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NATIONAL LABOR RELATIONS ACT (NLRA) OR THE FEDERAL ARBITRATION ACT (FAA)?

By: Meagan Munoz

On May 21, 2018, in a 5-4 ruling, the Supreme Court of the United States upheld mandatory arbitration agreements that prohibit employees from bringing claims as a class or collective action. This decision is one of the most important for employment law that has taken place in the past several years. The decision settled a dispute between the circuits as to which act to follow, the National Labor Relations Act (NLRA) or the Federal Arbitration Act (FAA). Ultimately, the Supreme Court reasoned that the NLRA does not give right to class action claims and decided to follow the FAA, which has instructed federal courts to enforce arbitration agreements.

What does this mean for employers?

As an employer, this means that you can feel secure requiring class waivers in your employment agreements. A well-written agreement that requires arbitration, instead of facing litigation, usually comes to a quicker resolution. This results in cost savings for the employer in defense litigation (battling claims in court), and ultimately eliminates jury sympathy for these claims which could have resulted in higher recovery for employees as well.

Since the early 90’s, there has been a dramatic increase in nonunion employers requiring employees to sign arbitration agreements. A recent survey shows that only 2.1% of employers held such agreements in 1992. Today, over 53% of employers have contracts like these in place. Furthermore, of those arbitration agreements, many expressly state that employees waive their right to pursue class actions. This number almost doubled from 2012-2016, going from 16.1% to 30.2%. These statistics show a trend in employers choosing to protect themselves through their employment agreements. [Citation: Bullard Alert article]

Though this Supreme Court decision is essentially a win for employers, there are still some cautions employers should take when drafting, enforcing, and protecting arbitration agreements. Traditional contract defenses still apply, which means absent a well-written contract, an employer may still face disputes. Also keep in mind that state laws may provide varying standards in the application of this decision. Ultimately, the Court’s decision should provide employers with a level of comfort the next time they are drafting an employment agreement.

With this decision in mind, it may be wise to revisit your employment agreements and consult an attorney for questions you may have as they relate to your particular business.