May 21, 2018

Supreme Court Upholds FLSA Collective Action Waivers in Arbitration Agreements

On May 21, 2018, the U.S. Supreme Court held that employees can waive their right to participate in a collective action under the Fair Labor Standards Act (FLSA). This is a major victory for employers seeking to limit exposure in costly class and collective actions.

In issuing its opinion, the Court rejected a series of arguments against the enforceability of class and collective action waivers that had gained traction in some courts in recent years. Among other things, the Court made clear that lower courts—and by extension, state legislatures—cannot create laws that invalidate arbitration agreements just because they involve agreements to arbitrate. Rather, the Court explained that only those defenses that apply to all contracts generally (such as fraud, duress or unconscionability) permit courts to invalidate arbitration agreements.

Of equal significance, the Court also ruled that the National Labor Relations Act (NLRA), which prohibits agreements waiving employees’ right to engage in “concerted activities,” does not prohibit class and collective action waivers. The Court ruled that the NLRA is aimed at collective bargaining and union activity and “does not express approval or disapproval of arbitration” and does not even “mention class or collective action procedures.”

Justice Ginsburg, writing for four justices in dissent, would have found that the NLRA does prohibit such agreements, in recognition of the public policy forces driving the enactment of the NLRA in 1935 and the inability of employees to obtain “effective redress for wage underpayment commonly experienced.”

The immediate impact of this decision is apparent: arbitration agreements that waive the right to participate in a collective action under the FLSA are enforceable. But more broadly, Justice Gorsuch’s opinion signals that a majority of the justices remain committed to broadly upholding arbitration agreements, which bodes well for continued expansive enforcement of them.

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