Employment Agreements that Prevent Class Action Litigation Deemed Legal

Posted: June 6, 2018

An extremely close 5-4 ruling in the U.S. Supreme Court confirmed that employment agreements that state employees must give up their rights to pursue class action claims are legal. The issue reached the Supreme Court from the National Labor Relations Board (NLRB)’s insistence that class action waivers violate federal labor laws.

In National Labor Relations Board v. Murphy Oil USA, Inc., a group of employees of Murphy Oil USA, Inc. were unable to sue the company for allegedly forcing them to work without pay because of a clause in their contract that prevented class action. NLRB became involved when another two cases followed suit: Ernst & Young LLP v. Morris and Epic Systems Corp. v. Lewis both brought similar arguments to court.

NLRB Claim to Violation of Rights

Forced arbitration written into employment contracts was, according to the NLRB, a violation of an employee’s right to party with other employees to improve working conditions under the National Labor Relations Act (NLRA). There is a gray area in there, however – a class-action suit takes place in a courtroom, and the clauses written into employee contracts still allow employees to collectively bargain for mutual aid or protection in arbitration.

Justice Neil Gorsuch argued so for the majority:

“The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”

The Supreme Court agreed by a remarkably small majority, but the ruling stands.

Ruling Will Affect Class-Action Litigation on Both Sides

The decision comes at a period of increase in class-action defense spending.

class action legal spending increase line graph

Source: 2017 Carlton Fields Class Action Survey

While employment defense attorneys worry about budgeting for class-action suits, employee rights advocates are concerned that the ruling is just another step toward keeping employees out of the courtroom for good.

Employee Side

Maintaining the legality of arbitration clauses in employment contracts means that employers will be more inclined to include prevention for class-action suits without fear of repercussion. While employees will still be able to collectively push for change in work environments, they have limited recourse in arbitration following a decision, and will have to deal with the rising cost.

Employer/Management Side

Alternatively, for companies that have set up legal departments and build litigation and class-action proceedings into their budget, keeping potentially large suits in arbitration could be a significant cost-saver. Legal professionals can not only save on the fees and related expenses associated with class-action litigation; they can also save significant amounts of time in arbitration that would otherwise be spent in court.

The argument may not be 100% sound, however. As Jon Hyman of Ohio Employer Law Blog points out, plaintiffs can engage in discovery that matches or exceeds the scope of an in-court trial, and employers often have to share the burden of the cost of filing the claim in the first place. As arbitration expands, the cost of continuation multiplies.

Will Class-Action Lawsuits Disappear?

Not likely; while it’s inevitable that companies will continue to search for avenues to reduce the time and money spent dealing with legal issues, there still exists a significant market for engaging in and settling class-action suits.

Keeping class-action litigation out of court is a noticeable money- and time-saving measure for companies, but employee rights activists and the voices of employees and consumers will continue to seek avenues for improving working conditions and customer treatment.