The U.S. Supreme Court issued its opinion in Epic Systems Corp. v. Lewis on May 21, 2018, holding that employers and employees can agree in arbitration agreements that claims must be brought on an individual, rather than class or collective, basis. This decision reaffirms the federal policy favoring arbitration and a long line of cases requiring courts to enforce arbitration agreements as written.
The Court in Epic Systems decided three consolidated cases in which employers had agreements with employees that included an arbitration clause requiring that the parties submit any dispute to arbitration and that the arbitration be on an individual basis, meaning that the employees could not bring a collective or class action against the employer. In each of the three cases, the employees ignored their arbitration agreements and filed in court collective actions on behalf of themselves and other employees claiming their employers committed violations of the Fair Labor Standards Act (FLSA). The employees and the National Labor Relations Board (NLRB) argued that by precluding collective actions, the arbitration agreements violated Section 7 of the National Labor Relations Act (NLRA), which protects employees’ right to “concerted activity.”
The Supreme Court’s decision in Epic Systems rejected the NLRB’s and the employees’ position. Section 7 of the NLRA secures employees’ “rights to organize unions and bargain collectively,” but does not guarantee a right to bring class or collective actions. The Court pointed out that the NLRB’s opposition to individual arbitration is new; up until 2012, the NLRB had recognized that employees and employers both “benefit from the relative simplicity and informality of resolving claims before arbitrators” and that the validity of employment arbitration agreements does not involve the NLRA. In 2012, however, the NLRB reversed its position, announcing in D.R. Horton, Inc. that the NLRA nullifies arbitration agreements that disallow collective or class actions.
The Supreme Court’s opinion in Epic Systems harkens back to the original basis for Congress’s endorsement of arbitration in the Federal Arbitration Act (FAA): arbitration benefits all parties to a dispute by offering “quicker, more informal, and often cheaper resolutions for everyone involved.” The FAA embodies a federal policy strongly favoring arbitration agreements and requires courts to “rigorously” enforce them according to their terms, including terms about which procedures or rules apply to the arbitration. The Supreme Court recognized the “traditionally individualized and informal nature of arbitration.” If a party could demand a collective or class action in arbitration, the advantages of arbitration—speed, simplicity, and inexpensiveness—“would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.” The Supreme Court warned against “reshap[ing] traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent.”
The Supreme Court’s decision is strong support for arbitration agreements in the employment context. If you are interested in implementing such agreements in your workplace, you should consult with an experienced employment law attorney.