The Supreme Court of the United States handed employers a huge win with respect to employee class and collective actions. In Epic Systems Corp v. Lewis, the Court actually resolved three cases—Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA being the other two—that examined the relationship between individualized arbitration agreements and collective and class actions in the employment context. In each of these cases, an employee had executed a contract with his/her employer that provided individualized arbitration for resolving any employment dispute. However, the employees sought to litigate claims under the Fair Labor Standards Act (FLSA) (and related state law claims) as class or collective actions in federal court. The employees argued that although the Federal Arbitration Act (FAA) generally requires courts to enforce arbitration clauses, the “savings clause” allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” The employees asserted that the provision in their contracts that called for individualized arbitration violated the National Labor Relations Act (NLRA), specifically, the NLRA’s reference to an employee’s right to engage in “other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Therefore, according to the employees, the NLRA trumped the FAA’s directive that courts enforce class and collective action prohibitions in arbitration agreements.
The Court rejected the employees’ arguments and held that arbitration agreements calling for individualized proceedings must be enforced. The Court stated that Congress was clear when enacting the FAA; it instructed courts to enforce arbitration agreements and to “respect and enforce the parties’ chosen arbitration procedures.” Moreover, the Court found that the NLRA does not trump the FAA. “[I]t does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It doesn’t even hint at a wish to displace the Arbitration Act . . . .” Instead, the majority found that the NLRA provision at issue “focuses on the right to organize unions and bargain collectively.” The Court also rejected the National Labor Relations Board (NLRB) 2012 decision in D.R. Horton, Inc. 357 N.L.R.B. 2277, in which the NLRB asserted that individualized arbitration agreements ran afoul of the NLRA. The Court stated that the NLRB decision did not deserve Chevron deference because not only was the NLRB interpreting the NLRA, but it was also trying to interpret the FAA. “And on no account might [the Court] agree that Congress implicitly delegated to an agency authority to address the meaning of a second statute it does not administer.”
Justice Ginsburg, in the dissent, stated that the ruling will lead to the under-enforcement of federal and state laws because it will no longer be worthwhile for an employee to pursue an individual claim. The majority opinion responded by agreeing that class actions are effective in enhancing enforcement “by spreading the cost of litigation.” However, they can also “unfairly place pressures on the defendant to settle even unmeritorious claims.” The Court concluded that “the policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us be enforced as written.”
The long awaited decision provides employers with some relief regarding class action litigation, particularly FLSA litigation, which has increased greatly since the early 2000s. Employers now have a tool to combat some of the “pressures” associated with large class or collective actions. Therefore, employers who are concerned about the large costs associated with wage and hour class or collective actions (or other types of class actions) should consider implementing employment agreement with individualized arbitration provisions, which may alleviate some of those concerns.