What’s an Employer to Do? The Continuing Conflict Between the U.S. Supreme Court and the NLRB Regarding Arbitration and Class Action Waiver Clauses
Although the United States Supreme Court has repeatedly held that the Federal Arbitration Act allows employers and others to include and enforce arbitration and class action waiver clauses in contracts, the National Labor Relations Board keeps ruling that such clauses in employment agreements are unenforceable and constitute an unfair labor practice.
So what’s an employer supposed to do?
In previous bulletins, we have described how the U.S. Supreme Court has consistently enforced arbitration and class action waiver clauses in employment agreements and other commercial contracts. These clauses help employers avoid wage and hour and overtime class actions brought, for example, by a single disgruntled employee as the class representative. Instead, such claims must be arbitrated by each individual employee, helping to eliminate an employer’s risk of huge jury verdicts and facing wage and hour class actions in court.
Yet employers continue to read about NLRB decisions finding that arbitration agreements and class action waivers are illegal and unenforceable under the National Labor Relations Act. Employees who oppose their employer’s motion to compel arbitration have filed unfair labor practice charges with the NLRB, alleging that requiring employees to arbitrate constitutes an unfair labor practice, because such a requirement precludes employees from filing joint, class, or collective claims in court to address disputes regarding wages, hours, and other working conditions.
A common misconception is that the NLRB has jurisdiction only over employers with unionized workforces. But the NLRB’s jurisdiction also extends to non-unionized workplaces, because the NLRB has jurisdiction to protect “concerted activity” in any workplace.
The conflict between the U.S. Supreme Court and the NLRB on arbitration and class action waiver clauses stems from the fact that no NLRB decisions finding such clauses unenforceable have yet made their way to the U.S. Supreme Court. Rather, the U.S. Supreme Court’s decisions upholding such clauses were appeals of lower-court decisions. Until an NLRB ruling finding that such arbitration and class action waiver clauses violate the NLRA is challenged in court, the NLRB seems intent on simply ignoring U.S. Supreme Court precedent.
While waiting for the U.S. Supreme Court to resolve this conflict between its own decisions and those of the NLRB, employers who have already included arbitration and class action waiver clauses in their employment agreements or elsewhere should still consider seeking to compel arbitration and dismiss class actions. The benefits of arbitration and class action waivers are great, and relatively few employees bring unfair labor practice charges to the NLRB under such circumstances. For the same reason, employers considering including arbitration and class action waiver clauses in their employment agreements or elsewhere should still consider doing so.
If an employee or group of employees challenges the enforceability of an arbitration and class action waiver clause, an employer has two options: the employer can either agree to refrain from enforcing such clauses, thus preventing the employee or group of employees from pursuing an unfair labor practice charge with the NLRB, or it can seek a court order compelling arbitration and, if applicable, barring a class action and asking the court to rule that the clauses do not violate the NLRA, thereby potentially pre-empting the employees from filing an unfair labor practice charge with the NLRB.
Again, relatively few employees have bothered to seek from the NLRB relief from arbitration and class action waiver clauses. All lower courts must follow U.S. Supreme Court precedent and enforce arbitration and class action waiver clauses. Employers who already have adopted or who are considering adopting arbitration and class action waiver clauses are therefore likely to be successful in obtaining a court order compelling arbitration and barring any class actions, thereby reaping the benefits of such clauses.
The upside of adopting and enforcing arbitration and class action waiver clauses in employee agreements outweighs the downside, but taking such a stance is not without risk. Employers should therefore consider these rewards and risks until the U.S. Supreme Court finally resolves the issue.
For more information on the enforceability of arbitration and class action waiver clauses, please contact your Much Shelist attorney.