On May 21, 2018, in Epic Systems Corporation v. Lewis, the United States Supreme Court upheld the enforceability of employment contracts that require the use of individualized arbitration to resolve employment disputes. This decision represents a win for employers seeking to contain costs of dispute resolution by handling claims brought by employees against employer in one-on-one arbitration proceedings, rather than class actions in court.
The decision resolves a split between the federal appellate courts on the enforceability of such provisions and overturns precedent in the Seventh Circuit (encompassing Wisconsin, Illinois and Indiana) that previously held such provisions unenforceable under the National Labor Relations Act (the "NLRA"). We previously discussed the Seventh Circuit decision in New Wisconsin Employment Law Standardization Act a "Win" for Employers.
The Supreme Court's decision stems from a trio of cases in which employers required their employees to sign agreements that required the employees to individually arbitrate employment-related claims. The employees, in other words, waived their right to participate in a class action against their employer. The employees later challenged the enforceability of the agreements, arguing that the arbitration provisions violated the NLRA because they prohibited employees from engaging in "concerted activities."
The Supreme Court rejected this argument, emphasizing that the Federal Arbitration Act (the "FAA") requires courts to enforce agreements to arbitrate, including the specific terms of arbitration that the parties select. According to the Court, although the "bread and butter" of the NLRA is union organization and collective bargaining in the workplace, it does not confer a right to participate in a class or collective action. Consequently, the FAA requires courts to enforce arbitration provisions requiring individual arbitration of employment claims.
The Epic decision provides employers with the go-ahead to negotiate arbitration provisions that require individual arbitration for resolution of disputes without fear that such provisions violate the NLRA. Employers who have or had such agreements should consider whether the arbitration provision is sufficiently broad to meet their needs. Any employers that do not require employees to sign class action waivers should assess whether implementing such an agreement is warranted.
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