In a pivotal decision for employers, the U.S. Supreme Court ruled in the matter of Epic Systems Corp v. Lewis that class action waivers in employment-based arbitration agreements are lawful and enforceable. Previously, the validity of such waivers was in question. Many trial and appellate courts struck down such waivers on the grounds they violated an employee’s right under the National Labor Relations Act to engage in concerted action to improve working conditions. Today’s decision supersedes all such authority. It is now indisputably clear that class action waivers do not violate the National Labor Relations Act. And in fact the National Labor Relations Board said so in a press release issued hours after the decision. As the Supreme Court ruled, and the NLRB concedes, employees still have the right to band together to improve working conditions. Such right, however, does not override an arbitration agreement between employers and employees which bans the employee from bringing a class or representative action.
What does this mean for California employers? First, it is likely to slow the rate of class action filings as many employers have class action waivers in their arbitration agreements. Second, employers who do not have such waivers are more likely to consider including them. Many California employers have experienced a significant increase in wage and hour class actions in the past several years, and are motivated to prevent future class-based claims.
Employers who do consider adopting arbitration agreements, and/or amending such agreements to add class action waivers, should know that such waivers will not prevent an employee from seeking civil penalties on a representative basis under the Private Attorneys General Act of 2004, commonly known as PAGA. The California Supreme Court has ruled that PAGA actions are actions on behalf of the state, and therefore, such claims do not fall under the provisions of any private arbitration agreement. As such, although employers in California may see a significant decrease in class-based claims, they may also see a comparable increase in PAGA-based claims.