How the SCOTUS Arbitration Decision Affects Credit Unions

July 2018: Vol 41 No 7
John Bredehoft
The NLRA guarantee for collective protests applies to all workplaces.
Gavel laying on a desk next to a brass plaque that reads “class action”

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As member-owned, not-for-profit and often community-based organizations, credit unions do not usually spend a lot of time thinking about unions or the National Labor Relations Act. But this type of inattention can be a mistake. For example, during the Obama Administration, the National Labor Relations Board involved itself heavily in the issue of what restrictions can and cannot be placed by an employer on an employee’s social media postings. In many cases, the NLRB or its general counsel took the position that a policy against posting “confidential company information” on Facebook violated Section 7 of the NLRA, which safeguards an employee’s right to protest, in a collective manner, terms and conditions of employment. In one case, the NLRB even argued that the statement, “This policy does not prohibit anything that cannot be prohibited under the NLRA,” violated the NLRA.

While the National Labor Relations apparently has lost some of its zeal to govern the nation’s Twitter accounts, it has not lost a step in its opposition to employee arbitration agreements. In particular, in 2012, the NLRB held that an employee arbitration agreement that prohibited employees from bringing “class action” or “collective” claims was unlawful and unenforceable; the board reasoned that, since the National Labor Relations Act gave employees a right to take collective action that, er, trumped the written employment contract.

On May 21 of this year, the U.S. Supreme Court decided the case of Epic Systems Corp. v. Lewis, reigning in the NLRB’s disapproval of class-action waivers in employee arbitration agreements. In that case, which did not involve a credit union, a number of employees attempted to band together and bring collective actions for unpaid overtime, or class action claims, against their employer. However, each employee had signed an arbitration agreement barring class or collective actions against their employer—which one would think would discourage the class action. Not so, ruled the NLRB: Those employee waivers were unlawful and unenforceable under the NLRA, since they impinged on the right of the employees collectively to challenge terms and conditions of employment. The Supreme Court was unpersuaded, and upheld the validity of the employment agreements forbidding class or collective actions. 

Why should credit union executives—particularly those with no unions in the workplace—care? First, the NLRA’s guarantee for “collective” protest applies to all workplaces, not just unionized ones. Second, the Supreme Court decision is very good news for credit unions that employ a large number of employees and seek to restrict their liability in sometimes-spurious “class action” cases. Perhaps the most important implication, critical even to smaller credit unions, relates to the Fair Labor Standards Act, the law that governs such issues as unpaid overtime, misclassification of “exempt” and “non-exempt” employees, claims for working off the clock and the like. Under the Fair Labor Standards Act, collective actions involving as few as 10 or 12 employees are not uncommon, and they are messy. That act also contains a fee-shifting provision, and it is often the case—very often the case—that the amount of “employee’s fees” an employer has to pay in a collective action exceeds (perhaps by one or two orders of magnitude) the amount any employee can claim to have been underpaid.

By confirming the enforceability of employment agreements with arbitration provisions forbidding class or collective actions, the Supreme Court made it clear that employers could, by contract, require employee claims to stand or fall on their own individual merits. Perhaps more importantly, the decision (although it was by a vote of 5-4) makes plain the Supreme Court’s commitment to the right of credit unions to enter into arbitration agreements barring class actions, which are often a feature of credit union membership agreements as well.

For years, employers have used arbitration agreements with their employees to avoid the time, expense and adverse publicity connected with a trial. The U.S. Supreme Court has been solicitous of these agreements, holding employees to the bargain they made in signing them. This trend has been reconfirmed.

Kaufman_Canoles logoJohn Bredehoft is a labor and employment attorney with the firm of Kaufman & Canoles, focusing on litigation and litigation avoidance strategies. He has extensive experience in employment-related and discrimination matters and is a member of the firm's Credit Union Team. He is an honors graduate of Harvard College and Harvard Law School. Reach him at 757.624.3225 or jmbredhoft@kaufcan.com