SCOTUS Epic Decision: Employers Can Enforce Class Action Waivers in Arbitration Agreements

SCOTUS

On May 21, 2018, the Supreme Court of the United States (SCOTUS) held, in a case of epic proportion to the employment litigation world, that employers may enforce class action waivers in arbitration agreements rather than being obligated to allow employees to unite in a class action suit. According to the court in  Epic Systems Corp. v. Lewis, an employer-required arbitration clause that bars employees from bringing class actions and requires individualized proceedings is permitted and enforceable.

What Happened?

In Epic, the issue before the court was whether employees and employers should be allowed to agree that any disputes between them will be resolved with individualized arbitration, or whether employees will always be permitted to bring their claims in class or collective actions, no matter what agreement had been in place with their employers. According to the court’s opinion, per the Federal Arbitration Act (FAA), Congress instructed federal courts to enforce arbitration agreements according to their terms, including terms limiting employees individualized proceedings.

In Epic, the employer and employee entered a contract for individualized arbitration proceedings to resolve employment disputes. The employees sought to litigate, and circumvent individual arbitration, under the Fair Labor Standards Act (FLSA) and related state law claims through a class action in federal court. However, the FAA requires courts to enforce arbitration agreements as written.

The employees argued that the FAA’s “saving clause” removes this obligation because the arbitration agreement violated the National Labor Relations Act (NLRA) by requiring individualized proceedings. In response, the employer argued that the FAA does in fact protect agreements requiring arbitration from the court’s interference and neither the saving clause or the NLRA should require any other conclusion.

The court’s majority agreed and sided with the employer. This is key because, aside from enforcing class action waivers, the decision also overturns a National Labor Relations Board (NLRB) 2012 decision (D.R. Horton, 357 NLRB N. 184) where the board ruled that the NLRA nullifies the FAA in cases like Epic. The decision also settles a split in federal courts of appeals where some courts have agreed with the 2012 NLRB decision and others have not.[1]

What Now?

This decision has an epic (such an aptly named case) impact on employers and employees. It enforces the current use of the waiver and encourages employers that aren’t using it to implement the waiver to protect themselves from the expense of class action lawsuits. Logically, experts anticipate that employer use of class action waivers in arbitration agreements will now increase exponentially. Alternatively, some predict legislature may consider a law upending this decision — Justice Ruth Bader Ginsburg’s dissent called for it when she said, “[c]ongressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.”

But for now . . . class action waivers are all the rage.

[1] In Horton, the NLRB found, “[t]hat by requiring only individual arbitration of employment-related claims and excluding access to any forum for collective claims, the employer interfered with employees’ Section 7 right to engage in ‘concerted activities for the purpose of collective bargaining or other mutual aid or protection.’ The collective pursuit of workplace grievances through litigation or arbitration is conduct protected by Section 7 and the right under the NLRA to freedom of association. The Board found that its violation finding did not present a conflict between the NLRA and the Federal Arbitration Act’s policy favoring the enforcement of arbitration agreements because the FAA was not intended to disturb substantive rights. The board further found that even if there were a conflict, its finding accommodates the policies of the two statutes and is consonant with the Supreme Court’s FAA jurisprudence.”

 

About Samantha Yurman, JD

Samantha Yurman is one of ThinkHR's legal editors. She is a licensed attorney in California and Florida with over 16 years of experience researching and analyzing human resources legislation and law. Samantha uses her expertise to translate highly technical legal topics into usable information for our clients.