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Supreme Court Ends the Debate and Upholds Class Action Waivers

21 May 2018 Labor & Employment Law Perspectives

Welcome news for many employers rolled out of Washington, D.C. earlier this morning. The Supreme Court has ended a long-running debate over the enforceability of arbitration agreements with class action waivers in the employment context, particularly as applied to the wage and hour class action litigation. In short, such waivers are enforceable and do not violate the National Labor Relations Act.

Today’s long-anticipated ruling has its genesis in the 2011 opinion AT&T Mobility Servs. v. Concepcion, where the Court held that individual arbitration provisions in consumer contracts were enforceable and precluded parties to such contracts from bringing or participating in class action litigation. In the wake of Concepcion, some employers adopted arbitration agreements with class action waivers as potential insulation against wage and hour class action litigation. A historic legal battle touched off from there.

Within a year, the National Labor Relations Board (“NLRB”) concluded (in apparent contradiction to an NLRB General Counsel guidance memo issued two years earlier) that class action waivers violated protections on “concerted activity” found in the National Labor Relations Act (“NLRA”). Multiple federal appellate courts then rejected and refused to enforce NLRB decisions finding such class action waivers unlawful, yet the NLRB refused to follow the direction from the federal courts and continued finding such waivers violated the NLRA. This standoff continued for several years, with even the California Supreme Court rejecting the NLRB’s position and finding class action claims under the California Labor Code could be precluded by individual arbitration requirements, but “representative” claims under the state’s “Private Attorneys General Act” could not. More recently, a handful of federal district courts and ultimately three federal appellate courts adopted the NLRB’s position – setting the stage for Supreme Court showdown.

As many expected, the Court split 5-4 along perceived ideological lines, with Chief Justice Roberts and Justices Thomas, Alito and Gorsuch joined by likely swing vote Justice Kennedy to form a five-justice majority. Writing for that majority, Justice Gorsuch suggested that there is little legal basis to conclude that the NLRA overrides the federal policy in favor of arbitration as set forth in the Federal Arbitration Act, such that arguments to the contrary ultimately depend primarily upon policy considerations, not statutory and case law authority. As part of this argument, Justice Gorsuch pointed out that for over 70 years the NLRB had no quarrel with individual arbitration agreements and argued that the NLRA’s protections on “concerted activity” can only be understood in the context of traditional labor relations matters (such as union organizing and collective bargaining), not civil litigation of claims arising under statutes other than the NLRA. The Court also rejected the argument that courts owe deference to the NLRB’s view of things, pointing out that courts do not and should not grant deference to an agency’s interpretation of a federal law outside its sphere of responsibility. Throughout the opinion, Justice Gorsuch repeatedly argued that the Court was not endorsing policies in favor of class action waivers, and even acknowledged the policy arguments against them, while still asserting that the Court’s decision faithfully followed the applicable statutes and Supreme Court precedent.

Perhaps the most striking thing from the Court’s majority opinion – other than its critically important outcome – is the strength the majority again assigned to the Federal Arbitration Act and the continuing implications that may have on class action and quasi-class action litigation. As it has consistently done in previous decisions, the Supreme Court asserted that courts must enforce arbitration agreements to which private parties have agreed unless federal law explicitly excludes claims from the ambit of arbitration or unless very limited defenses to contract formation apply. Such sweeping language seems to create a likelihood that the majority’s language will touch off new battles, such as whether California can exclude from individual arbitration so-called “representative” claims under its Private Attorneys General Act statute when the hurdle to arbitration is a state’s policy decision, not a defect in the formation of the arbitration agreement itself. It also bears watching whether class action waivers will become a significant enough political issue that Congressional action could occur and new laws passed depending on the outcome of future election cycles.

For now however, employers that have already adopted dispute resolution agreements with class action waivers should welcome the successful end to this long-running legal battle. And for employers that have yet to adopt such agreements, the waivers can provide some very substantial pros and notable cons. Both the pros and cons of an arbitration program with a class action waiver should be carefully considered before charging forward with implementation in response to today’s Supreme Court ruling. Your friendly neighborhood Foley & Lardner LLP labor and employment attorney can help.