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December 03, 2018 Articles

The Aftermath of Epic Systems v. Lewis

The U.S. Supreme Court held that the NLRA does not invalidate class action arbitration waivers, which may have significant negative impacts for employees.

Amit Bindra

The U.S. Supreme Court recently held in Epic Systems Corp. v. Lewis that class action arbitration waiver agreements are enforceable and do not violate the National Labor Relations Act (NLRA). In the aftermath of the decision, numerous commentators believe that such a ruling will have negative impacts for employees. As the Court explained, Congress will ultimately have to pass legislation if Americans desire to limit the use and enforceability of arbitration agreements.

Case History

The employer in Epic Systems “e-mailed its employees an arbitration agreement requiring the resolution of wage and hour claims by individual arbitration.” Epic Sys. Corp. v. Lewis, 584 U.S. ____ (2018), slip op. at 7 n.2 (Ginsburg, J., dissenting). Subsequently, the employees sought to recover their unpaid overtime wages and filed a collective action under the Fair Labor Standards Act (FLSA). The U.S. Court of Appeals for the Seventh Circuit ruled in favor of the employees, denying the employer’s motion to compel arbitration because (a) the emailed policy violated the NLRA by preventing employees from collectively engaging in “concerted activities” to improve workplace conditions, and (b) the Federal Arbitration Act (FAA) did not conflict with the NLRA and did not mandate enforcement of the employer’s policy. Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016).

The Ruling

The Supreme Court consolidated several cases and held in a 5-4 decision that the NLRA does not invalidate class action arbitration waivers and that the NLRA and the FAA can be read together in “harmony.” Epic Sys. Corp. v. Lewis, 584 U.S.____.

Writing for the majority, Justice Gorsuch stated that Congress “instructed federal courts” in the FAA to enforce the terms of arbitration agreements and that the Court “has never read a right to class actions into the NLRA. . . .” Id., slip op. at 2. Justice Gorsuch also stated that the Court has determined that the FAA “establishes ‘liberal federal policy favoring arbitration agreements.’” Id., slip op. at 5 (citations omitted). The Court thus held that “Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act.” Id., slip op. at 25.

The Dissent

In her dissent, Justice Ginsburg disagreed with several factors underlying the majority opinion and thoroughly described the impact that the majority’s decision will have on employees. Justice Ginsburg explained that “[o]ne study estimated that in Chicago, Los Angeles, and New York City alone, low-wage workers lose nearly $3 billion in legally owed wages each year.” Epic Sys. Corp. v. Lewis, 584 U.S. ____ (2018), slip op. at 26–27 (citation omitted). And she explained the benefit that employees receive in filing collective or class actions: “Individually, their claims are small, scarcely of a size warranting the expense of seeking redress alone. . . . But by joining together with others similarly circumstanced, employees can gain effective redress for wage underpayment commonly experienced.” Id., slip op. at 1–2 (citation omitted); see also id., slip op. at 9 (“By joining hands in litigation, workers can spread the costs of litigation and reduce the risk of employer retaliation. . . . There can be no serious doubt that collective litigation is one way workers may associate with one another to improve their lot.”).

In disagreeing with Justice Gorsuch, Justice Ginsburg highlighted that “[c]rucially important here, for over 75 years, the [National Labor Relations] Board has held that the NLRA safeguards employees from employer interference when they pursue joint, collective, and class suits related to the terms and conditions of their employment.” Id., slip. op. at 10–11 (collecting cases). After explaining the history of class and collective action lawsuits, Justice Ginsburg stated, “It takes no imagination, then, to comprehend that Congress, when it enacted the NLRA, likely meant to protect employees joining together to engage in collective litigation.” Id., slip op. at 16 (citations omitted). While Justice Ginsburg extensively explained that the NLRA and the FAA were harmonious, she also expressed that the NLRA should trump the FAA because Congress enacted the NLRA after the FAA; thus, the NLRA is an “implied repeal” of the FAA. Id., slip op. at 25 (citations omitted).

Impact of the Ruling

Because the Court’s decision determined the intersection of the NLRA and the FAA, the Court’s holding should have limited effects on stand-alone class action waivers (which are rare) or any agreement that is silent on arbitration. For example, the U.S. Court of Appeals for the Sixth Circuit held that a class action waiver is not enforceable if it is not contained within an arbitration agreement because such a waiver violates the FLSA. Killion v. KeHE Distribs., LLC, 761 F.3d 574, 592 (6th Cir. 2014).

And in the wake of the #MeToo movement and several other rulings regarding arbitration agreements, there is a renewed—and bipartisan—push within Congress to pass legislation protecting employees. Late last year, a group of bipartisan lawmakers proposed legislation (“Ending Forced Arbitration of Sexual Harassment Act”) to prohibit forced arbitration agreements in cases involving sexual harassment and assault. And the U.S. attorneys general for all 50 states—along with the attorneys general for D.C. and five territories—signed and sent a letter to Congress seeking to end mandatory arbitration clauses in sexual harassment cases. Justice Gorsuch’s majority opinion further seemed to signal, as noted earlier, that if the law regarding mandatory arbitration clauses is to change, it must (and can) be through Congress. Epic Sys. Corp. v. Lewis, 584 U.S. ____, slip op. at 25.

Amit Bindra is a partner at the Prinz Law Firm, P.C., in Chicago, Illinois.

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