By: Miriam L. Rosen
In a much anticipated decision, the United States Supreme Court ruled on May 21, 2018 that class action waivers in mandatory employment arbitration agreements are enforceable under the Federal Arbitration Act (“FAA”). Epic Systems Corp. v. Lewis, No. 16-285, 584 U.S. __ (2018). The Epic decision resolves a long-simmering controversy over whether an employer can force an employee to arbitrate a claim as an individual as opposed to joining a class or collective action. As the result of this decision, employers may require employees to agree to mandatory arbitration terms that prohibit collective or class action claims.
This dispute pitted the interpretation of the FAA, which promotes resolution of claims through arbitration, against the National Labor Relations Board’s expansive interpretation of the employees’ rights to engage in concerted activity under the National Labor Relations Act (“NLRA”). The Epic case, a consolidation of three separate cases, involved individual employees who had previously signed arbitration agreements waiving the right to join a class claim. The employees each sought to participate in a FLSA class action lawsuit, but their employers asserted that the arbitration agreements precluded participation in the class actions. The employees argued that they could not be forced to give up their rights to engage in “protected concerted activity” under the NLRA by waiving the right to join a class claim. Essentially, the employees claimed that their NLRA rights “trumped” the arbitration agreement.
In its 5-4 decision, the Supreme Court held that class action waivers in mandatory employment arbitration agreements are enforceable under the FAA. Writing for the Court’s majority, Justice Neil Gorsuch stated that the FAA’s mandate for enforcing arbitration agreements could not be construed to conflict with the NLRA’s protection of concerted activity because the NLRA secures rights to organize and bargain collectively, but does not include a right to bring a class or collective action.
In a bit of a slap down to the NLRB for its aggressive position in this matter, the Supreme Court noted that “[t]his Court has never read a right to class actions into the NLRA – and for three quarters of a century neither did the National Labor Relations Board.”
Practically, what does the Epic decision mean for employers?
Employers can rely on arbitration agreements to preclude litigation of class claims. This is particularly good news for employers in industries such as health care, food services, and retail that tend to experience higher levels of FLSA class action litigation.
On the other hand, employers must still evaluate whether arbitrating claims on an individual basis is in their best business interests. While arbitration is often viewed as a less costly and more efficient alternative to litigation, that is not necessarily the case. Requirements for discovery, briefing, experts, and hearing time along with the fees for private arbitrator may mean that the cost advantage does not really exist. In addition, from an efficiency stand point arbitrating multiple individual claims may be a less attractive alternative than responding to a single class claim.
Employers should also consider how employees and the public may react to compelled arbitration of sexual harassment and discrimination claims. Such a requirement is often viewed as an attempt to shroud systemic misconduct. In addition, in light of recent events, there has been speculation that Congress may act to limit mandatory arbitration of sexual harassment and discrimination claims.
So, what employers can take away from this epic decision is that arbitration agreements prohibiting class claims are now another viable tool available to employers seeking to limit employment related liability. Like any other tool, employers will need to evaluate the effectiveness of that tool for their individual workforce.
This article was written by Miriam L. Rosen, who is a member of the Legal Affairs Committee of Detroit SHRM and Chair of the Labor and Employment Law Practice Group in the Bloomfield Hills office of McDonald Hopkins PLC, a full service law firm. She can be reached at email@example.com or at (248) 220-1342.
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