Author: Sean B. Gentry
The U.S. Supreme Court recently ruled that employers can use arbitration clauses in employment contracts to limit their employees’ right to file or participate in class actions lawsuits on wage and hour claims. Employers can require their employees to pursue most types of employment claims in arbitration instead of court and can prevent employees from banding together to more efficiently litigate their claims as a group. For employers that have been waiting to see how the law settled on this matter, or that have been wondering about the validity of arbitration agreements already in place with their employees, it is now clear that these agreements will be enforced as long as they meet certain standards of fairness.
This case, entitled Epic Systems Corp. v. Lewis, resolved a number of conflicting Circuit Court opinions on this issue that stemmed from the National Labor Relations Board decision 2012 in D.R. Horton, Inc., which found that individual employment arbitration agreements were incompatible with the collection rights of employee under the National Labor Relations Act and that the NLRA was not preempted by the Federal Arbitration Act. However, a 5-4 majority of the Supreme Court disagreed with that finding and instead held that the FAA preempted the NLRA.
There have been a number of challenges over recent years to employer practices of requiring employees to enter into arbitration clauses for their workplace claims that typically include waivers of their rights to trial by jury and class action lawsuits. Nonetheless, the Supreme Court has consistently held in favor of the FAA preempting other laws based on an apparent interest in Congress to prefer the use of arbitration, including a 2011 decision overturning California contract law in AT&T Mobility v. Concepcion.
Please note that arbitration clauses or arbitration agreements with employees still need to meet a number of criteria to ensure fairness and due process for the employee and to be considered enforceable under California law. We recommend having an employment law attorney either prepare the arbitration clause for you or give their approval on any agreements already in place to make sure it will be enforced.
Additionally, this Supreme Court ruling does not yet change the law applying to California Private Attorney General Act cases. This statute provides a different mechanism for employees to sue collectively for wage and hour violations on behalf of themselves and all other similarly aggrieved employees. It was already the practice for plaintiff’s attorneys to use this statute to avoid the problems posed by arbitration clauses, but following Epic Systems, this practice will only be more prevalent unless and until there is a further clarification on the effect of the FAA on PAGA claims. The Supreme Court declined to hear a recent case on this issue, leaving PAGA free of the impacts of arbitration clauses for now.
Ernst & Young LLP et al. v. Morris et al. in the 9th Circuit and National Labor Relations Board v. Murphy Oil USA, Inc., et al. in the 5th Circuit. Epic Systems Corp. v. Lewis came from the 7th Circuit.