WASHINGTON – Yesterday, the Supreme Court dealt a blow to the National Labor Relations Board (NLRB) and those opposed to mandatory arbitration clauses in employment contacts. Back in 2012, the NLRB decided that clauses in employment contracts that prohibit class action lawsuits and force employees into mandatory arbitration cases instead were illegal. In subsequent years, various cases challenging this decision made their way up through the federal courts with no consistent decision reached across various circuits. In different cases the Sixth, Seventh and Ninth Circuit court of appeals all upheld the NLRB decision while the Fifth, Second, and Eighth Circuits had ruled in favor of the employers in their cases.

With these varying Circuit Court decisions and NLRB continuing to enforce its original decision, the United States Supreme Court agreed to hear arguments on a case combining three different challenges to the NLRB decision: Epic Systems Corp. v. Lewis; Ernst & Young LLP v. Morris; and NLRB v. Murphy Oil USA, Inc. (a NACS member). In a 5-4 decision the Supreme Court ruled that these mandatory arbitration clauses are constitutional. The Court’s newest member, Justice Gorsuch, wrote the majority opinion on behalf of himself and Justices Roberts, Alito, Thomas, and Kennedy in which they argued that the National Arbitration Act—passed in 1925—expressly allows for these kinds of clauses.

Justice Ruth Bader Ginsburg made her opposition to the decision clear in a statement of dissent read from the bench. She declared that the decision could lead to an under-enforcement of labor statutes at all levels of government due to the lack of a threat of a class action lawsuit. Speaking again for the majority, Justice Gorsuch argued that such dire predictions are often incorrect.

Mandatory arbitration clauses have become much more common over the past few years in employment contracts as employers have sought to insulate themselves from potential lawsuits. Some estimates have as many as half of all employees now covered by some version of a mandatory arbitration clause with as many as one-third of those prohibiting class action lawsuits specifically. In those cases, employees would have to file independent lawsuits should they so choose to sue.