Supreme Court Protects Enforceability of Arbitration Agreements and Offers Employers Heightened Protection from Class ActionsPublications - Client Alert | May 24, 2018
On May 21, 2018, the United States Supreme Court issued its long-awaited decision in Epic Systems Corp. v. Lewis, 584 U.S. __ (2018), a case addressing the enforceability of class-action waivers included in arbitration agreements between employers and employees. In a 5-4 decision split sharply along ideological lines, the Court harmonized the Federal Arbitration Act (“FAA”), which provides that an agreement to arbitrate disputes “shall be valid, irrevocable, and enforceable,” and the National Labor Relations Act (“NLRA”), which gives employees the right to consolidate for “mutual aid and protection,” and held that arbitration agreements waiving an employee’s right to resolve disputes through class actions are enforceable.
Given the Epic Systems decision, employers are now afforded additional protection from exposure to class actions while dually preserving an employee’s ability to bring legitimate legal claims. Employers should consider whether these arbitration agreements are right for their business.
Writing for the majority, Justice Neil Gorsuch framed the issues simply—“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” The opinion consolidated three cases raising these issues: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc. In each case, the employees signed employment agreements containing a provision that required the employees to arbitrate their claims individually, thus waiving their rights to seek resolution through class actions. The employees filed lawsuits in federal court, bringing both individual and collective claims, and in response, the employers moved to compel the claims to individual arbitrations based on the language of the agreements signed by the aggrieved employees.
Challenging the enforceability of the arbitration agreements, the employees argued that the NLRA’s protection of “concerted activity” extends to class and collective actions and overrides the FAA’s arbitration mandate. The Court disagreed. Harmonizing the NLRA and the FAA, the majority held that the NLRA “focuses on the right to organize unions and bargain collectively,” but it “does not express approval or disapproval of arbitration,” “does not mention class or collective action procedures”, and “does not even hint at a wish to displace the Arbitration Act.” Instead, the NLRA protects “things employees ‘just do’ for themselves in the course of exercising their right to free association in the workplace” and should not be expanded so far to include “courtroom-bound ‘activities’ of class and joint litigation.”
In a lengthy dissent, Justice Ruth Bader Ginsburg called the majority’s opinion “egregiously wrong,” and called for Congressional action to overturn the majority’s interpretation of the FAA. Whether such legislative action is possible in the current political environment is questionable.
Impact on Employers
The Epic Systems decision upholds the enforceability of arbitration agreements with class-action waivers. Conventional wisdom suggests that arbitration offers a faster, less expensive, and more informal means of resolving legal claims with employees. Further, arbitrations are typically private, allowing employers to avoid the attention sometimes associated with public trials. Through class-action waivers, arbitration may also provide the added benefit of resolving disputes one-on-one rather than through expensive and time-consuming class and collection actions. Employers that already have these provisions within their existing employment contracts may now safely enforce these agreements, unless an employee can demonstrate a defense that would make the contract revocable, such as fraud, duress, or unconscionability.
But requiring individual arbitrations is not a one-size-fits-all solution that should be adopted by all employers. Many employers find that arbitration and class waivers are inconsistent with their corporate culture, especially in light of the attention now focused on employer policies through the #MeToo movement. Moreover, employers adopting such agreements may face multiple, individual arbitrations as opposed to a single class or collective action, resulting in additional time and resources devoted to an increased volume of individual claims. Additionally, if an arbitration agreement contains provisions requiring confidentiality or barring consideration of prior proceedings, then individual arbitration may give rise to conflicting results. Finally, individual state laws, such as California’s Private Attorneys General Act (PAGA), may continue to afford employees the opportunity to proceed against their employers collectively.
If your organization has questions regarding the impact of this decision on employers, please contact your Kutak Rock attorney, or other members of our National Labor and Employment Practice.