U.S. Supreme Court Upholds Use Of Compulsory Arbitration Provisions And Class Action Waivers In Employment Agreements

On May 21, 2018, the Supreme Court of the United States issued its opinion in the closely followed case of Epic Systems Corp. v. Lewis.  With a 5-4 majority, the Court ruled that employers can enforce agreements with employees that require employment disputes to be resolved by way of individualized arbitration.  The decision is a major victory for employers that will allow them to confidently mitigate their exposure to class actions by employees.

The employee plaintiffs had entered into contracts with the employer defendants that provided for all employment disputes to be resolved by way of individualized arbitration. The employee plaintiffs nonetheless sought to litigate class action lawsuits against the employer defendants for alleged violations of the Fair Labor Standards Act.  The employee plaintiffs argued that Section 7 of the National Labor Relations Act (“NLRA”), which protects the right of employees to “concerted activities for the purpose of collective bargaining or other mutual aid or protection,” 29 U.S.C. § 157, trumped the Federal Arbitration Act (“FAA”), which generally requires courts to enforce arbitration agreements as written, see 9 U.S.C. §§ 2, 3, 4.  Accordingly, the employee plaintiffs argued, the class action waivers contained in the arbitration agreements they entered were unenforceable.

The Court rejected the applicability of the NLRA, which it held focuses only on the right to organize unions and bargain collectively, and not on the ability to file class actions. Writing for the majority, Justice Gorsuch noted that “[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 a concurring opinion, Justice Thomas emphasized that the plain text of the FAA makes clear that the enforcement of arbitration agreements can only be avoided where there are challenges to the formation of the arbitration agreement (e.g., fraud, duress, mutual mistake, etc.).

Justice Ginsburg, on behalf of the dissenting Justices, called the majority’s decision “egregiously wrong,” pointing to the imbalance of power between employers and employees, and the NLRA’s goal of providing employees with “strength in numbers.” She wrote, “[t]he Court today subordinates employee-protective labor legislation to the [FAA],” before lamenting that “[t]he inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

While the Supreme Court had previously enforced arbitration agreements and class action waivers in the context of consumer agreements, this is the first time the Court has spoken on the subject in the context of employment agreements. The decision overrules a 2012 ruling by the National Labor Relations Board (“NLRB”) that the NLRA nullified the FAA in employment cases, as well as numerous circuit court opinions that agreed with or deferred to the NLRB’s position.

In light of this decision, employers should review their policies to ensure that they provide adequate protection from the perils of litigation generally and class actions in particular. Employers can reach out to the employment attorneys at Brown & Connery, LLP for assistance in drafting appropriate arbitration agreements and guidance with this or any other employment challenge they face.