Landmark Supreme Court ruling gives HR a powerful tool to prevent pay lawsuits

Employers everywhere will likely rush to get their employees to sign the type of employment agreement the High Court just ruled has great power to protect businesses from costly wage-and-hour

lawsuits.

By a 5-4 vote, the Supreme Court just ruled for the first time that employees cannot band together to challenge violations of federal labor laws like the FLSA if they sign employee agreements to arbitrate claims.

It’s a ruling that could impact the rights of tens of millions of non-union, private-sector workers.

In its ruling the High Court specifically cited the 1925 Federal Arbitration Act (FAA), stating that the FAA trumps the more recent National Labor Relations Act (NLRA) and that employees who sign employment agreements to arbitrate claims are required to do so on an individual basis; they are prohibited from banding together to enforce claims of wage-and-hour violations.

Eliminate greatest risk with the stroke of a pen

The ruling here came from three different cases against Ernst & Young LLP, Epic Systems Corp. and Murphy Oil USA Inc.

In each of the cases, the companies required individual employees, as a condition of their employment, to waive their rights to be part of a class-action suit.

Also in all of the cases, the employees tried to sue as a group, claiming the amounts they could obtain in individual arbitration were negated by the huge legal fees they’d have to pay to bring a claim forward in the first place. The workers also claimed their right to collective action (aka, becoming part of a class status) is guaranteed by the NLRA.

But ultimately the High Court didn’t agree.

Neil Gorsuch, writing for the majority of the Court, said:

“… the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. Whil Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA — much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.”

While the Court’s minority offered a passionate and lengthy dissent, going as far as to call the ruling “egregiously wrong,” employment groups and attorneys everywhere celebrated the ruling.

And for good reason.

Ron Chapman, an attorney who represents management in labor-management disputes, gave this very succinct statement on why this ruling was cause for celebration:

“It gives employers the green light to eliminate their single largest employment law risk with the stroke of a pen.”

And Chapman expects many employers to use that “stroke of a pen” to impose binding arbitration contracts on workers ASAP.

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