Publications

Supreme Court Rules That Employees Can Waive Class Action Rights Through Arbitration Agreements

5/25/2018 Articles

On May 21, 2018, the United States Supreme Court ruled in Epic Systems Corp. v. Lewis that arbitration agreements containing class action waivers are enforceable under the Federal Arbitration Act. 584 U.S. ___ (Dkts. 16-285, 16-300, 16-307).

History

The U.S. Supreme Court has repeatedly affirmed an employer’s ability to enforce arbitration agreements under the Federal Arbitration Act (FAA).  But the U.S. Circuit Courts have split over whether employers could insist in those agreements that such arbitrations must be brought individually and not as class actions.  Some courts, including the Ninth Circuit, had held that class waiver provisions were prohibited by Section 7 of the National Labor Relations Act (NLRA), which protects employees’ right “to engage in…concerted  activities for the purpose of collective bargaining or other mutual aid and protection.” 

The Decision 

In 2017, the U. S. Supreme Court heard arguments for the following three cases: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA, Inc.  All three cases presented the issue of whether class waivers were enforceable under the FAA.  For instance, Ernst & Young LLP v. Morris involved a junior accountant who had entered an arbitration agreement which included a class waiver but who then filed a misclassification class action in federal court, alleging that the class waiver was unenforceable. 

On May 21, 2018, the Supreme Court issued a long-awaited decision answering the question underlying all three cases.  Justice Gorsuch authored the majority decision, finding that the FAA’s saving clause (which excepts the enforcement of illegal agreements) did not preclude enforceability of class action waivers.  In part, the Court found that the saving clause’s general bases for rendering an agreement illegal only encompass defenses that could apply to any contract and do not include the argument that class waivers are illegal under the NLRA.  Moreover, the majority concluded that such an expansive interpretation of the saving clause would undermine the effect of the FAA overall.  The majority also opined that the language of NLRA Section 7 did not encompass protection for class and collective legal actions but rather was intended to protect the exercise of “the right to free association in the workplace.”  Epic, 584 U.S. ____, (Dkts. 16-285, 16-300, 16-307), slip op. at 12.

The Takeaway          

Now, Epic makes clear to employers that arbitration agreements containing class action waivers can effectively limit employees’ disputes to individualized actions.  As such, employers may offer arbitration agreements containing class action waivers at the outset of an employment relationship to avoid future collective actions.  However, when deciding whether to make use of such arbitration agreements, employers may also want to weigh the potential cumulative cost of multiple individual arbitrations – particularly given that employers in California normally must bear the cost of the arbitrator in such actions.  Employers should consult with legal counsel before determining whether arbitration clauses with class action waivers will advance their goals.

Firm Highlights

News

JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'

Intellectual property practice chair Eugene Mar provided expert commentary to American Banker for the article "JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'." In the article, he said: "By filing this as a trade...

Read More
News

Farella Announces 2024 Leadership Council on Legal Diversity Pathfinders: Taylor Rottjakob and John Ugai

Farella Braun + Martel is proud to announce that senior associates  Taylor E. Rottjakob and John M. Ugai have been named 2024 Leadership Council on Legal Diversity (LCLD) Pathfinders. Pathfinders have been identified as...

Read More
Publication

Insurance Market Crushes Wineries and Wine Country Homeowners

We keep hearing about how difficult it is for winery and vineyard owners to get property insurance these days, both for their homes and their wine businesses in California’s wildfire-prone areas. Those who have...

Read More
Publication

Employment Law Update for Nonprofits With Holly Sutton

Welcome to  EO Radio Show - Your Nonprofit Legal Resource . Charities, foundations, and their founders often request help addressing employment practices and compliance questions. In this episode, host Cynthia Rowland is joined by Holly...

Read More
Publication

Corporate Transparency Act: A Guide on Beneficial Ownership for Nonprofit Executives

The Corporate Transparency Act, enacted as part of the National Defense Authorization Act for Fiscal Year 2021, represents a significant shift in regulatory requirements for entities across the United States. This act, set to...

Read More
News

Scraping Battles: Meta Loses Legal Effort to Halt Harvesting of Personal Profiles

Alex Reese spoke to Matt Fleischer-Black of  Cybersecurity Law Report about the Meta v. Bright Data decision and its impact on U.S. scraping case law. Read the article here (paywall or trial).

Read More
News

Farella Braun + Martel Earns San Francisco Green Business Recertification

Read More
News

North Coast Industry Insiders Weigh In on Why California Cannabis Tax Revenue Slipped in 2023

Jeff Hamilton spoke to Susan Wood with the North Bay Business Journal for the article "North Coast Industry Insiders Weigh In on Why California Cannabis Tax Revenue Slipped in 2023." Read the article with Jeff's...

Read More
Publication

Corporate Transparency Act: State of the Law and Beneficial Ownership Reporting Requirements

Key Points: Despite ongoing legal challenges, the Corporate Transparency Act (CTA) generally remains in effect and enforceable. Clients should continue to abide by its regulations. Initial reports for entities formed in 2024 are due within...

Read More
Publication

Nonprofit Quick Tip: State Filings in North Carolina and South Carolina

Welcome to  EO Radio Show - Your Nonprofit Legal Resource . Episode 75 is the tenth in a series of Quick Tip episodes focusing on the details of state registration of nonprofit corporations. With...

Read More