Earlier this week, the United States Supreme Court issued its opinion in Epic Systems Corp v. Lewis, finding that arbitration agreements that require individualized arbitration between employers and employees, as opposed to class or collective actions, are enforceable.
The plaintiff in Epic (as well as the plaintiffs in the other cases that were consolidated for the Court’s review) was an employee who had entered an arbitration agreement with his employer that required individualized arbitration of any disputes. After a dispute arose, and contrary to the terms of the arbitration agreement, the plaintiff proceeded to file a complaint asserting a class action lawsuit against the employer in federal court. The courts in the consolidated cases reached different conclusions – one compelled arbitration, while the other two did not. These cases were appealed all the way to the Supreme Court to address the enforceability of an arbitration agreement that included a waiver of an employee’s right to bring a class or collective action against his/her employer.
The plaintiff acknowledged that the Federal Arbitration Act (“FAA”) generally requires courts to enforce arbitration agreements as written. However, the plaintiff argued that the FAA’s “savings clause” – which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” applied to his case. Specifically, the plaintiff argued that arbitration agreements that prohibited class actions were unlawful under the National Labor Relations Act and therefore not enforceable under the FAA’s “savings clause”.
The Supreme Court rejected the plaintiff employee’s argument and found that arbitration agreements that include a waiver of class and collective actions are enforceable. The Supreme Court held that the FAA’s “savings clause” was intended to be used for common defenses to a contract (i.e. fraud, duress, unconscionability, etc), as opposed to a defense solely to arbitration itself. Here, the plaintiffs were not arguing that the arbitration agreement was obtained through fraud, duress, etc. Furthermore, the Supreme Court rejected the plaintiff’s argument that the NLRA’s protection of “concerted activities” included the ability to bring class actions. In doing so, the Supreme Court looked to the specific examples of “concerted activities” protected by the NLRA and found that class actions did not fall into the types of activities addressed by the statute.
The split of the Court on this ruling (5-4) and the fact that the Court repeatedly stated that the “policy” of enforcing arbitration agreements that bar class actions is “debatable”, may cause Congress to take another look at certain federal statutes and determine if these laws should be revised to limit the circumstances in which employees may waive their right to bring class or collective actions. However, without any further changes made, it appears that arbitration agreements that include a waiver of an employee’s right to bring a class or collective action against the employer are currently enforceable.
