Opinion analysis: Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018), delivered by Justice Gorsuch.
“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” The U.S. Supreme Court, by a vote of 5-4, answered this question late May of this year:
“Arbitration agreements providing for individualized proceedings must be enforced. . . .”
The question arose from three cases: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA. In all three cases, “an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties [and] [e]ach employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.” The employers argued that, “the Arbitration Act protects agreements requiring arbitration from judicial interference,” and thus the employees are required to arbitrate their claims individually. Eight months after oral arguments, Justice Neil Gorsuch delivered the opinion for the Court, holding that “Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced,” and thus the employees were barred from pursuing such claims through class or collective actions.
“Win” for Employers
Leading up to this decision, uncertainty pervaded the lower courts as to the enforceability of these agreements. The Sixth Circuit had adopted the position that the waiver agreements were not enforceable. Thus, the handing down of the Epic Systems decision gaveemployers the confidence they needed to interpret and enforce the class action waivers in their arbitration agreements. In other words, employers who opt to include this waiver can now rest assured their employees are required to arbitrate their workplace disputes individually. For these employers, this “win” may significantly reduce the number of claims brought by employees for the simple reason that “individually, their claims are small, scarcely of size warranting the expense of seeking redress alone.”
“Loss” for Employees?
Every win has its loss. Justice Ginsburg, joined by three other justices, wrote a vehement 30-page dissent discussing the ramifications of the employers’ epochal victory. Specifically, the dissenters contend that requiring employees to sign contracts stipulating to the submission of all claims to binding arbitration, and to do so only one-on-one, creates an “extreme imbalance” in the workplace. Commonly known as a “take-it-or-leave-it” agreement, this imbalance requires workers to either “accept employment on whatever terms employers dictated” (take it), or elect not to work (leave it). The dissenters predict that the impending eradication of collective procedures may ultimately result in “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”
Practical Considerations for Employers:
At first blush, it may seem imprudent to omit a class action waiver from your employment agreements. After all, class actions are expensive, time consuming and can unfairly “place pressure on the defendant to settle even unmeritorious claims.” However, one would be well advised to proceed with care. While the benefits that stem from the Epic Systems ruling—most remarkably avoiding class action litigation—are obvious, there are costs associated with relegating all disputes to individual arbitration. These costs may include the inability to appeal, less comprehensive discovery, copious individual claims on the same issue, high forum and arbitrator costs, and difficulty disposing of cases on summary judgment. Employers should consult their legal counsel to determine whether the benefit of waiving class action litigation outweighs the costs of mandating individual arbitration as well as the terms necessary to comply with the law.