An Employment Law Game Changer?

The US Supreme Court this week determined that companies may condition employment on workers arbitrating their employment claims alone. This landmark decision will surely reverberate across the employment law landscape for years. For now, however, employers should tread lightly.

The Ruling

The 5-4 decision on May 21 in the Murphy Oil, Ernst & Young, and Epic Systems cases resolves a tension between two federal laws:

• The Federal Arbitration Act (FAA), which permits parties to have an arbitrator, rather than a court, hear their claims.
• The National Labor Relations Act (NLRA), which protects workers who engage in protected concerted activity.

The Supreme Court ruled that the FAA supersedes the NLRA. That means there is no longer any impediment to employers requiring employees to waive their ability to bring class or collective actions under US employment laws.

The decision will limit class and collective action litigation, particularly under the Fair Labor Standards Act. But it’s not a panacea for all multi-claimant employment litigation. California employees who have entered into class waivers may still assert actions under the state’s Private Attorneys General Act; other states could seek to pass similar laws in light of the decision. The ruling also has no impact on litigation pursued by the Department of Labor and Equal Employment Opportunity Commission. And the prospect of a series of single-claimant arbitration matters might leave some questioning whether “death by a thousand paper cuts” is actually better.

Real Risks Remain

Murphy Oil is a win for employers, but they must remain vigilant. Although we expect to see modest decreases in claim severity, frequency is likely to increase. Claims asserted by applicants who were never hired, such as those alleging “ban the box” and Fair Credit Reporting Act violations, are likely to gain traction. And an arbitrator is just as apt as a jury to issue a “runaway” award.

To navigate the new normal of employment law, employers should:

1. Weigh the pros and cons of arbitration. Employers that have been awaiting this ruling before implementing an arbitration program with class waiver should carefully balance the benefits — faster, confidential resolution of claims and more predictable outcomes — with potential downsides — significant arbitrator fees and a lower chance of prevailing on dispositive motions.
2. Review arbitration agreement wording. Employers should consult with outside counsel to ensure the wording they have in place is sufficient, especially since the validity of these contracts will likely be subject to greater scrutiny.
3. Consider your insurance options. Employment practices liability (EPL) and wage and hour coverage remain important insurance options for employers, regardless of whether a claim is brought individually or as a collective or class action.

The Murphy Oil decision is welcome news for employers, but it’s not a cure-all. Risk professionals should work with their insurance and legal advisors to carefully consider their potential risks, the viability of an arbitration program with class waiver, and insurance coverage.