Epic Systems v. Lewis: Arbitration Agreements and Employers' New, Protective Shield from Employee Lawsuits

Introduction

A recent 5-4 Supreme Court decision marks a major victory for employers interested in a new tool for their arsenal to protect their businesses from potential class action litigation.

The Ruling

The case, Epic Systems Corp. v. Lewis, largely pitted the Federal Arbitration Act (“FAA”) against the National Labor Relations Act (“NLRA”). The FAA requires courts to enforce arbitration agreements according to their terms; the NLRA provides that employees have a right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The issue facing the Court:   Whether the NLRA’s protection of concerted activity trumps the FAA’s dictate to enforce arbitration agreements.

Epic Systems involved a group of employees, each of whom had entered into contracts with their employers under which he or she agreed to individualized arbitration for any and all work-related disputes that might arise during their employment. The employees in the underlying cases nevertheless attempted to litigate wage and hour claims in class or collective court actions.

The employers wanted the court cases thrown out per the contractual agreement to arbitrate, pointing to the FAA’s broad pronouncement that arbitration agreements should generally be enforced as written.  The employees responded that the FAA’s so-called “savings clause” does not require enforcement of an agreement to arbitrate if that would violate some other federal law.  They argued that conditioning employment upon an employee’s agreement to individualized arbitration violates section 7 of the NLRA because the employers were effectively preventing them from engaging in “concerted activity” of class or collective litigation.

The Court concluded that the NLRA does not displace the FAA, and the Court did not believe Congress intended the NLRA to specifically protect a right to class or collective actions.  Where employers and employees have agreed to individualized arbitration, employees’ rights to engage in concerted activity under the NLRA are not infringed by enforcing the arbitration agreement.

The Takeaway

Historically, the National Labor Relations Board general counsel, as well as many courts, generally agreed that arbitration agreements providing for individualized proceedings were enforceable. In 2012, the NLRB reversed course – ruling that the NLRA essentially invalidated the FAA in this kind of case.  In the last two years, a number of courts have either agreed with or deferred to the Board’s 2012 decision. The Epic Systems case resolves any remaining confusion, and clarifies that nothing in the NLRA displaces the FAA, and the NLRA does not promise employees a right to join together to pursue legal actions – either in court or in arbitration.

If you have questions or would like to discuss whether including an arbitration provision in one of your company’s employment contracts is the best decision for your business , please contact a member of the BrownWinick Employment Practice Group.

* Also authored by BrownWinick 2018 Summer Law Clerk Ryan Shellady