United States: New US Supreme Court Ruling: Individualized Arbitration Agreements Are Enforceable

The United States Supreme Court issued its opinion in Epic Systems Corp. v. Lewis on May 21, 2018. Epic Systems Corp. v. Lewis, No. 16-285, slip op. (U.S. May 21, 2018). In Epic Systems, the Supreme Court addressed the issue of whether employees can bring class action lawsuits to litigate their Fair Labor Standards Act (FLSA) and related state law claims where they otherwise contracted with their employers to resolve any employment related disputes through individualized arbitration proceedings. In its 5-4 decision written by Justice Gorsuch, the Court held that individualized arbitration agreements as to employment disputes are enforceable under the Arbitration Act, notwithstanding the Arbitration Act's savings clause or the National Labor Relations Act (NLRA). Justices Roberts, Kennedy, Thomas and Alito joined in the majority opinion, with Justice Thomas issuing a concurring opinion. Justice Ginsburg authored the dissent, joined in by Justices Breyer, Sotomayor and Kagan.

In Epic Systems, the employees argued that they were allowed to bring such class action lawsuits in lieu of proceeding with individual arbitration by virtue of the "savings clause" in the Arbitration Act where the arbitration agreement at issue violates federal law, namely here the NLRA. On the other hand, the employers argued that the Arbitration Act protects arbitration agreements and is not supplanted by the savings clause or the NLRA.

The central issue of this case was largely settled until 2012, when the National Labor Relations Board (NLRB) ruled that the NLRA effectively displaces the Arbitration Act, prompting some courts to agree. Finally settling the uncertainty around this issue, the Court ultimately rejected the employees' arguments, agreeing with the employers' stance on the protection provided by the Arbitration Act.

For example, as to the employees' savings clause argument, the Court found that the savings clause did not encompass defenses that target arbitration "by name or by more subtle methods such as 'interfer[ing] with fundamental attribute of arbitration.'" Id. at 7 (U.S. May 21, 2018) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). As the employees were attempting to attack only the individualized nature of the arbitration agreements at issue, the court found that this sought to interfere with a fundamental attribute of arbitration, and therefore, was impermissible under the savings clause. The Court also underscored that the Arbitration Act generally allows parties to decide to arbitrate any disputes and to determine the rules under which said arbitration will take place, which should settle the central issue of the case in and of itself. Id. at 5-6.

The court also rejected the employees' argument that Section 7 of the NLRA effectively overrides the Arbitration Act to render such arbitration agreements ineffective. Instead, the Court emphasized that it has a duty to give effect to both the Arbitration Act and the NLRA in the absence of clear and manifest congressional intent to displace one with the other. Id. at 10. Accordingly, the Court declined to extend Section 7, which guarantees employees the right to organize unions and collective bargaining, to the right to bring collective or class action law suits. The Court reasoned that the language does not expressly include those rights and such actions were not commonly thought of at the time the NLRA was adopted so as to be included in the catch-all provision of Section 7. Id. at 11-12. The Court also noted that the employees claims arose under the FLSA, which has long been held to not displace individualized arbitration. Id. at 14-15. Accordingly, the Court elected to follow its long line of established precedent in which it consistently declined to find a conflict between the Arbitration Act and other Federal Statutes. Id. at 15-16.

The Court lastly declined to give deference to the 2012 NLRB opinion that effectively ruled the NLRA displaces the Arbitration Act. Id. at 19. The Court reasoned that the NLRB opinion addressed not only its own statute, but also that of second statute that it does not administer. Id. at 19-20. The Court noted that in determining whether one statute trumps another, the independent balance of a court is preferred to "[a]n agency eager to advance its statutory mission, but without any particular interest in or expertise with the second statute...." See, id. at 20.

Accordingly, based on the above, the Court held that individualized arbitration agreements as to employment disputes, such as the ones entered into by the employees at issue here, are enforceable under Arbitration Act, notwithstanding the Arbitration Act's savings clause or the NLRA. This decision will have broad reaching impacts across numerous employment sectors, including the maritime, energy and transportation industries.

Pursuant to 9 U.S.C. §1, the Arbitration Act applies in general to "maritime transactions." Therefore, in the broader maritime, energy and transportation industries, in situations where the Arbitration Act is applicable, as a result of Epic Systems Corp. v. Lewis, employees will ultimately be held to their contracts and employers will receive the benefit of their bargain as the parties will be forced to engage in individual arbitration in lieu of class action claims. As this will no doubt will be welcomed news to most employers, it is important to note that the Arbitration Act has an express exemption for seamen's claims.

Accordingly, the impact of this decision remains unclear with respect to employment related claims brought by seamen as their employment contracts, and any arbitration agreement found therein, are subject to this express exemption. However, such arbitration agreements may still be enforceable under state law in lieu of the Arbitration Act where language in the arbitration clause at issue names an alternative state law under which arbitration may be analyzed. See, Grooms v. Marquette Transp. Co., LLC, 2015 WL 681688, 2015 A.M.C. 955, 956 (S.D. Ill. Feb. 17, 2015); Sherwood v. Marquette Transp. Co., LLC, 587 F.3d 841, 842 (7th Cir. 2009).

Read the entire Epic Systems Corp. v. Lewis majority opinion

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