United States Supreme Court Rules Class and Collective Action Waivers in Employment Agreements Are Enforceable
On Monday, May 21, 2018, the U.S. Supreme Court issued what is widely regarded as the most important decision for U.S. employers this year. In a 5-4 decision, in Epic Systems Corporation v. Lewis (and two other related matters), Justice Neil Gorsuch, writing for the majority, held that workplace employment agreements that bar employees from participating in class and collective action litigation against their employers do not violate federal labor laws. In so holding, the Court rejected the position of the National Labor Relations Board (“NLRB”) and other courts that such agreements violate the National Labor Relations Act’s (“NLRA”) protection of employees’ Section 7 rights to engage in “concerted activity.”
“The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements . . . must be enforced as written” wrote Justice Gorsuch, who went on to state that the Supreme Court was compelled to abide by “a congressional command requiring us to enforce, not override, the terms of the arbitration agreements before us.” Citing the Federal Arbitration Act’s (“FAA”) “emphatic directions” that require courts to enforce arbitration agreements, the Court overturned NLRB and multiple courts’ decisions that found class and collective action waivers inequitable, and held that only employment agreements procured by fraud, duress, and unconscionability will not be enforced.
Leading up to the Epic Systems decision, the NLRB originally held in 2012, in D.R. Horton, Inc., that arbitration programs that include class and collective action waivers ran afoul of the NLRA, which nullified the FAA’s policy favoring arbitration agreements. Numerous courts around the country have followed the NLRB including the Sixth, Seventh and Ninth Circuits, while others including the Second, Fifth and Eighth Circuits, have not so held. Epic Systems now resolves this Circuit split.
Importantly, the Court also held that a state law attempting to circumvent the FAA’s mandates will not stand. States, therefore, cannot try to enact their own legislation to circumvent Epic Systems.
Following Epic Systems, and absent Congressional intervention, employers are permitted to enter into and enforce individual arbitration agreements containing class and collective action waivers. Even employers who do not currently have individual arbitration agreements containing such waivers with their employees can modify their current employment agreements to include such terms.
It is important for all employers to carefully review their employment agreements and put considerable thought into whether an arbitration agreement with a class and collective action waiver is appropriate.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.