U.S. Supreme Court to Decide If Class Action Waivers in Arbitration Agreements Are Lawful

The U.S. Supreme Court has agreed to resolve a split among the federal courts regarding whether class action waivers in arbitration agreements are lawful under the Federal Arbitration Act (FAA) or if, instead, such waivers violate the labor law provisions in the National Labor Relations Act (NLRA).

The Supreme Court agreed to consolidate three cases that involve the following questions:

  • Can an employer require employment-related disputes to be resolved through individual arbitration and, thus, include class action waivers in arbitration agreements?
  • Alternatively, do class action waivers prevent employees from joining together to engage in concerted activity regarding the terms and conditions of their employment in violation of the NLRA?

Sections 7 and 8 of the NLRA protect the rights of employees to engage in concerted activities for their mutual aid and protection, such as activities relating to wages, hours worked or other terms and conditions of employment.

In one of the cases consolidated for review, a Fifth Circuit court held that an arbitration agreement which requires an employee to waive the right to bring a class action is enforceable under the FAA. (National Labor Relations Board v. Murphy Oil USA, Inc.)

In the other two cases, from the Ninth and Seventh Circuits, the federal courts held that class action waivers in arbitration agreements are unenforceable because they prevent employees from engaging in concerted activity in violation of the NLRA. (Ernst & Young LLP v. Morris and Epic Systems Corp. v. Lewis)

It is important that the U.S. Supreme Court has agreed to resolve this issue so that employers can have certainty regarding the validity of their arbitration agreements at the federal level. This is especially true for employers that operate in more than one state.

At the state level, the California Supreme Court has held that class action waivers in employment arbitration agreements can be enforceable but that Private Attorneys General Act (PAGA) representative-action waivers are not enforceable.

Until the U.S. Supreme Court gives further guidance in this area, employers using or considering using class action waivers in their arbitration agreements should consult with an attorney.

California Chamber of Commerce members can read more about Arbitration Agreements in the HR Library. Not a member? Learn more about what HRCalifornia can do for you.

Staff Contact: Gail Cecchettini Whaley