The United States Supreme Court delivered a win to employers in Epic Systems Corp. v. Lewis where the Court determined that class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act (FAA).
The decision encompassed three cases, which all presented the same issue: whether arbitration agreements that provide for individualized arbitration proceedings and constitute a waiver of class or collective actions violate the National Labor Relations Act (NLRA).
In each of the three cases, the employees signed mandatory arbitration agreements with their employer. The arbitration agreements specified individualized arbitration; thus, the employees waived their rights to bring class or collective actions. In each case, the employees claimed their employer violated the Fair Labor Standards Act (FLSA) and brought a class action against their employer. Although the employees signed the arbitration agreements, they argued that they were not required to arbitrate under the FAA’s saving clause. The FAA requires that courts enforce arbitration agreements, under the savings clause; still, certain defenses may be presented to counter the enforcement of an arbitration agreement. Each of the employees claimed that the NLRA barred class action waivers in arbitration agreements; thus, they argued the savings clause should prevent mandatory arbitration.
The Supreme Court rejected the employees’ argument and held that the NLRA does not preclude enforcement of class action waivers in arbitration agreements.
Lessons from the Decision
Notably, employers can now require that employees waive their rights to class or collective actions and require that they arbitrate their claims on an individual basis.
Further, Epic Systems Corp. did not address representative actions under California’s Private Attorneys General Act (PAGA). Therefore, the California Supreme Court ruling that PAGA waivers are unenforceable is still the law. Thus, even though class and collective action waivers are enforceable, California employers cannot require employees waive PAGA actions.
Employers should review their arbitration agreements carefully to ensure compliance with state and federal law. If you have questions about whether your current arbitration agreement is in compliance or want to draft an arbitration agreement, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.