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Supreme Court Validates Binding Arbitration Clauses

In a landmark decision in Epic Systems Corp. v. Lewis, the United States Supreme Court has ruled that companies can use arbitration clauses with class action waivers in employment contracts to prevent employees from filing class action suits over workplace issues.

The decision is likely to have an impact upon pending wage-hour class and collective actions, many of which had been stayed while the Supreme Court's decision was awaited.

In a 5-4 vote, with newest Justice Neil Gorsuch penning the majority opinion, the Supreme Court determined that the law is "clear" that class action waivers are enforceable under the Federal Arbitration Act ("FAA"), and that they are not prohibited by the National Labor Relations Act ("NLRA").

In reaching this decision, the Court took pains to address the various arguments presented by the former NLRB General Counsel, the related labor union, and various amicus briefs submitted by the plaintiffs' bar. In so doing, the Court noted that for the first 77 years of the NLRA, the NLRB had never argued that class action waivers violated the Act. Instead, the FAA and the NLRA had coexisted peacefully. In fact, as the Court pointed out, as recently as 2010 the NLRB's General Counsel had asserted that class action waivers did not violate the NLRA.

The decision is generally seen as a victory for employers, particularly those who already have such arbitration clauses in place.

California employers should note that California requires an employer to pay virtually all of the costs of the arbitration process.

Also worth noting is that Congress has attempted legislation over the last few years that would make the arbitration process more fair for consumers and employees. Several versions of an Arbitration Fairness Act have been submitted to Congress, but so far none have been enacted. A 2013 version, for example, declares "that no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of an employment, consumer, antitrust, or civil rights dispute."

If an employer does currently require any of its employees to sign arbitration agreements, there seems little reason not to add class-action waivers to those agreements. Employers that do not currently require their employees to sign arbitration agreements should consult employment counsel about the costs and benefits of such agreements before instituting a requirement that employees sign arbitration agreements with class-action waivers.


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