June 27, 2018

Victory for Employers Hoping to Enforce Individualized Arbitration Agreements

Julia Acken

In Epic Systems Corp. v. Lewis, the Supreme Court resolved a growing split among federal circuit courts about the enforceability of class action waivers in arbitration agreements. In a 5–4 decision, the Court held that mandatory individualized arbitration agreements should be enforced “according to their terms” and nothing in the Federal Arbitration Act’s (FAA’s) savings clause or the National Labor Relations Act (NLRA) requires otherwise. The opinion consolidates three cases involving employees that had entered into contracts agreeing to resolve any disputes with their employers through mandatory bilateral arbitration. In each case, the employees subsequently attempted to litigate wage claims under the Fair Labor Standards Act (FLSA) and related state law claims in federal class or collective actions.

Justice Gorsuch, writing for the majority, reasoned that the FAA requires courts to enforce arbitration agreements, including those waiving class or collective arbitration, unless traditional contract principles require otherwise. The employees argued that such waivers violated the National Labor Relations Act (NLRA) by interfering with employees’ Section 7 rights to engage in concerted activity for “mutual aid or protection,” an argument first articulated by the NLRB in 2012. In rejecting this argument, Justice Gorsuch explained that the Court could not find “clear congressional intent” to override the FAA’s protection of arbitration agreements in the NLRA, which is silent on the issues of both arbitration and class or collective actions.

The Court’s opinion also highlights the growing tension within the executive branch over the meaning and scope of the NLRA and the barriers this type of disagreement imposes to the traditional application of Chevron deference. Specifically, the employees had asserted, in part, that Chevron required the Court to defer to the executive branch’s “policy decisions” by invalidating the arbitration agreements. Justice Gorsuch observed, however, that the NLRB and the U.S. (through the Solicitor General) had filed competing briefs on the issue and while the Board had found in D.R. Horton in 2012 that Section 7 incorporated the right to engage in class and collective actions, the Board’s General Counsel had found just two years earlier that the FAA and the NLRA did not conflict. As Justice Gorsuch explained, it is difficult to argue deference to the Executive Branch’s policy choices “when the Executive speaks from both sides of its mouth.”

Justice Ginsburg penned a lengthy dissent on behalf of four justices based primarily upon public policy grounds. The minority justices viewed the Court’s opinion as undermining the very purpose of the NLRA, which, the dissent explained, is to place employees on more even ground with their employers. Justice Ginsburg made a plea to the legislature for “[c]ongressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert…”

The Court’s decision in Epic Systems provides some peace of mind to employers utilizing mandatory bilateral arbitration agreements in the labor context. We have yet to see, however, how far reaching the Court’s decision may be and whether the Court might use the reasoning in this opinion to alter the application of Chevron deference in future cases.

 

Julia Acken is a member at Jennings, Strouss & Salmon in Phoenix, Arizona.

Julia Acken