In an important 5-4 decision, the U.S. Supreme Court held, for the first time, that class or collective action waivers, particularly in wage/hour cases, and contained in arbitration agreements between employers and employees are valid and enforceable. Companies can use arbitration clauses in employment contracts to prohibit workers from banding together to take legal action over workplace issues. The vote was 5 to 4, with the court’s more conservative justices in the majority.

The court’s decision in Epic Systems Corp v Lewis could affect some 25 million employment contracts.

In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties.

Each employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its “saving clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings. They claim the agreements in these cases violated the National Labor Relations Act.

The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion.

Until recently, courts as well as the National Labor Relations Board’s general counsel agreed that such arbitration agreements are enforceable. In 2012, however, the Board ruled that the NLRA effectively nullifies the Arbitration Act in cases like these, and since then other courts have either agreed with or deferred to the Board’s position.

The U.S. Supreme Court sided with the employers. “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.”

Writing for the majority, Justice Neil M. Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. If workers were allowed to band together to press their claims, he wrote, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.”

Justice Ruth Bader Ginsburg read her dissent from the bench, a sign of profound disagreement. In her written dissent, she called the majority opinion “egregiously wrong.” In her oral statement, she said the upshot of the decision “will be huge under-enforcement of federal and state statutes designed to advance the well being of vulnerable workers.”

Because wage and hour class and collective actions are quite costly for employers to defend against, this decision should cause employers in Connecticut (and nationwide) to re-evaluate their employment relationships with employees and consider enacting wide-ranging arbitration agreements that include class-action and collective action waivers.