The Supreme Court is Considering Arbitration Clauses in Workplace Contracts

The business contract lawyers at Gehres Law Group, P.C. provide advice on the drafting, negotiation, and enforcement of contracts. One especially common provision in many different types of business contracts is called an arbitration clause. Arbitration clauses have become more widely used in recent years and have become the subject of a series of contentious court cases. Most recently, a case has arisen in connection with arbitration clauses in employment contracts. As the New York Times explains, this case is now being considered by the United States Supreme Court. 

Can Employers Include Arbitration Clauses in Employment Contracts?

Arbitration clauses require a dispute to be resolved through arbitration rather than litigation. Companies regularly include arbitration clauses in consumer contracts and these clauses frequently prohibit class actions and group arbitration. A ban on collective action creates a de facto bar on the pursuit of many small claims because bringing individual causes is often not worth the time or effort.

The Supreme Court has largely upheld the use of arbitration clauses in consumer contracts, and while the Consumer Financial Protection Bureau issued a rule restricting the use of these contracts in the financial services sector, Congress used the Congressional Review Act to overturn this proposed rule and to once again permit banks, credit card companies, and related businesses to use arbitration clauses that make it more difficult for consumers to pursue claims. Learn more about the Court’s history of enforcing arbitration provisions here.

Now, the Supreme Court is considering a case related to the use of arbitration clauses in employment contracts. This could curtail the rights of workers to take collective action. Employees may wish to take collective actions in cases such as when employees are all adversely impacted by things like wage-and-hour violations or employment discrimination. However, when this collective action is barred, there may be grievances employees have that are difficult to pursue in independent arbitrations.

The Supreme Court will soon be ruling on a series of three consolidated cases. See Epic Systems Corporation v. Lewis, No. 16-285, Ernst & Young v. Morris, No. 16-300 and National Labor Relations Board v. Murphy Oil USA, No. 16-307. The question in these cases centers around whether employment contracts can require workers to waive the right to collective action in arbitration or whether this an impermissible restriction on employee rights.

Attorneys for the federal government actually appeared on both sides of the case, arguing before the Supreme Court. The National Labor Relations Board is, of course, opposed to permitting employers to use arbitration clauses barring employees from bringing collective action in arbitration. During its arguments before the Court, the NLRB’s general counsel argued that while no class action waivers should be permitted in employment contracts, he conceded that the private entities conducting arbitration could require that the cases be pursued independently. However, one of the Court Justices pointed out the weakness of such an argument which could result in an employment agreement which does not waive an employee’s right to pursue a class action suit, but where the employee is nevertheless prevented from pursuing such claims because the applicable arbitration association does not permit class arbitration, essentially make collective action impossible.

It remains to be seen how the Supreme Court will rule on this issue. While some justices suggested workers could potentially band together if they hired the same attorney who then filed individual arbitration cases for each of them, Justice Kagan expressed the belief this may not be good enough to protect worker rights since it takes away or restricts many of the avenues employees have for addressing their grievances.

Getting Help from a Business Contract Lawyer

The decision made by the Supreme Court could affect approximately 25 million employment contracts throughout the country, so both workers and employers should ensure they are aware of such developments with regard to their workforce contracts. The business contract lawyers at Gehres Law Group, P.C. add value to your business by remaining abreast of such developments and helping you understand the applicable rules and regulations when drafting arbitration clauses, as well as other key provisions that should be included in your business contracts. To find out more about how our firm can help you, give us a call at 858-964-2314 or contact us online today for your complimentary consultation.

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