On May 21, the U.S. Supreme Court issued its long-awaited decision in Epic Systems Corp. v. Lewis, resolving an issue on which several Courts of Appeals and various federal agencies and administrations had disagreed. At issue in Epic Systems (and two companion cases presenting the same issue: Ernst & Young LLP. v. Morris and National Labor Relations Board v. Murphy Oil USA, Inc.) was whether a provision in an employer’s mandatory arbitration agreement with employees that waived individuals’ rights to participate in class and/or collective actions against the employer was valid. Finding that federal law supported the right to participate in individualized proceedings, and that there was no conflict with federal law protecting employees’ rights to engage in “concerted activities,” the Supreme Court held in a 5-4 decision that waivers of class/collective actions included within an agreement between employers and employees to arbitrate any and all disputes was valid and enforceable, precluding the efforts of employees to avoid arbitration in order to pursue collective actions against their employers under the Fair Labor Standards Act (“FLSA”).

Beginning the Court’s analysis with the Federal Arbitration Act (“FAA”), Justice Gorsuch noted in the majority opinion that Congress passed the FAA to address the perceived hostility of courts toward enforcement of private agreements to arbitrate disputes. Through the FAA, Congress required, generally, that arbitration agreements be enforced and that the parties’ agreed procedures be respected. Noting further that the position of the National Labor Relations Board (“NLRB”) that agreements waiving individual rights to participate in class/collective actions violated the National Labor Relations Act (“NLRA”) was only adopted in 2012—77 years after the NLRA was enacted—Justice Gorsuch rejected the argument that the NLRA’s stated right of employees to engage in “concerted activities” includes the right to participate in class/collective action litigation against employers. Emphasizing that the Court must give effect to both the FAA and the NLRA, Justice Gorsuch held that there was no conflict between the two statutes and that Congress could have specifically included class/collective actions among the “concerted activities” listed in the NLRA if it had so desired, but that such litigation was not of the same nature as the other “concerted activities” identified by Congress for purposes of holding that it was included.

Justice Gorsuch also noted that the statute under which the employees had attempted to pursue their collective actions—the FLSA—did not prohibit waivers of collective actions and that a statute’s express provision for class/collective actions cannot be read, without more, as a decision by Congress to limit the broad support of individualized arbitration agreements found in the FAA. Finally, the Court rejected the plaintiffs’ attempt to argue that the NLRB’s position that the NLRA prohibits class/collective action waivers was entitled to deference by the Court, holding that such deference is only appropriate where there is some ambiguity to be resolved and that the Court would not use the NLRB’s position to create a conflict between the statutes where none exist.

As noted at the end of the majority opinion, Congress may amend federal laws (whether the NLRA, the FLSA or others) to prohibit waivers of class/collective actions in arbitration agreements if it should choose to do so. For now, however, the use of such waivers as part of mandatory, pre-dispute arbitration agreements remains a tool for employers to consider when evaluating and mitigating the risk of employee claims. Such agreements are under attack at the local, state and national level both generally and within the context of the assertion of specific claims, such as the #MeToo movement’s effort to ban the use of mandatory pre-dispute arbitration agreements with respect to claims of sexual harassment. As a result of the Court’s holding in Epic Systems, employers who currently have arbitration agreements in place, as well as employers who are considering the use of such agreements, should consult with qualified employment counsel regarding:

  • the advantages and disadvantages of such agreements, including costs;
  • the possible impact of such agreements on exhaustion of administrative remedy requirements under other laws;
  • the inclusion of class/collective action waivers;
  • possible exceptions to the arbitration requirement, including access to courts to pursue initial equitable relief related to the use or disclosure of proprietary information and violation of non-solicit and/or non-compete agreements;
  • possible inclusion of pre-arbitration dispute resolution procedures;
  • the procedures to be utilized in arbitration proceedings, including the possible inclusion of appeals procedures;
  • the allocation of the costs of arbitrations;
  • permissible remedies available in arbitrations;
  • the use of third-parties to administer arbitration proceedings and/or to provide potential arbitrators; and
  • effective means of implementing new or revised agreements.