On May 21, 2018, the Supreme Court released a ruling on class action lawsuits that is very favorable to employers.  

In May, the Supreme Court ruled that class action waivers in employment arbitration agreements do not violate the National Labor Relations Act (NLRA) of 1935 and are enforceable.

The decision, known as, Epic Systems Corporation v. Lewis, reverses National Labor Relations Board (NLRB) rulings that invalidate mandatory arbitration agreements with class action waivers.

In the private employment setting, nonunionized employees sometimes band together to bring a class action lawsuit to allege a common claim against an employer. Oftentimes, each employee’s cause of action would not be worth pursuing individually. However, when organized as a class, a plaintiff’s attorney representing employees has a greater financial incentive to bring a lawsuit against an employer.

In recent years, an increasing number of employers are requiring employees to sign mandatory arbitration agreements as a condition of employment. Usually, these arbitration agreements contain a clause whereby each employee waives his/her right to file a class action lawsuit, and instead, each claim must be separately adjudicated through arbitration.

From the employer’s perspective, this puts a stop to the threat of a class action lawsuit and holds down the cost of settling disputes with employees.

In 2012, the NLRB ruled that an employer violated NLRA by requiring employees to sign arbitration agreements because the employees are waiving their rights to pursue claims as a class or collectively. That NLRB decision was known as D.R. Horton.  This threw the entire legality of the practice of using mandatory arbitration agreements into question and set the stage for federal lawsuits.  

In 2013, the 5th Circuit Court of Appeals overturned the NLRB’s D.R. Horton decision, reauthorizing the enforceability of mandatory arbitration agreements. However, in 2016, two separate Courts of Appeals sided with the NLRB, setting up a conflict amongst the various Circuits.

On May 21st, the Supreme Court made a final decision on the matter. The Court held the NLRB’s interpretation of the NLRA is in conflict with another federal law, the Federal Arbitration Act of 1925, and the NLRB’s position on the matter must be invalidated.  

This Supreme Court decision could be supplanted by a future act of Congress, but that seems unlikely in the current political climate.

May 21st’s ruling allows employers to continue to incorporate and enforce mandatory class action waivers in employment arbitration agreements.