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Epic Win for Employers on Individual Arbitration Agreements

Categories: Employment, Article

Employers can protect themselves from class action suits via arbitration

The U.S. Supreme Court has ruled that employers may require their employees to resolve wage and hour disputes through one-on-one arbitration instead of through class actions. In Epic Systems Corp. v. Lewis, the Supreme Court affirmed that the Federal Arbitration Act (the “FAA”) requires enforcement of individual arbitration agreements between employers and employees. If an employee agrees to individual arbitration, the employee will have to abide by that agreement—to the exclusion of his or her participation in a class or collective action.

The Epic employees—whose employment agreements contained arbitration provisions with class-action waivers—had argued their agreements violated the National Labor Relations Act (the “NLRA”). The NLRA protects employees’ rights to organize and act collectively to redress employment-related grievances. The employees claimed the broad language of the NLRA protected their ability to collectively pursue legal actions, whether in court or in arbitration. The employees argued the NLRA predominated where it conflicted with the FAA. The bilateral nature of the arbitration agreements was illegal and unenforceable, they claimed, because the agreements precluded their ability to litigate or arbitrate collectively.

The 5-4 conservative majority of the Supreme Court disagreed. The Court recited that the FAA requires enforcement of agreements to arbitrate like any other contractual agreement, barring some ground for revoking the agreement. Despite the employees’ argument that violation of the NLRA provided grounds to revoke the agreement on the basis of illegality, the Court noted that bilateral arbitration did not preclude employees from organizing and bargaining collectively, as contemplated by the NLRA. The Court determined the NLRA did not include class or collective actions within its purview. Employees could still organize and bargain collectively even if they would be required to arbitrate disputes individually. Because the employees agreed to arbitrate individually, they were required to abide by those agreements. The Court acknowledged there may be policy reasons for avoiding class-action waivers in the employment context. But such policy decisions are the province of Congress—not of the Court.

The dissent argued that Congress intended to protect employees’ wellbeing through the NLRA and reasoned that the Act’s language reasonably included protection of employees’ ability to enforce their legal rights collectively. The dissent expressed concern that the Court’s ruling would effectively displace the NLRA and return the nation to a time when the extreme imbalance of power between employers and employees led to widespread employee oppression. 

Employees can typically pursue class or collective actions against employers when the amount in dispute is too small to justify the expense of an individual lawsuit. By requiring employees to agree to individualized arbitration before a dispute arises, an employer can effectively avoid the threat of such class actions. However, employment class actions are relatively uncommon compared to other forms of class actions.

The Epic ruling is the latest in a long line of cases that pit the FAA against allegedly conflicting laws that protect consumers, investors, and employees. The U.S. Supreme Court has been a stalwart defender of arbitration agreements under the FAA. Congress enacted the FAA in 1925 to combat the prevailing attitude of judicial hostility toward arbitration agreements at the time. The Supreme Court has since recognized the FAA as evincing a federal policy favoring arbitration. The Court has praised arbitration as contributing to the reduction of court backlogs and the resolution of disputes with greater efficiency.

The Epic decision is a major win for employers who face class or collective action by their employees. Employers may now have confidence that individual arbitration agreements will be enforced. But employers are advised to consult counsel before implementing such agreements. Not all arbitration language is suitable for all employers. And arbitration comes with both benefits and risks. An experienced employment attorney can help determine whether and how to adopt arbitration agreements in the employment context.


About the Author: Aaron K. Haar is an attorney with the Phoenix law firm of Jaburg Wilk. He practices in the areas of commercial litigation and intellectual property. 


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