On May 21, 2018, in Epic Systems Corp. v. Lewis, the U.S. Supreme Court held that courts must enforce the class- and collective-action waivers contained in arbitration agreements. This decision overturns the National Labor Relations Board (NLRB) “ruling from 2012 that allowed employees to go to federal court as a class under certain circumstances.”
Writing for the majority, Justice Neil Gorsuch stated that the Federal Arbitration Act (1925) trumps the National Labor Relations Act (1935), and that employees who sign employment agreements to arbitrate claims must do so on an individual basis—and may not band together to enforce claims of wage and hour violations. Gorsuch wrote, “As a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms for individualized proceedings.”
Gorsuch also wrote, that if the law permitted workers to band together to pursue their legal claims, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.”
Ginsburg dissented. “The question presented: Does the Federal Arbitration Act (Arbitration Act or FAA) . . . permit employers to insist that their employees, whenever seeking redress for commonly experienced wage loss, go it alone, never mind the right secured to employees by the National Labor Relations Act (NLRA ) . . . ‘to engage in . . . concerted activities’ for their ‘mutual aid or protection”? The answer should be a resounding ‘No,’” Ginsburg said.
She concluded, “The edict that employees with wage and hours claims may seek relief only one-by-one does not come from Congress. It is the result of take-it-or-leave-it labor contracts harking back to the type called ‘yellow dog,’ and of the readiness of this Court to enforce those unbargained-for agreements.”
Some lawyers believe that this ruling will give rise to more waivers, and “as a result, federal and state wage and hour laws may become underenforced.” For instance, if a restaurant violates a wage law or other labor laws, employees can only bring claims as individuals through arbitration.
Employees have few options to hold employers accountable. First, employees may file a complaint with the state attorney general or government agency such as the National Labor Relations Board (NLRB), which may choose to pursue legal action on the employee’s behalf. Second, an employee could pay for a lawyer to file a suit against the employer or management. This option, however, proves costly and risky. Third, employees can file a class-action suit or group arbitration against the employer.
From these three options, class actions give employees the best outcome. Class actions are more favorably because of the power of numbers and it gives employees a greater chance for a judgment in their favor. In addition, the larger settlements or payouts offset costs.
Employers favor arbitration agreements that contain class-action waivers, although research shows the detrimental impact these agreements have on employee rights. Consequently, lawyers and labor advocates will continually litigate against them. Business advocates, however, will continue to affirm arbitration agreements as necessary to reduce litigation expenses.
Leonard Wills is a presidential management fellow with the U.S. government in Washington D.C.