NHEH Publications

Supreme Court Rules on Employer Mandated Arbitration Agreements

By Terry O'Connor

Attorney, Noland, Hamerly, Etienne & Hoss

In an important victory for employers, the U.S. Supreme Court ruled in favor of employer mandated arbitration agreements which prohibit class actions. 


Since 2012, the National Labor Relations Board (NLRB) has held that class and collective action waivers violate employees' rights under the National Labor Relations Act (NLRA).  Over the years several Circuits including our own Ninth Circuit have supported the NLRB's position by holding that class action waivers between companies and their workers violate the NLRA by limiting employees' right to engage in concerted activity.  In Epic Systems Corp v. Lewis ("Epic"), the U.S. Supreme Court held that the Federal Arbitration Act (FAA) requires arbitration agreements containing class action waiver to be enforced and that the NLRA contains no legislative mandate prohibiting such waivers.

The Epic Decision

The federal courts barring class waivers focused on the FAA's "savings clause" which allowed attacks on arbitration agreements on "grounds as exist at law or in equity for the revocation of any contract." The Supreme Court yesterday held that this savings clause only recognized general contract defenses such as fraud, duress and unconscionability. 

The plaintiffs in Epic had attacked the class action waiver clauses as unlawful only because the agreements mandated individual arbitration.  As Justice Gorsuch noted, "the savings clause cannot save [plaintiffs’] cause." 

The Court held that the NLRA's Section 7 protects employees' rights to organize and bargain collectively, but those rights do not include the right to participate in class actions.  Justice Gorsuch also impliedly mocked the NLRB (a notoriously political agency) for "discovering" 80 years after the NLRA was written and 90 years after the implementation of the FAA, that the NLRA superseded the FAA. 

While the NLRB may be entitled to deference in its opinions when it interpreted the NLRA, it was not entitled to any deference when it interpreted a law (FAA) that it did not administer.  According to the Supreme Court majority, such analysis should be left to the courts.

Wage and hour class actions are still plaguing California employers.  The threat of a costly class action greatly strengthens the hand of individual Plaintiffs to leverage huge settlements. 

All employers of any size should strongly consider implementing arbitration agreements with class and collective action waivers.  Such agreements do need to be reviewed by experienced employment counsel to ensure that they are neither unconscionable nor obtained through fraud or duress.

Notwithstanding the Epic decision, the California Legislature recently passed a bill to limit arbitration agreements and settlement agreements in an effort to please plaintiff-side attorneys.  On August 22, the California Senate passed AB 3080 to limit the use of Settlement Agreements and Arbitration Agreements for labor and employment claims.  In an effort to respond to the #MeToo movement’s opposition to non-disclosure agreements in settlements of sexual harassment and retaliation claims, this bill will ban such non-disclosure language.

AB 3080 would also prohibit any arbitration agreements made as a “condition of employment” for any claims arising under the California Labor Code or the Fair Employment Housing Act including class action waivers which, as noted above, are crucial to prevent frivolous claims. 

In my opinion AB 3080 is clearly preempted under the Federal Arbitration Act (FAA) and is only intended to benefit trial attorneys seeking class action litigation who coincidentally generously support such bills in the Legislature.

Since both the California Supreme Court and the U.S. Supreme Court in Epic Systems have unreservedly approved use of arbitration agreements which include class action waivers of employment-related claims, it will be interesting to see if Governor Brown will let AB 3080 perish on his desk or let it be summarily struck down in the courts.

This article is intended to address topics of general interest and should not be construed as legal advice.

© 2018 Noland, Hamerly, Etienne & Hoss