Supreme Court Provides Roadmap for Employers to Eliminate Their Largest Employment Law Risk

© 2018 The Texas Lawbook.

By Ron Chapman, Jr.
Shareholder, Ogletree Deakins

(May 24) – At long last, the U.S. Supreme Court has settled the contentious class action waiver issue that has riled courts and confounded employers for the past six years. On May 21, 2018, in its 5-4 opinion in Epic Systems v. Lewis and two other related cases, the Court validated the use of class action waivers in arbitration agreements, thereby providing a roadmap for employers to eliminate their largest employment law risk – a class action.

Class actions against employers have skyrocketed in the last 15 years. Many employers feel they are forced to settle these disputes not because they did anything wrong but merely because the claimed damages are so great when extrapolated for all members of the class over a multi-year period. Indeed, class actions in the employment context usually become a battle of the experts’ projections of estimated financial exposure rather than focusing on the merits of the underlying claim.

To avoid this predicament, some employers implemented arbitration agreements containing a class action waiver, providing that all disputes between the company and the employee must be decided individually in arbitration rather than in a class action in court. However, in 2012, the National Labor Relations Board ruled class action waivers limit employees’ rights under federal law to band together to complain about terms and conditions of employment.

Initially, most courts disagreed with the NLRB’s reasoning, but over the years others found class action waivers are unlawful. The six-year standoff left employers in a bind, forcing them to navigate conflicting precedent. The Supreme Court took up the issue in order to provide clarity, one way or the other.

In its decision, the Court acknowledged that many feel arbitration agreements and in particular class action waivers are unfair. Nonetheless, the Court ruled, “[t]he policy may be debatable but the law is clear. Congress has instructed that arbitration agreements … must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so.” In short, until Congress elects to change the law, courts are to enforce arbitration agreements as written, even if they include class action waivers.

As a result of this decisive ruling from the Supreme Court, employers can eliminate the risk of a class action by implementing an arbitration agreement with class action waiver. Those companies that already have such agreements in place may need to update them based on the Court’s ruling. Those that do not currently have an arbitration agreement should evaluate the issue and make an informed decision of whether they want to proceed with implementing one.

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