The U.S. Supreme Court recently ruled in a 5–4 decision that under the Federal Arbitration Act (FAA), employers may enforce arbitration agreements in employment contracts that provide for individualized arbitration proceedings. See Epic Sys. Corp. v. Lewis, No. 16-285, 2018 WL 2292444, at *26 (U.S. May 21, 2018). Writing for the Court, Justice Gorsuch explained that Congress adopted the FAA in 1925 to ensure that courts respected arbitration agreements and enforced them according to their stated terms and procedures. To stay true to that principle, the Court reasoned that even if arbitration agreements waive employees’ rights to pursue class or collective actions against their employers in federal court, the agreements must still be enforced as written.
The employees argued that the FAA’s savings clause carved out an exception applicable to arbitration agreements with such waivers. The savings clause lets a court refuse to apply an arbitration agreement if there are any “grounds” that “exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The employees claimed that section 7 of the National Labor Relations Act (NLRA), which protects an employee’s right to form unions, bargain collectively, and engage in “other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” makes arbitration clauses containing class and collective-action waivers illegal, thereby providing “grounds” for revocation of such agreements. See 29 U.S.C. § 157. The Court disagreed, stating that Congress did not manifest a clear intention to displace the FAA and outlaw such waivers through the enactment of the NLRA in 1935. The Court instead directed the employees’ attention to a different way to use section 7 to their benefit, observing that it “may permit unions to bargain to prohibit arbitration” in general. Epic Systems, 2018 WL 2292444, at *9. The Court pointed out that any suggestion of conflict between the FAA and NLRA is new and incorrect because the statutes have peacefully coexisted for more than 80 years.
Although the Court decided in favor of the employers, it made clear that Congress should revisit the waiver issue. Specifically, Justice Gorsuch acknowledged that “[y]ou might wonder if the balance Congress struck in 1925 between arbitration and litigation should be revisited in light of more contemporary developments. You might even ask if the Act was good policy when enacted. But all the same you might find it difficult to see how to avoid the statute’s application.” Id. at *6. Justice Gorsuch was also careful to point out that although the waiver issue is, “[a]s a matter of policy . . . surely debatable,” when reviewing the issue “as a matter of law the answer is clear.” Id. at *3. Justice Ginsburg authored the dissent, classifying the Court’s decision as “egregiously wrong,” stating that “[b]ecause [she] would hold that employees' § 7 rights include the right to pursue collective litigation regarding their wages and hours, [she] would further hold that the employer-dictated collective-litigation stoppers, i.e., ‘waivers,’ are unlawful.” Id. at *18, *26 (Ginsburg, J. dissenting).
Employees claim that Epic Systems is a blow to workers’ rights that will cause many individuals to forego filing valid claims against their employers due to the cost of individual arbitration compared to a collective or class action. But employers counter that the decision does not quash workers’ rights because arbitration provides a fair and cost-efficient forum to address workers’ grievances outside of the courtroom. As recently as the middle of June, at least four courts have analyzed and applied Epic Systems to compel arbitration as requested by an employer. Only time will tell if employees will find ways to evade the Epic Systems decision through collective bargaining.
Practice Points
- The Epic Systems decision puts to rest the argument that section 7 of the NLRA conflicts with and supersedes the FAA’s requirement that arbitration agreements must be enforced as written even when the agreements limit an employee’s ability to pursue class or collective actions against an employer. Such waiver clauses are valid and enforceable against employees.
- Practitioners on both sides of the decision should consider effective strategies for collective bargaining over contracts containing arbitration agreements waiving employees’ rights to class or collective actions in federal courts.
- Because the decision has far-reaching implications, lobbyists on both sides of the decision should be proactive while Congress is under scrutiny to revise the law.
- Monitor how courts apply and discuss the new ruling.
Kacey L. Weddle is an associate in the Birmingham, Alabama office of Maynard Cooper & Gale.