Today employers woke to the welcome news that the United States Supreme Court has determined that class action waivers in mandatory employment arbitration agreements (i.e. without an “opt out” provision) are valid and enforceable. In Epic Systems Corporation v. Lewis, the Supreme Court rejected the argument that class action waivers violate employees’ rights under Section 7 of the National Labor Relations Act (NLRA) to engage in “protected concerted activities.” With today’s decision, employers can take an important step to defend against costly wage and hour class and collective actions and adopt carefully drafted mandatory arbitration agreements that contain enforceable class action waivers.

In his first major opinion for the Supreme Court, Justice Neil M. Gorsuch colorfully explained that the Court’s 5-4 decision was dictated by the federal law (Federal Arbitration Act) that favors arbitration and the Supreme Court’s precedent. In a definitive dismissal of challenges to class action waivers, Justice Gorsuch wrote “[t]he policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written.” In one example of his flavorful writing, Justice Gorsuch likened the alternative to “hid[ing] elephants in mouseholes.”

The “epic” news is particularly welcome to California employers given a prior decision by the Ninth Circuit Court of Appeals to invalidate such waivers in mandatory arbitration agreements. In Morris v. Ernst & Young, the Ninth Circuit had adopted prior National Labor Relations Board (NLRB) rulings and held that requiring employees to sign an arbitration agreement precluding them from bringing a collective or class action in any forum is a violation of the NLRA. Following the Morris decision, many California employers allowed employees to “opt out” of class action waivers.  That practice has now been made redundant by the Supreme Court.

By requiring employees to individually arbitrate their wage and hour claims, employers can avoid being sued in court on behalf of all employees during the relevant statute of limitations (typically four years in California). However, because California law imposes strict drafting and implementation requirements for arbitration agreements, employers are well advised to consult counsel for assistance in revising existing arbitration agreements or drafting new agreements.

Finally, notwithstanding today’s decision by the United States Supreme Court, California employers are still prohibited from requiring employees to waive their right to represent themselves or other “aggrieved” employees in a Private Attorneys General Act (PAGA) action in court. A PAGA lawsuit allows an individual employee to sue on behalf of the state for violations of California wage and hour laws and allows the recovery of substantial penalties for proven violations.

To develop an effective defense to a PAGA action (or any individual wage and hour claim), employers are strongly encouraged to regularly review and update their wage and hour policies and practices, conduct comprehensive wage and hour audits, and promptly address any discovered violations. Also, because many wage and hour lawsuits are initiated by a disgruntled employee, employers are also encouraged to foster a workplace where employees can openly redress grievances and be treated with respect in order to reduce the prospect that a current or former employee will be tempted to become a plaintiff in a PAGA action.