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Class Action Waivers Are Lawful, Says United States Supreme Court

The United States Supreme Court has spoken – class and collective action waivers are lawful.  The Court’s May 21 decision overturns the National Labor Relations Board’s (NLRB) position that these waivers violate employee rights and resolves a split among federal appellate courts.  Employers should run, not walk, and include such provisions in their respective employment agreements!

Class and collective actions are common in wage and hour cases.  In Epic Systems Corp. v. Lewis, the Court held class action waivers contained in arbitration agreements are valid and enforceable. This is great news for employers since wage and hour class and collective actions can be quite costly for employers and are one of the most hotly contested issues in employment law. 

Justice Gorsuch, the newest Supreme Court Justice, wrote the opinion.  To support its position, the majority reasoned Congress instructed in the Federal Arbitration Act (FAA) that arbitration agreements providing for individualized proceedings must be enforced.  Neither the FAA’s saving clause nor the National Labor Relations Act (“NLRA”) suggested otherwise.  The employees had argued the class action waiver violated their Section 7 rights of the NLRA (their rights to act collectively).  However, the Supreme Court held the NLRA predated the FAA and the NLRA did not in any way address this issue.  Therefore, the statute does not address this issue.  Moreover, for decades, the General Counsel of the National Labor Relations Board had agreed the FAA had nothing to do with the NLRA.  As for the FAA savings clause, it did not apply because it only recognizes defenses that apply to any contract.  There was no allegation from any of the employees who entered into the agreements that they did so under fraud, duress, or that the contracts at issue were unconscionable.  Therefore, the savings clause was found inapplicable. 

This case is huge for employers.  It allows employers to contract away an employee’s ability to participate in a class or collective action.  This will save employers significantly in litigation expenses.  Employers would be wise to review their contracts and ensure such a waiver is included. 

Brody and Associates regularly advises its clients on matters involving arbitration and other areas of alternative dispute resolution.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.