Executive Summary: Yesterday, the Supreme Court, in a strongly divided 5-4 ruling, upheld mandatory arbitration agreements prohibiting employees from bringing employment claims on a class or collective basis. That decision, Epic Systems Corp. v. Lewis, is available here. This long-awaited decision is one of the most important in employment law in the past several years. As the thirty-page dissent made clear, however, depending on the make-up of a new Congress, we may see legislation that reverses this ruling. Nevertheless, the Court’s ruling is straightforward, expected and the clear law of the land going forward.
This decision emanated from three cases addressing whether class action waivers in mandatory employment arbitration agreements were enforceable. Three Circuits – the Sixth, Seventh, and Ninth – determined that the right to bring a class or collective action is protected concerted activity under the National Labor Relations Act (NLRA), and that class action waivers violate that right. On the other hand, the Second, Fifth and Eighth Circuits determined that the Federal Arbitration Act (FAA) is clear and unequivocal in its dictate that courts are to enforce arbitration agreements as written, absent very narrow grounds (such as fraud). In October 2017, the Supreme Court heard oral argument on these three cases and yesterday issued the closely-followed decision.
As the Court first explained, through the FAA, Congress has instructed federal courts to enforce arbitration agreements “according to their terms – including terms providing for individualized proceedings.” It bluntly rejected the concept that the NLRA offers a conflicting command. While the NLRA “secures to employees rights to organize unions and bargain collectively,” it “says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” Because the Supreme Court “has never read a right to class actions into the NLRA,” it declined to do so now. It further opined that the FAA and NLRA do not contradict each other; rather, they have “long enjoyed separate spheres of influence and neither permits this Court to declare the parties’ [class action waiver] agreements unlawful.”
The majority also found noteworthy that the underlying lawsuits addressed wage claims “and arise not under the NLRA but under an entirely different statute, the Fair Labor Standards Act (FLSA).” The Court pondered, then, why the plaintiffs did not argue that the FLSA overcomes the FAA to permit their class and collective actions: “Presumably because this Court held decades ago” that the FLSA’s collective action scheme does not displace the FAA or prohibit class action waivers in an arbitration agreement. “Faced with that obstacle, the employees are left to cast about elsewhere for help. And so they have cast in this direction, suggesting that one statue (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the FAA). It’s a sort of interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow.”
In fact, through this language, the Court makes clear that the NLRA has nothing to do with “how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” And, thus, a logical extrapolation of this holding means that, if the NLRA does not provide a right to pursue collective or class actions (as the Supreme Court clearly held), then the issue is not whether the NLRA conflicts with the FAA; rather, the issue is whether a collective or class action waiver outside an arbitration agreement may be enforceable. And, while not directly decided by the Court, it appears that such a provision likely is enforceable.
The bottom line is that a well-drafted mandatory arbitration agreement that contains a class/collective action waiver is enforceable. In a statement issued May 21, 2018, the National Labor Relations Board (NLRB) stated that it currently has 55 pending cases with allegations that employers violated the NLRA by maintaining or enforcing individual arbitration agreements or policies containing class- and collective-action waivers. The Board further stated that it is “committed to expeditiously resolving these cases in accordance with the Supreme Court’s decision.”
While some state laws prohibit class waivers (e.g., California PAGA representative actions) and new laws prohibit arbitration of certain claims (e.g., New York’s effective prohibition against arbitrating sexual harassment claims), for those companies who believe arbitration is the best method to resolve their employment disputes, this decision uniformly upholds their right to mandate individualized arbitration of their claims.
Nevertheless, even under this clear decision, whether to arbitrate all employment claims or only some, whether to arbitrate at all or have jury waivers instead, remain at the forefront of “hot topic” employment issues.
The success of arbitration agreements depends on the manner in which they are drafted. Arbitration agreements that are not correctly drafted may cost employers substantially more than if the employers had not implemented the agreements. Employers are encouraged to review their agreements to ensure they comply with all applicable laws. To learn more, please join Jeff and Sal in a webinar on May 30, 2018, analyzing the Supreme Court’s decision and its impact on employers. Please click here to register.