On Monday, May 21, 2018, the U.S. Supreme Court ruled that agreements between employers and employees providing for individualized arbitration proceedings are enforceable. The decision came in a trio of cases, all raising the issue of whether the Federal Arbitration’s Act’s saving clause, which removes the obligation to enforce an arbitration agreement in certain circumstances, was triggered. The plaintiffs-employees argued that the saving clause applied because agreements requiring individualized arbitration proceedings violated the National Labor Relations Act (NLRA) by barring the employees from engaging in “concerted activity” through pursuing claims on a class or collective basis. The Court disagreed.
The decision ends a split that developed among the federal Circuits after the National Labor Relations Board’s 2012 decision in D.R. Horton Inc., which held that requiring employees to sign agreements precluding class or collective claims addressing employment issues violated the NLRA. In the three cases for which certiorari was granted, the Fifth Circuit rejected the Board’s position in Murphy Oil USA Inc. v. NLRB, while the Seventh and Ninth Circuits upheld it in Lewis v. Epic Systems Corp. and Morris et. al. v. Ernst & Young, LLP, respectively. Since the three petitions were granted, the Sixth Circuit joined the Seventh and Ninth Circuits, and the Second and Eighth Circuits joined the Fifth Circuit.
Writing for the majority, Justice Neil Gorsuch stated that “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.” Specifically, the Court held that the Arbitration Act’s saving clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for revocation of any contact,” only recognizes general contract defenses, not interference with fundamental attributes of arbitration. Further, relying on the standard principles of statutory construction and the history of the NLRA, the Court held that there was no conflict between the Arbitration Act and the NLRA because “concerted activity” focuses on the right to organize unions and bargain collectively and does not include class and collective procedures.
The Court’s decision makes clear that, with some exceptions, employers may require employees to agree to forego class or collective actions, limiting them to individual arbitrations. The main exceptions to the Court’s decision are agency actions (such as actions brought by the Equal Employment Opportunity Commission) and certain types of state laws (such as California’s Private Attorneys General Act). Employers should review their current approach to arbitration agreements, weighing their benefits and costs, and determine whether the Court’s decision warrants a change in their approach.
For more information on developments in this area, please contact John McDonald at email@example.com or the Reed Smith lawyer with whom you normally work.