Key Takeaways From The Supreme Court's Ruling On Class Action Waivers

On May 21, 2018, the Supreme Court of the United States settled the contentious class action waiver issue that has riled courts for the past six years. In a 5-4 opinion, the Court upheld class action waivers in arbitration agreements. Relying heavily on the text of the Federal Arbitration Act (FAA) and "a congressional command requiring us to enforce, not override, the terms of the arbitration agreements before us," the Court ruled that the FAA instructs "federal courts to enforce arbitration agreements according to their terms— including terms providing for individualized proceedings." The Court also reasoned that neither the FAA's savings clause nor the National Labor Relations Act (NLRA) contravenes this conclusion. Epic Systems Corporation v. Lewis, Nos. 16–285, 16–300, 16–307, Supreme Court of the United States (May 21, 2018).

Below we outline three key takeaways for employers from this ruling.

1. Those employers without arbitration programs should consider whether the benefit of avoiding the risk of class or collective actions outweighs the various downsides of employment arbitration. Each employer's situation is different. Small employers that have little risk of expensive class and collective actions might reasonably conclude an arbitration program does not fit their needs. On the other hand, employers with large numbers of employees in states with a high volume of litigation might greatly benefit from individual arbitration programs.
2. Those employers that already adopted class and collective action waivers in their arbitration agreements should consider whether those agreements should be revised and simplified following the Supreme Court's definitive approval of such waivers. Over recent years, some employers already using class and collective action waivers structured those agreements to best support enforceability under the prior, uncertain state of the law. For example, those employers that inserted optout provisions in their agreements might consider whether those opt-outs should be removed. Again, there are pros and cons to doing so, and different employers will reach different conclusions.
3. Employers should plan for claims under state statutes such as California's Private Attorneys General Act (PAGA). Such statutes deputize private parties to enforce state wage laws through quasi-class actions that seek to recover statutory penalties, and claims under such statutes are not subject to arbitration agreements under current law. Employers also should plan for challenges to their arbitration agreements, especially in light of the vigorous criticisms in some media accounts linking arbitration with the concerns of the #MeToo movement. For example, some employers may choose to exclude sexual harassment claims from the scope of their arbitration agreements, thereby allowing such claims to be brought in court.

In light of the Supreme Court ruling, Ogletree Deakins has launched an innovative new product to help employers quickly and conveniently generate arbitration agreements with class action waivers. Ogletree Deakins DIY Arbitration Agreements is a simple, straightforward tool that guides users through a series of questions and then, based on their answers, automatically generates an arbitration agreement tailored to their business needs and preferences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.