Supreme Court: Employers Can Require Employees to Arbitrate Individually and Waive Class or Collective Action Proceedings

Can an employee who signs an agreement providing for individualized arbitration to resolve disputes with their employer later join a class or collective action against that employer? This was the question answered by the Supreme Court in Epic Systems Corp. v. Lewis on Monday.  The case arose out of three separate cases where an employer and an employee entered into a contract requiring the employee to individually arbitrate any claims against the employer.  The employees later sought to join a class action or collective action against their employer.

In 1925, Congress passed the Federal Arbitration Act (FAA), which states that agreements to arbitrate “shall be valid, irrevocable, and enforceable.”  The FAA contains a savings clause which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”  In 1935, Congress passed the National Labor Relations Act (NLRA) which codified employees’ right to work together for “mutual aid and protection.”  In Epic Systems, the employees argued that an arbitration agreement requiring an individualized proceeding is unenforceable under the FAA’s savings clause because it violates the NLRA.  The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the savings clause or the NLRA can be read to prohibit such agreements. 

The Court ruled in favor of the employers, holding that the FAA mandates that arbitration agreements providing for individualized proceedings be enforced, and employees signing such agreements waive their right to collective or class actions.  The majority noted that when considering the interplay between two statutes, it is obligated to side with “harmony over conflict,” that is, to figure out how to give both statutes meaning.  The majority found that the text of the FAA clearly requires arbitration agreements to be enforced, and that the NLRA provision cited by the employees “focuses on the right to organize unions and bargain collectively” and “does not “express approval or disapproval of arbitration . . . [or] mention class or collective action procedures.”

This is a significant victory for employers, as employers can now require employees to resolve employment disputes through individual arbitration and waive their right to a class or collective action.  The Court’s decision could reduce the number of claims brought against employers and will certainly lower the cost of employee dispute resolution.  After this decision, all employers subject to potential FLSA class or collective actions would be wise to consider including such provisions in their employment agreements.

 

 

 

Joseph Axiak