Supreme Court Authorizes Class Action Waivers and Arbitration Clause in Wage Claims

In Epic Systems Corp. v. Lewis, a bare majority of the US Supreme Court ruled that class and collective action waivers and arbitration clauses in employment agreements are valid and enforceable in the context of wage and hour cases. Essentially, the court ruled that the Federal Arbitration Act trumps the National Labor Relations Act. By analogy, such clauses should also be valid for other forms of employment claims arising under the anti-discrimination laws, the Americans With Disabilities Act and the like.

What does this mean for Employers? What it does not mean is that every Employer should immediately insert class and collective action waivers and arbitration language in every employment agreement and offer letter. Rather, Employers should carefully evaluate their particular situation to determine if such clauses make sense for them. Wage and hour claims can be very expensive to litigate, but often as to any individual employee, the amount involved is not significant and the inability of plaintiff lawyers to bring such claims as a class or collective action might act as a disincentive to such claims being asserted. Class and collective action waivers can, therefore, be valuable.

Arbitration can be quicker and more private. Arbitration is not necessarily cheaper, however, and there might be no real possibility of appeal which is a double-edged sword. Employers also should ask how their competitors handle such matters if they wish to have equal access to the talent pool all draw from. What effect will such clauses have on workforce moral if they are inserted into existing agreements that do not contain such provisions and what consideration might state law require be given in exchange for the new provisions? How should an arbitration agreement be structured? What discovery should be permitted and what rights of appeal should exist? These and more question must be considered.

Additionally, applicable state laws must be considered. Some states have adopted laws prohibiting waivers or arbitration clauses. Although such laws would affect only claims brought under state statutes, an Employer could find itself defending claims in two different forums with federal law base claims being arbitrated and state law claims being in court.