Supreme Court Reins in NLRB on Arbitration Agreements

The United States Supreme Court recently handed down a major ruling in a case that may lead employers to increase use of arbitration agreements to manage the risk of costly class-action employment litigation. The Court’s decision in Epic Systems, Inc. v. National Labor Relations Board swept away a growing body of law in the courts and the National Labor Relations Board antagonistic to employers’ use of class-action waivers in individual employment agreements.

The Court ruled that the Federal Arbitration Act ensures that employees and employers are allowed to agree that any disputes between them will be resolved through one-on-one arbitration, rejecting arguments from the NLRB and employee advocates that the National Labor Relations Act permitted employees to bring their claims in class or collective actions, no matter what they agreed with their employers.

“In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings,” wrote Justice Neil Gorsuch in the majority opinion.

“Nor can we agree with the employees’ suggestion that the National Labor Relations Act (NLRA) offers a conflicting command. . . . The 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,” Justice Gorsuch wrote.

Faced with risk of costly class- and collective-action litigation, many employers have increasingly turned to arbitration agreements to require that employment disputes be resolved by arbitration and to prohibit class- or collective-action litigation. According to the Economic Policy Institute, in 1992, only 2.1% of non-union companies imposed mandatory arbitration agreements on their employees, but by 2017, that number had grown to 53.9%. The EPI estimates that 23.1% of non-union employees are now subject to express class-action waivers in mandatory arbitration agreements.

In handing down its ruling this week, the Court actually decided three separate cases that involved arbitration agreements providing for individualized proceedings. Two of the cases involved wage-hour class and collective actions against Epic Systems, Inc., and Ernst & Young, LLP. The third case arose from an NLRB decision that Murphy Oil USA, Inc., violated the NLRA by requiring employees at its Alabama facility to sign an arbitration agreement waiving their right to pursue class and collective actions.

The NLRB issued a statement that it “respects the Court’s decision.” The Board indicated that it currently has 55 pending cases with allegations that employers violated the NLRA by maintaining or enforcing individual arbitration agreements or policies containing class- and collective-action waivers. “The Board is committed to expeditiously resolving these cases in accordance with the Supreme Court’s decision,” the NLRB statement said.

Employers should reevaluate their current arbitration agreements or consider whether to adopt an agreement in light of the Court’s ruling in Epic Systems. Arbitration agreements with class- and collective-action restrictions can be effective tools in managing risk of high-cost employment litigation, including under wage-hour statutes such as the Fair Labor Standards Act. Many employers find that defense costs in FLSA collective actions dwarf any exposure for unpaid wages. In these cases, defense costs and the possibility of payment of the claimants’ attorneys’ fees can be the tail that wags the dog, disproportionately driving up the value of claims and forcing larger settlements. Some employers use collective-action waivers in an attempt to level the playing field and to obtain an opportunity to defend in a forum that may be less costly.

At the same time, employers should understand, however, that arbitration may give claimants significant advantages that are not available in court litigation, including limits on costs and fees applicable to claimants and the imposition of arbitrator fees and other costs on employers.

Timothy M. McConville is a labor and employment attorney and President of Praemia Law, PLLC, in Reston, Virginia. Mr. McConville may be reached at 703-483-2407 or timothy.mcconville@praemialaw.com. Follow him on Linked In and Twitter @worklawguy.