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Employers, Rejoice: Class Action Waivers in Arbitration Agreements Are Enforceable!

By JoLynn (Pollard) Scharrer and Lisa Lawrence-Hughes

Wage and hour class actions strike fear in the hearts of most California employers. This is because an enterprising plaintiff’s attorney who files a class action can parlay even the smallest wage error into a multi-million dollar settlement. Many California employers have attempted to protect themselves by including class action waivers in the arbitration agreements they enter with their employees. However, until last month, it was unclear whether such waivers would be enforced by the California courts.

On May 21, 2018, in a 5-4 decision penned by Justice Gorsuch, entitled Epic Systems Corp. v. Lewis, the U.S. Supreme Court held that class action waivers in arbitration agreements are fully enforceable under the Federal Arbitration Act (“FAA”), which governs most employment relationships. In so holding, the Supreme Court rejected the position taken by the National Labor Relations Board and several circuit courts that class action waivers impermissibly interfere with employees’ right to engage in concerted activity under the National Labor Relations Act.

The Supreme Court also held that the FAA’s “savings clause,” which states that arbitration agreements are “enforceable save upon such grounds as exist at law or in equity for the revocation of any contract,” does not bar class action waivers. Although the Court acknowledged that class action waivers in arbitration agreements remain open to challenge under “generally applicable contract defenses, such as fraud, duress, or unconscionability,” such clauses may no longer be challenged on the basis that they require individual, rather than class-wide arbitrations.

Although the Epic Systems decision effectively upholds class action waivers in the context of wage and hour law, it does not address waiver of class claims under California’s Private Attorney General Act (“PAGA”). The California Supreme Court previously held in the 2014 case Iskanian v. CLS Transportation, that waiving PAGA class action rights violated California public policy. If and when waiver of PAGA claims is re-litigated in California post-Epic Systems, the California courts may come to the opposite conclusion, since the Supreme Court appears poised to reject public policy arguments against class action waivers.

The Epic Systems decision is a clear victory for employers attempting to mitigate their litigation exposure. Employers whose arbitration agreements already contain class action waivers can breathe a sigh of relief, knowing that absent unconscionability or some other substantial unfairness, such waivers are now enforceable. Employers whose arbitration agreements do not currently cover class actions should consider immediately revising their arbitration agreements to add mandatory class action waivers for all current and prospective employees.

The attorneys of Hunt Ortmann’s Employment Law Group are available to draft and/or revise your employee arbitration agreements to comply with California and federal law.

JoLynn (Pollard) Scharrer is a Shareholder at Hunt Ortmann who, for 30 years, specializes in the fields of business and insurance counseling and litigation, as well as employment. Ms. Pollard leads the Firm’s growing Employment Law Group, and also spearheads Hunt Ortmann’s burgeoning Insurance GroupLisa Lawrence-Hughes is an Associate with Hunt Ortmann and is a seasoned business and employment litigator, with over 12 years of experience defending employment lawsuits and advising California employers. For more information, please visit our website here or contact us directly at employment@huntortmann.com.

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