Supreme Court Weighs in on Class Action Clauses in Arbitration Agreements

Supreme Court Weighs in on Class Action Clauses in Arbitration Agreements

Earlier this year the Supreme Court ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over employment disputes.  The Court had already ruled that companies doing business with consumers may require individual arbitration and forbid class actions in their contracts and the recent decision extends the principle to employment contracts.

This decision resolves a six-year split in the lower courts following a National Labor Relations Board (NLRB) decision in 2012 that stated class and collective action waivers violate employee’s Section 7 rights to “take collective steps for their mutual aid and protection” under the National Labor Relations Act (NLRA). In their May ruling, the Supreme Court found that Section 7 of the NLRA does not expressly approve or disprove of arbitration and the Federal Arbitration Act (FAA) mandates that arbitration agreements should be enforced as written. 

Should Our Company Implement an Arbitration Agreement and/or Class Action Waiver?

Employers may want to assess whether to include arbitration agreements in their contracts whether or not they include a class action waiver.   Arbitration has a number of advantages such as quicker resolution, limited ability for an employee to appeal the decision, and the increased privacy involved with the arbitration procedure (both internally and externally).  Depending on the size of the company, businesses may see reduced costs if they are able to avoid a class action lawsuit.

On the other hand, businesses may see an advantage in having a court rule on a particular policy or practice to gain certainty for future issues.  In addition, employers are generally required to pay most of the arbitration fees, which may increase costs if multiple individual cases were to go to arbitration. Finally, arbitration does not prevent agencies such as the DOL or EEOC from investigating an employee’s complaint.

If your company would like to discuss class action waivers or arbitration agreements in further detail or would like assistance drafting agreements and policies that are in accordance with local, state, and federal law, please reach out to UEA’s attorneys on the Employer Helpline

Notice Alone May be Insufficient

Employers should be aware that notice alone may not be considered sufficient basis to compel arbitration.  A Sixth Circuit Court ruled that an agreement was not binding when the company included the arbitration clause with the class action waiver in an updated employee policy and asserted that the employees had agreed to arbitrate when they continued their employment after receiving notice of the policy.  The Courts disagreed, holding that without a signed acknowledgement or specific communication stating that continued employment constituted acceptance of the new terms, the employees could not be expected to know they were accepting the updated terms by continuing their employment.

Companies should ensure that any arbitration agreement is a stand-alone document and not hidden inside an employee handbook.  If an agreement is sought for existing employees, clearly communicate the terms of the agreement, and ask employees to sign the appropriate portion that indicates they agree to the conditions. 

Oregon and Washington Employers Should Closely Watch Their Local Jurisdictions

Following the Supreme Court’s decision, Washington Governor Jay Inslee issued Executive Order 18-03, directing Washington agencies, when making purchasing and procurement decisions, to show a preference for employers that “can demonstrate or will certify” that their employees are not required to sign arbitration agreements containing class action waivers as a condition of employment.  While this order only applies to employers who contract with the state of Washington, it points to other actions states can take to place additional guidelines on these agreements.

In Oregon, worker advocates have hinted that they will introduce a bill this fall into the state legislature to strengthen requirements.  Up to this point, Federal Courts in Oregon have primarily focused on whether an arbitration agreement was “unconscionable,” and requirements for equitable agreements in employment contracts. A court may toss out a contract if there is evidence of coercion to accept the agreement or if the agreement is one sided with employees having no or little power over the terms of the arbitration.


Have questions about how this applies to your workplace? We are here to help! 
Please reach out with any questions via email to, or call (503) 595-2170.

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