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U.S. Supreme Court to Decide Whether Class Action Waivers are Illegal

Class Action WaiversMany employees have experienced the same thing at their new job – they show up for their first day of work and are forced to sign a stack of paperwork.  In recent times, many employers who plan on cheating their workers out of pay have been adding two documents to that stack: (1) an agreement to arbitrate and (2) a class action waiver.  According to employers, by signing these documents (or similar clauses), employees have waived any right to bring a class action in court or in arbitration.

However, since the 1930s, American workers have had the right, under the National Labor Relations Act (NLRA), to organize and represent their fellow worker regarding any complaints they might have to their employer about their working conditions.  Workers have a right to bring their complaints to an employer on behalf of their co-workers, whether formally or informally, or through a union or without one.  If a worker’s complaint to an employer fell on deaf ears, or was not remedied, a worker would typically bring a lawsuit in court.  To represent his or her fellow workers with similar complaints, a worker would bring the lawsuit as a class action.

Yet, in 2013, the unquestionably conservative 5th Circuit, which covers Louisiana, Mississippi and Texas, overturned a National Labor Relations Board ruling finding that class action waivers in arbitration agreements are illegal under the NLRA.  The 5th Circuit based its decision on the Federal Arbitration Act (FAA), a law passed in the 1920s to help promote arbitration agreements in maritime or commercial transactions. In the immediate aftermath of the 5th Circuit’s decision, many courts followed the 5th Circuit and enforced class action waivers in arbitration agreements.

But in 2016, another federal appellate court addressed the issue in Lewis v. Epic Systems.  The 7th Circuit, which covers Illinois, Indiana, and Wisconsin, found that the 5th Circuit had failed to find that illegal clauses in arbitration agreements could not be enforced under the FAA.  As a result, the issue was simply whether the class action waiver violated an employee’s rights under the NLRA, and not whether the FAA took superiority over the NLRA.  In Epic Systems, Jacob Lewis worked as a software engineer.  One day when he was at work, he was sent an email from his employer which asked him to agree that “wage-and-hour claims could be brought only through individual arbitration.”  Since the agreement restricted his ability to make complaints on behalf of his co-workers, it violated the NLRA and was enforceable.

Also in 2016, the 9th Circuit federal appellate court, which covers California among all other western states, issued a similar ruling in Morris v. Ernst & Young.  In Ernst & Young, employees were required, as a condition of employment, to sign agreements that contained provisions requiring employees to arbitrate their claims and arbitrate those claims only as individuals.  The 9th Circuit found such an agreement illegal under the NLRA, and agreed with the 7th Circuit that the FAA did not contain any language that would make the illegal clause enforceable.  Both employers in Epic Systems and Ernst & Young appealed their decisions.

On January 13, 2017, the Supreme Court in its discretion decided to review the appellate court decisions by granting a writ of certiori in Ernst & Young and consolidating it with cases from the 5th Circuit and 7th Circuit.  In doing so, the Supreme Court will resolve the differing opinions of the appellate courts and decide whether class action waivers are illegal.  The Supreme Court’s decision will determine whether employees, who sign class action waivers, can bring claims on behalf of themselves and their coworkers in court or arbitration.

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