In a landmark opinion, the Supreme Court issued its long-awaited decision in Epic Systems Corp. v. Lewis, upholding the validity of class action waivers in employment arbitration agreements. In a 5-4 majority opinion authored by Justice Gorsuch, the Court delivered its conclusion that class action waivers do not violate employees' rights to engage in "protected concerted activity" under Section 7 of the National Labor Relations Act (NLRA) and "must be enforced as written" as mandated by the Federal Arbitration Act (FAA).

The controversy surrounding the validity of class action waivers in employment arbitration agreements has been hotly contested over the past eight years. Since 2012, the National Labor Relations Board (NLRB) has taken the position that arbitration agreements with class or collective action waivers deprive employees of their rights to proceed collectively under Section 7 of the NLRA. The NLRB's stance eventually led to a federal circuit split, with the Seventh and Ninth Circuits adopting the position of the NLRB and the Second, Fifth, Eighth and Eleventh Circuits taking the view that the FAA's policy of favoring arbitration overrides any concerted activity rights provided to the employees by the NLRA.

On Jan. 13, 2017, the Supreme Court granted certiorari, consolidating three separate cases involving collective actions for unpaid wages under the Fair Labor Standards Act. In each case, the defendant employer argued that the class action waiver in each employee's arbitration agreement prevented the initiation of a collective action lawsuit. After hearing oral arguments on Oct. 2, 2017, the Supreme Court issued its decision on May 21, 2018, under the Epic Systems Corp. case number.

Delivering the opinion of the Court, Justice Gorsuch emphasized that Section 7 of the NLRA does not contain a right to pursue a class action and does not trump the FAA's command to honor arbitration agreements:

The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum. This Court has never read a right to class actions into the NLRA – and for three-quarters of a century neither did the National Labor Relations Board. Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties' agreements unlawful. (Slip op. at 2.)

In reaching its conclusion, the Court rejected the primary arguments presented by the employees and reaffirmed the importance of the FAA.

Justice Gorsuch rejected the employees' argument that the specific language of the FAA's "savings clause," which states that arbitration agreements are enforceable except "upon grounds as exist at law or in equity for the revocation of any contract," allows the Court to strike down an arbitration agreement that violates another federal law (i.e., the NLRA). The employees argued that because a class action waiver in an arbitration agreement violates the NLRA, the savings clause permits the Court to find such an arbitration agreement invalid. Justice Gorsuch emphatically rejected this argument noting that "the savings clause recognizes only defenses that apply to 'any' contract," which means that "the savings clause does not save defenses that target arbitration either by name or by more subtle methods, such as by 'interfer[ing] with the fundamental attributes of arbitration.'" (Slip op. at 7.)

Additionally, Justice Gorsuch rejected the employees' argument that the right to engage in "protected, concerted activity" under Section 7 of the NLRA also encompasses the right to bring a class action lawsuit. Rather, the majority clarified that Section 7 "focuses on the right to organize unions and bargain collectively. It does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Action." (Slip op. at 2.)

The key takeaway from the Epic Systems decision is that employers may continue to rely on − or resume relying on − the enforceability of class and collective action waivers within employment arbitration agreements. The decision clarifies that NLRA Section 7 rights are not superior to the FAA mandate to enforce such agreements as written. The decision further confirms the Supreme Court's long-standing history of favoring the FAA's arbitration mandate over other federal laws.

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