In a landmark decision for employers, the U.S. Supreme Court recently ruled that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA). This means that companies can use class action waivers in arbitration agreements to prohibit employees from banding together to take legal action over workplace issues such as wage and hour and working condition disputes.
One the one hand, certain laws allow employees to band together for mutual aid and protection (National Labor Relations Act - NLRA), and on the other, the FAA permits arbitration agreements that provide for individualized proceedings. This case turned on how to harmonize these two federal statutes.
What this means to employers
For many years, the Supreme Court has allowed employers to require workers to agree to arbitration as a condition of employment. Arbitration is a way to resolve employment disputes outside of court and usually is a more streamlined and cost-effective way to resolve these issues. More recently, employers have included class action waivers in their arbitration agreements to prevent employees from joining a class or collective action lawsuit/arbitration against their employer.
Prior to this SCOTUS decision, federal courts of appeal were divided on the issue of class action waivers, but now employers can be more certain that class or collective action waivers will be enforced by a court.
Look for this ruling to have a substantial impact on wage and hour claims litigation. Historically, an individual employee’s wage claim is not by itself a large amount and therefore it may not be litigated. However, a class of these same employees could total significant dollar amounts, and a “class action” is more likely to lead to a lawsuit. Now that the Supreme Court has provided clarity on the issue, more employers should consider using arbitration agreements with class action waivers going forward.