Epic Decision from U.S. Supreme Court on Arbitration Provisions

On May 21, 2018, the U.S. Supreme Court issued its long-awaited decision in Epic Systems Corp. v. Lewis, answering the question of whether a waiver of an employee’s right to bring a class or a collective action which waiver is included in  an arbitration agreement between employees and their employers violate the National Labor Relations Act (“NLRA”). In answering the question in the negative, the Court’s landmark ruling sets up what will likely result in more widespread use of arbitration agreements between private employers and their employees.

The opinion arose from three separate cases – Epic Systems, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc. Each case addressed the issue of whether employment arbitration agreements that contain a waiver of class or collective claims violate an employee’s right to engage in concerted activity as protected by section 7 of the NLRA, 29 U.S.C. § 157.

In a 5-4 majority opinion authored by Justice Neil Gorsuch, the Supreme Court held that mandatory arbitration agreements with class and collective waivers had to be enforced under the Federal Arbitration Act. “[W]e have often observed that the Arbitration Act requires courts ‘rigorously’ to ‘enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted.’” (emphasis in original).

The majority dismissed arguments that Section 7 of the NLRA implicitly prohibits the waiver of collective and class arbitration. In Section 7, Congress provided workers “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The majority held that this language did not undercut the broad Congressional mandate that courts enforce arbitration agreements. The majority reasoned that Section 7’s focus was on the right to organize unions and bargain collectively, “not . . . approval or disapproval of arbitration.” Moreover, the Court found that when the NLRA became law in 1935, class and collective actions were “hardly known.” Such procedures did not come into widespread use until after the passage of the NLRA.

Writing for the dissent, Justice Ginsberg sharply criticized the majority as being “egregiously wrong.” The dissent went so far as to characterizing class / collective action waivers as “unfair labor practices outlawed by the NLRA.” Per the dissent, “The inevitable result of today’s decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

In ruling that arbitration agreements with class and collective action waivers are lawful and enforceable in an employment setting, the Court blessed the use of such agreements by employers. The implications of this ruling are likely to lead to more wide-spread use – or at least consideration – of arbitration agreements between employers and employees. Beyond Epic Systems, there are pros and cons to the individual arbitration of employment matters that employers should explore fully with competent legal counsel. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Bryan O' Neill