The Practical Effects of Epic Systems v. Lewis

Of those 60 million workers, nearly half are further bound by waivers that disallow class or collective claims. Such waivers prevent workers with small claims from aggregating those claims and pooling their resources, which is almost always necessary to vindicate small claims in a cost-effective manner. As a consequence, individually small claims involving lost wages and overtime often never see the light of day.

Our firms represented a putative class of employees bound by class-action waivers in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), in which we argued that such waivers violate workers’ rights to engage in concerted activity under Section 7 of the National Labor Relations Act. After our position was adopted by the district court and the Seventh Circuit Court of Appeals, a five-justice majority of the Supreme Court sided with the employer, holding that the class-action waivers were enforceable under the Federal Arbitration Act. Following this decision, the use of mandatory arbitration and class-action waivers in both employment contracts and consumer contracts has ballooned.

But once the gears of arbitration start to turn, companies who imposed mandatory arbitration agreements can end up wishing they had not pushed them in the first place, finding themselves in the position of the proverbial dog who actually caught the car. Our firms’ litigation with Epic Systems in the years following the company’s victory at the Supreme Court highlights the problems of the arbitration system, strips the facade from its claimed advantages, and reveals the impact of mandatory employment arbitration agreements containing class action waivers. The results may surprise many businesses currently favoring forced arbitration.

After Epic Systems, the company’s employees with employment-related legal claims have had to pursue their claims through individual arbitration proceedings. Our firms represented 21 former Epic Systems employees in their unpaid overtime claims against Epic Systems, resulting in 19 victories and two losses for our clients. In these 21 cases, Epic Systems has paid over $1.9 million in known costs to litigate the claims of these employees through individual mandatory arbitration—over $565,000 of which was paid to the arbitrator and the American Arbitration Association (AAA) to administer and run arbitration proceedings. Epic Systems has likely paid an additional seven-figure sum to its own attorneys, though that amount is unknown to us. These 21 cases have resulted in average damages awards of around $4,400–and average known costs to Epic Systems of approximately $92,000 per case in addition to their own attorney fees. For reference, using the same average damage amount of $4,400, the $1.9 million spent by Epic Systems on these arbitrations would have paid overtime wages and liquidated damages of around 400 workers in a class action. Instead, despite the tremendous amounts of money that Epic Systems has spent on mandatory individual arbitration, only 19 workers have been made whole. In other words, if Epic Systems had not required individual arbitration, it would likely have spent less money to litigate the claims of the entire class through traditional means, and far more of that money would have gone directly to class members rather than to private arbitrators and the AAA.

Our firms’ representation of these 21 former Epic Systems employees shows that mandatory arbitration combined with class-action waivers can easily result in a lose-lose situation for both workers and employers. So where do we go from here? First, legislation can extend the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act to other forms of discrimination against federally protected classes of individuals (i.e., race, sex, age) as well as claims for unpaid wages. Second, employees and consumers can go the route of mass individual arbitration to try to achieve justice or at least a large settlement of their legal claims, perhaps pressuring defendants to settle claims on a collective basis to avoid the tremendous costs of mass individual arbitration. Third, Congress can amend the Federal Arbitration Act (FAA) to exempt employment and consumer arbitration or provide more protection for employment and consumer rights in arbitration as, arguably, the FAA was never intended to cover these claims. See, e.g., Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20 (1991) (Stevens, J., dissenting). Fourth, employers and companies can retain mandatory arbitration agreements but remove class-action waivers from the agreements, allowing individuals to pool their claims through the arbitration process. Finally, employers and companies can remove mandatory arbitration provisions from their contracts entirely, returning these claims to court.