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U.S. Supreme Court Rules Class Action Waivers Enforceable in Employment Arbitration Agreements

Labor & Employment

Last week, the U.S. Supreme Court issued its opinion regarding the use of class action waivers in employment arbitration agreements. In a significant victory for employers, the Court ruled that such class action waivers are enforceable and can be used to compel employees to resolve employment-related claims through individual arbitration proceedings. The decision, Epic Systems Corp. v. Lewis, covers three separate cases that were on review with the United States Supreme Court. Epic Systems Corp. v. Lewis No. 16-285; Ernst & Young LLP et al v. Morris et al., No. 16-300; National Labor Relations Board v. Murphy Oil USA, Inc., et al., No. 16-307 (May 21, 2018)

The employees in Epic Systems argued that they could not waive their rights to be a part of a class action to pursue employment claims because this waiver violated the National Labor Relations Act (“NLRA”). Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . ., and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

In its decision, the Court emphasized and relied on the legal authority and legislative intent of the Federal Arbitration Act (“FAA”), which, it ruled, requires courts to enforce mandatory arbitration agreements that contain class waiver provisions. The Court disagreed with the employee’s reading of Section 7, holding instead that “[t]he NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum. This Court has never read a right to class actions into the NLRA – and for three quarters of a century neither did the National Labor Relations Board.”

Although the decision is a hugely positive ruling for employers, the good news must be taken with a grain of caution for California employers. In California, an employee may not only bring a class action on behalf of a putative class of employees, but also a representative action, under the state’s Private Attorneys General Act (“PAGA”), for alleged violations of the California Labor Code. PAGA was enacted to permit a single aggrieved employee to act in the role of a deputized Labor Commissioner on behalf of all other similarly situated aggrieved employees. The California Supreme Court has ruled that PAGA claims cannot be subject to arbitration because technically these are claims brought on behalf of the state. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th348.)

In the Iskanian decision, the California Supreme Court explained that prohibiting PAGA waivers does not frustrate FAA’s objectives because PAGA claims are outside the scope of the FAA. As the Court reasoned, FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement, and does not govern PAGA claims, which aims to promote arbitration of claims belonging to a government agency.” (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 388.) Therefore, because a PAGA dispute is technically between an employer and the state, the court held that prohibiting waiver of PAGA claims would not interfere with the FAA’s goal of promoting arbitration as a forum of private dispute resolution.

In short, While the U.S. Supreme Court decision can rightly be viewed by employers as terrific news, California employers should be careful not to overreach and should not expect their arbitration agreements to prevent PAGA claims.

As always, the Labor and Employment attorneys at Jeffer Mangels Butler and Mitchell are prepared to answer any questions you may have and assist your business through the intricate nuances of California’s labor and employment laws.

 

This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.