Photo: Beatrice Murch via Flickr (CC by 2.0)

In a 5-4 decision, the United States Supreme Court has held that employers may enforce arbitration agreements signed by employees that bar class-action lawsuits and require individualized arbitration. In so holding, the Court found that the Federal Arbitration Act (FAA) instructs courts to enforce the terms of arbitration agreements, including terms requiring one-on-one arbitration proceedings.  It also found that the National Labor Relations Act (NLRA) says nothing about how legal disputes must be resolved.  “Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties’ agreements unlawful,” wrote Justice Neil Gorsuch for the majority.

There were three cases consolidated before the High Court on this issue — all having been brought in federal court as a collaborative or class action litigation despite an arbitration agreement.  Ernst & Young LLC v. Morris concerned whether an employer was barred from requiring an employee to arbitrate claims against it rather than on a collective basis given a collective bargaining provision in the NLRA.  In Epic Systems Corp. v. Lewis, the issue was whether a waiver of class action and collective proceedings is enforceable under the FAA, notwithstanding the NLRA.  Finally, NLRB v. Murphy Oil USA, Inc., concerned whether arbitration agreements with employees that barred them from class actions was an unfair labor practice in violation of the NLRA because it limited employees’ rights to engage in “concerted activities” in the pursuit of “mutual aid or protection.”  The Court’s decision resolved all of these issues.

Arbitration agreements in employment often require an employee to waive class action or collective litigation and to arbitrate just the one employee’s dispute.  There was a split in the circuit courts on whether such agreements violated the NLRA.  This new decision resolves that split and highlights that the NLRA only involves employees’ rights to “concerted activity” on matters in the workplace and does not delve into the arena of employees’ rights in resolving disputes in court or in arbitration in a collective way.

A lengthy dissent called the majority ruling “egregiously wrong” and in the end called on Congress to override the decision by passing legislation.  The dissent referred to an “extreme imbalance” in the workplace which led to the NLRA protections and contended that those protections include the ability to pursue collective litigation.  The FAA, according to the dissent, does not “shrink the NLRA’s protective sphere.”

While Justice Gorsuch’s majority opinion noted that “Congress is of course always free to amend this judgment,” there is “nothing suggesting” the NLRA displaces the FAA.  The majority succinctly summed it up–“The policy may be debatable but the law is clear:  Congress has instructed that arbitration agreements like those before us must be enforced as written.”

Employers may consider agreements containing arbitration provisions requiring waiver of class action lawsuits or collective litigation.  Companies should consider obtaining legal advice as to drafting of such provisions and as to issues related to the arbitration process.