In an important victory for employers, on May 21, 2018 the United States Supreme Court ruled that employers may lawfully require employees to enter into arbitration agreements with class action waivers.  The Court in Epic Systems v. Lewis struck down a series of decisions by the Obama-era National Labor Relations Board that prohibited employers from requiring employees to sign arbitration agreements containing class action waivers.  The NLRB had held that employees taking part in class actions were engaged in “concerted activity” protected by the National Labor Relations Act.  The high court disagreed, holding that the Federal Arbitration Act governed arbitration agreements and required that the agreements be enforced according to their terms.

The Supreme Court reinforced its earlier rulings that individual arbitration, instead of class or collective proceedings, is the preferred method to efficiently resolve disputes.  The Court reasoned that in enacting the Federal Arbitration Act Congress required that written agreements to arbitrate in a traditional bilateral proceeding must be enforced.  The decision affects an estimated 50 million employees covered by employment arbitration agreements with an estimated 25 million agreements containing class action waivers.

The Court did not deal directly with an issue plaguing California employers, where California appellate courts have ruled that employee claims under the Labor Code Private Attorney General Act are not subject to arbitration, based on the rationale that such claims are brought on behalf of the State, which is not a party to the arbitration agreement.  But the Epic Systems Court warned that it will not allow “new devices and formulas” to avoid enforcement of arbitration agreements.

We strongly recommend that all California employers have arbitration agreements with class action waivers covering their employees.  Employers should consult with Hill, Farrer & Burrill employment attorneys concerning the benefits of arbitration agreements and how to draft and implement them for your workforce.