Employers can bar class actions in employment contracts: USSC

In an important ruling with far reaching consequences, the United States Supreme Court ruled that employers can use individualized arbitration clauses that bar class actions in employment contracts to resolve employment disputes between the parties.

“Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be en­forced, and neither the Arbitration Act’s saving clause nor the NLRA [National Labor Relations Act] suggests otherwise”, majority of the Court said.

Stating there is no conflict between the Federal Arbitration Act (“Act”) and National Labor Relations Act (NLRA), the Court said that “Congress has instructed federal courts to enforce arbitration agreements according to their terms, including terms providing for individualized pro­ceedings. It is this Court’s duty to interpret Congress’s statutes as a harmonious whole rather than at war with one another. And abiding that duty here leads to an unmistakable conclusion. The NLRA secures to em­ployees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.”

“The virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace”, the majority opined.

The Court mentioned that the Act’s saving clause – which allows courts to refuse to enforce arbitration agreements upon such grounds as exist at law or in equity for the revocation of any contract, recognizes only ‘generally applicable contract defenses, such as fraud, duress, or unconscionability’ and not defenses targeting arbitration either by name or by more subtle methods, such as by ‘interfering with fundamental at­tributes of arbitration.

The Court also refused to accept the argument that even if the Act normally requires enforcement of arbitration agreements, the NLRA overrides that guidance and renders agreements unlawful yet.

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