Justice Department Now Defends Class-Action Waivers

Action means HR may want to include such waivers in arbitration agreements

Allen Smith, J.D. By Allen Smith, J.D. July 11, 2017
Justice Department Now Defends Class-Action Waivers

Arbitration agreements often shield employers from class-action lawsuits through class-action waivers. But some employees say the waivers are unlawful. Who is right: employers or employees—and how can HR avoid being caught in the middle?

If employers are right, they may urge HR to increasingly use agreements with such waivers. But if employees are right, HR will need to make certain that arbitration agreements have excised such waivers.

Even the Department of Justice (DOJ) has been uncertain about this—first arguing in cases before the U.S. Supreme Court under the Obama administration that the waivers are unlawful. Then, DOJ's Acting Solicitor General Jeffrey Wall switched sides on June 16, asserting in a brief that such agreements are legal.

"The about-face is stunning and most welcome by the employer community and those who advocate for arbitration," said Michael Lotito, an attorney with Littler in San Francisco and co-chair of the firm's government affairs branch, the Workplace Policy Institute. If arbitration agreements with class-action waivers were struck down, significant changes would have to be made to employee handbooks and other workplace agreements, he said. Such agreements may become more popular if they are found acceptable by the high court, he noted.

"Although the FLSA [Fair Labor Standards Act] authorizes employees to pursue collective actions in court, that authorization is not meaningfully different from similar provisions of other laws that this court has found insufficient to override the FAA's [Federal Arbitration Act's] mandate to enforce arbitration agreements as written," Wall stated in the brief. He added that, "nothing in the NLRA's [National Labor Relations Act's] legislative history indicates that Congress intended to bar enforcement of arbitration agreements like those at issue here."

Three Consolidated Cases

The Supreme Court announced earlier this year that it will review three consolidated cases to resolve a split in the appeals courts on class-action waivers:

  • A collective action against Murphy Oil USA Inc., which operates retail gas stations in several states, alleging that the company violated the FLSA. The district court granted the company's motion to dismiss the collective action and compel arbitration. The 5th Circuit affirmed, rejecting the National Labor Relations Board's (NLRB's) holding in a previous case (D.R. Horton Inc. v. NLRB, 357 N.L.R.B. 184 (2012)) that the NLRA bans class-action waivers in arbitration agreements. The 5th Circuit had previously reversed the NLRB's holding in D.R. Horton Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).) The NLRB appealed to the U.S. Supreme Court in Murphy Oil.
  • A wage and hour collective action against Epic Systems, a health care software company, alleging that it violated the FLSA by misclassifying technical writers as exempt. The 7th Circuit affirmed the district court's denial of Epic's motion to compel arbitration, ruling that the arbitration provision's bar on employees seeking any class action of wage and hour disputes violated the NLRA.
  • A collective action claiming that Ernst & Young violated the FLSA and California labor laws by misclassifying employees to deny them overtime wages. The 9th Circuit held that the employer violated the NLRA by requiring employees to sign an arbitration agreement precluding them from bringing a class action regarding wages.

[SHRM members-only HR Q&A: What are the California rules regarding mandatory arbitration agreements and how do they differ from federal law?]

"It's important to note that this is DOJ's brief and the NLRB is not on the brief," said James Plunkett, senior government relations counsel with Ogletree Deakins in Washington, D.C. "The NLRB will move forward representing itself and will likely maintain the argument it has made all along. The board still [has a] 2-to-1 Democratic majority with a Democratic general counsel, so it is unlikely to abandon its position."


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