In a 5-4 decision released at the end of May, the U.S. Supreme Court held that arbitration clauses requiring individual proceedings (as opposed to class proceedings) are enforceable. The decision marks another data point in a continuing trend of Supreme Court decisions favoring alternative dispute resolution via the arbitration process.
In 2012, the National Labor Relations Board (NLRB) held that arbitration agreements requiring individual pursuit of claims violates the National Labor Relations Act (NLRA) and the “savings clause” of the Federal Arbitration Act (FAA) (the savings clause basically allows courts decline to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract”). As the court points out in the decision, it was the first time in its 77-year history that such a ban was read into the NLRA. Effectively, the ruling held that class-action waivers were prohibited, rendering any such agreements unenforceable.
The 2012 NLRB ruling, an Obama-era policy, was abandoned by the current administration. The ruling created a rift in the federal government, with the NLRB submitting a brief in support of the ruling, and the Solicitor General submitting a brief opposing it.
Delivering the decision of the court, Justice Gorsuch stated the “policy may be debatable but the law is clear: Congress has instructed [through the FAA] that arbitration agreements like those before us must be enforced as written.” The ruling held that the NLRA cannot be read to override the FAA on matters of arbitration simply because the NLRA addresses issues of collective action while the FAA does not; the court reasoned that simply because the NLRA seeks to empower collective action does not mean it seeks to empower class action suits also. On the contrary, the court argued, the FAA speaks directly to arbitration agreements, and heavily favors their enforceability.
In practical terms, the ruling means that employers with class action waivers will likely have their arbitration clauses found to be unenforceable should an issue ever arise. It also means that employers will have more freedom to structure employment contracts to their individual needs. For employees who signed class-action waivers, the decision means that each of the individual claims will need to be decided on an individual basis, instead of collectively with other similarly-aggrieved colleagues.
Contact Benjamin Albrecht (balbrecht@fisheldowney.com)or Daniel Sabol (dsabol@fisheldowney.com) with any questions.