The U.S. Supreme Court has ruled that contracts requiring individualized arbitration of employment-related disputes are enforceable and do not violate section 7 of the National Labor Relations Act (NLRA).
Some employers require their employees to enter into agreements binding the parties to arbitrate employment-related disputes. In recent years, many of those employers have drafted their mandatory-arbitration agreements to prohibit employees from pursuing class or collective actions, which can be costly and eliminate the informality and speed of arbitration. For example, the plaintiffs in the three cases decided by the Supreme Court on May 21, 2018, agreed not to pursue unpaid overtime claims under the Fair Labor Standards Act (FLSA) on behalf of other employees in class or collective actions.
In a reversal of its prior position, the National Labor Relations Board ruled in 2012 that arbitration agreements including class or collective action waivers violate section 7 of the NLRA, which permits employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid and protection.” D.R. Horton, Inc., 357 N.L.R.B. 2277. The Fifth Circuit Court of Appeals overturned the board’s decision, and the Second and Eleventh Circuits rendered similar decisions. But the Seventh and Ninth Circuits sided with the board, creating a circuit split that the Supreme Court stepped in to resolve.
The Court’s Decision
The Supreme Court’s decision can be summarized as follows:
- The Federal Arbitration Act (FAA) evinces a strong federal policy favoring arbitration on the terms agreed upon by the parties, including class- or collective-action waivers.
- The NLRA does not mention class- or collective-action procedures, and it cannot be said to overrule the FAA by implication.
- Section 7 of the NLRA protects rights related to union organization and collective bargaining, which do not encompass rights to bring class or collective actions.
- The board’s interpretation of the NLRA is not entitled to deference because it limits the FAA, a statute that the board does not administer.