The US Supreme Court ruled on May 21 in Epic Systems Corp. v. Lewis that class and collective action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA). The court sided with employers, rejecting arguments that class and collective action waivers were unenforceable because they violated the National Labor Relations Act (NLRA).
The employees argued that the FAA’s saving clause provided a basis for courts to refuse to enforce arbitration agreements that also include a waiver of the right to bring a class or collective action, because such waivers violate the NLRA. The employees also argued that the NLRA itself reflected a clearly expressed and manifest congressional intention to displace the FAA and bar class and collective action waivers, because the NLRA guarantees workers the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. The Supreme Court rejected each of these arguments, finding that the NLRA does not contain a conflicting congressional command, and instead can be harmonized with the FAA to permit class and collective action waivers in employment arbitration agreements.
The Supreme Court’s decision resolves a circuit split that pitted the Seventh and Ninth Circuits, which had previously barred an employer’s use of class and collective action waivers in employment arbitration agreements as violative of the NLRA, against the Second, Fifth, and Eighth Circuits, which had previously concluded that the NLRA does not invalidate these types of class waivers in arbitration agreements. The Supreme Court sided with the Second, Fifth, and Eighth Circuits, affirming the Fifth Circuit’s ruling in Murphy Oil USA, Inc. v. NLRB (5th Cir. 2015), and reversing the Seventh Circuit’s ruling in Lewis v. Epic Systems Corp. (7th Cir. 2016) and the Ninth Circuit’s ruling in Morris v. Ernst & Young (9th Cir. 2016).
It will be interesting to see how the Supreme Court’s decision impacts the Ninth Circuit’s forthcoming decision in Munro v. University of Southern California, a putative class action alleging ERISA fiduciary breaches in connection with USC’s employee retirement plan. There, USC appealed the district court’s denial of its motion to compel arbitration. The district court found that only plan participants consented to arbitration and held that the plan itself must consent to an arbitration agreement for it to be enforceable as to an ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2) action, which is, by definition, brought on behalf of a plan. Two of the arbitration agreements at issue in Munro also contained class action waivers. Thus, should the Ninth Circuit reverse the district court’s ruling and enforce the arbitration agreements as to the Section 502(a)(2) claim, it could also decide to enforce the class waivers, effectively compelling individual arbitration as those plaintiff plan participants.
Takeaway: Following this decision, employers seeking to avoid class and collective actions by including such a waiver in their employment arbitration agreements can now be confident that those waivers will be enforced. However, given the pending Ninth Circuit ruling in Munro, it is less clear whether this decision would permit the enforcement of an arbitration agreement that includes a class waiver in a putative ERISA class action.