arbitration Act doesn’t apply to contracts of employment with transportation workers. Government agencies such as the U.S. Department of Labor or Equal Employment Opportunity Commission are free to pursue class-wide litigation to enforce the statutes for which they’re responsible. Union-represented workers cannot be required to sign individual arbitration agreements unless their union agrees. In California, the Private Attorneys General Act (PAGA) specifically allows workers to stand in the shoes of the government to seek relief on behalf of a group of workers. In Washington, as we previously reported, a new state law that takes effect on June 7, 2018 (SSB 6313) prohibits employers from requiring workers to sign agreements waiving their rights to publicly file discrimination claims in court. It’s possible that Washington’s law may be challenged as contrary to the Federal Arbitration Act, but for now, Washington employers should keep this unique law in mind. In addition, be aware that California and Oregon impose very specific requirements in order for arbitration agreements to be enforceable. Questions? See our Legal Guide, Mandatory Arbitration Agreements or contact us to learn more about our flat fee employment law advice for employers.