U.S. Supreme Court Allows the Use of Class Action Waivers in Employment Arbitration Agreements

On Monday, the United States Supreme Court ruled that employers may compel their employees to enter into arbitration agreements containing terms that prohibit employees from bringing class action lawsuits to address workplace issues including wage and hour claims. In a 5 to 4 decision, Justice Gorsuch wrote the opinion on behalf of the majority in three consolidated lawsuits entitled, Epic Systems Corp. v. Lewis. The plaintiffs in these cases brought class action lawsuits against their employers, claiming that they were underpaid in violation of federal wage and hours laws. The employers argued that the arbitration agreements with the employees included class action waivers that required the employees to bring their claims individually, in arbitration. In reaching Monday’s holding, the Supreme Court ruled that Congress, in enacting the Federal Arbitration Act “instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.” Further, the Court ruled that while the National Labor Relations Act gives employees the right to organize unions and bargain collectively, it does not invalidate or prohibit the use of class action waivers in arbitration agreements.

What does this decision mean for employers?

Many courts across the country including the California Supreme Court previously upheld the enforceability of class action waivers, and Monday’s opinion reaffirms these decisions. However, Monday’s decision does not prevent California employees from bringing “representative actions” under the California Private Attorney General Act (PAGA). Thus, while employers who require their employees to sign arbitration agreements with class action waivers may avoid class action lawsuits, California employees still have the right to sue their employers under PAGA to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations including wage and hour violations. Moreover, Monday’s decision does not impact a California employee’s right to litigate PAGA claims in court, and thus, employers may not compel their employees to arbitrate PAGA claims.