In Epic Employment Decision, Supreme Court Authorizes Waiver of Class Actions

On May 21, 2018, the Supreme Court of the United States issued its biggest employment decision this session.  In Epic Systems Corporation v. Lewis, 584 U.S. ___ (2018), the Supreme Court confirmed that federal law allows employers to enforce arbitration agreements, even if they bar group claims.  While this decision is new, it is not unexpected.  The Supreme Court’s recent precedent had already made it clear that the FAA requires the enforcement of arbitration agreements according to their terms, which can only be defeated by a clear and contrary congressional mandate.

The Epic Systems decision applied those principles and found that the National Labor Relations Act (“NLRA”) did not contain such a clear and contrary mandate.

The Supreme Court’s decision involved three matters (Epic Systems, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA) that the Court consolidated for its review.  In each case, individual employees entered into contracts with their respective employers in which they agreed that disputes would be heard in individual arbitration.  The terms of the agreements effectively waived their right to not only litigation but also class arbitration.

Each of the employees attempted to litigate a Fair Labor Standards Act (“FLSA”) claim on behalf of a nation-wide class.  In response, the employers moved to compel arbitration based on the class waiver.  The district court granted the motion, which the Ninth Circuit then reversed.  Before the Supreme Court, the main argument was that class waivers are unenforceable, illegal contracts that interfere with the employees’ right to engage in concerted activity under the National Labor Relations Act (“NLRA”).

In a 5-4 decision, the Supreme Court reinforced the role of arbitration in employment matters and unequivocally found that “arbitration agreements like those before” the Court “must be enforced as written.”  The Court emphasized that the Federal Arbitration Act (“FAA”) sought to put arbitration contracts on the same footing as other contracts and, as such, courts may only invalidate them based on defenses available to any contract, which may include fraud, duress, or unconscionability.  In contrast, here, the Court found that the employees’ challenged the arbitration clause simply because it is an arbitration clause, which “impermissibly disfavors arbitration.”

The Court also addressed the argument that the NLRA displaces the FAA.  The Court found that the employees failed to meet their burden of showing “a clearly expressed congressional intention” for the NLRA to displace the FAA.  Instead, the Court seemed to make a substantive versus procedural distinction, finding that “union organization and collective bargaining in the workplace are the bread and butter of the NLRA, while the particulars of dispute resolution procedures” are typically “left to other statutes and rules.”  The Court focused on the absence of any language in the NLRA concerning arbitration in reaching its decision.  In addition, the Court confirmed that nothing in the FLSA prohibits individual arbitration.

In rendering this decision, the Supreme Court made it clear that courts should not defer to the National Labor Relations Board when it seeks to harmonize the NLRA with other federal statutes.  In addition, the Court signaled its intention to focus on the plain language of statutes as opposed to looking at legislative history.

Takeaways from the Supreme Court’s Decision

With the increase in class action litigation and broad class certification requirements as interpreted by courts, Epic Systems should be a welcome decision for the employer community.  The decision provides important assurances that individual arbitration agreements are enforceable.  While the Supreme Court rendered this decision in the context of wage-and-hour claims, the rationale may extend to discrimination and other lawsuits, so long as the relevant statute does not expressly prohibit waiver of class actions or court proceedings.

Employers still need to be mindful that general contract defenses may invalidate class waivers.  While the employee bears the burden, if he or she can show he or she entered into the contract under duress or based on fraud, a court may find the agreement unenforceable.  Notwithstanding that concern, Epic Systems has opened the path to increased individual arbitration of employment disputes, which should serve to protect against frivolous, time-consuming, and costly class action litigation.