By: Stephanie Smith
On May 21, 2018, the U.S. Supreme Court issued a far-reaching decision upholding employers’ use of arbitration agreements that prevent employees from pursuing class actions. In a 5-4 opinion by Justice Gorsuch pitting conservative against liberal justices, the Court ruled that, under the Federal Arbitration Act (“FAA”), agreements requiring individual arbitration (i.e., disallowing class actions) to resolve employment disputes must be enforced in accordance with their terms. In doing so, the Court resolved a split among the Circuit Courts. The case is Epic Systems Corp. v. Lewis, No. 16-285, 584 U.S. __ (2018).
The decision consolidated three cases dealing with whether arbitration agreements requiring employees to waive their rights to bring collective and class actions are enforceable. The employees in each of these cases alleged violations of the wage and hour laws under the federal Fair Labor Standards Act (FLSA). In arguing that class action waivers were unenforceable, the employees argued that the FAA’s “saving” clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” created an exception to the enforceability of their arbitration agreements. Such grounds existed here, the employees claimed, because a class action waiver violates Section 7 of the federal National Labor Relations Act, which protects workers’ rights to engage in concerted activities “for the purpose of collective bargaining or other mutual aid or protection.” The Court disagreed, holding that the FAA’s saving clause could not be used as a defense against individualized arbitration proceedings.
In a dissenting opinion, Justice Ginsburg argued that the majority decision paid “scant heed to [a] longstanding line of decisions” by federal courts that the filing of collective and class action suits constitutes concerted activity protected by § 7 of the NLRA. But the majority held that nothing in the NLRA conferred a right to class or collective actions, and left it to Congress to amend the statute, if the legislature felt otherwise (an unlikely scenario, under the current Congress).
After Epic Systems, employers that don’t utilize arbitration agreements calling for individualized resolution of claims should consider requiring such agreements of their employees if they wish to limit their exposure to class actions. While these agreements will continue to be subject to defenses against the enforceability of any contract, such as fraud, duress and unconscionability, they will typically be enforced in accordance with their terms. However, certain types of state law claims – in which employees bring an action for the benefit of others and not themselves – may fall outside the scope of the Epic Systems decision. For example, California courts have held that employees cannot be required to waive their right to bring representative actions on behalf of the state under the California Private Attorneys General Act (“PAGA”). It is possible that Epic Systems will prompt other states to enact similar laws.