In a long-awaited decision in Epic Systems Corp. v. Lewis (2018) 584 U.S. ____, the United States Supreme Court held that employer’s can enforce arbitration agreements requiring individual arbitration of employment claims. The Court determined that such agreements violate neither the National Labor Relations Act (“NRLA”) nor the savings clause of the Federal Arbitration Act (“FAA”).
Congress enacted the FAA to explicitly address and combat judicial hostility to arbitration. As such, the law provides that arbitration agreements “shall be valid, irrevocable, and enforceable.”
The employees who were challenging the arbitration agreements, relied on the so-called “savings clause” of the FAA, which permits enforcement of generally applicable laws voiding terms in a contract, whether in an arbitration agreement or otherwise. They argued that the NRLA is such a law and that it prohibits enforcement of the class arbitration waivers because it protects employees’ rights to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection. 29 U.S.C. § 157.
In contrast, the employer’s argued, and the Court found, that the right to bring a representative or class action is not the type of “concerted action” sought to be protected by the NRLA. Rather, that NRLA provision cited by the employees was found to apply to typical organization and bargaining within the workplace, not the courthouse. The Court further found that, even if the employees’ interpretation of the NRLA were convincing, the FAA’s “savings clause,” by its terms, recognizes only defenses applicable to “any” contract, not those that are meaningful only in light of an arbitration agreement.
The Court recognized that opinions may differ in terms of policy implications but found that the law is clear. The Court has previously held that the Fair Labor Standards Act (“FLSA”), the law underlying the employees’ substantive claims, does not ban such arbitration agreements. In light of the Court’s prior holding, this decision was neither novel nor surprising. It does, however, solidify and even increase the importance of class arbitration waivers as risk-management tools for employers to consider.
Employers with arbitration agreements, should consider revisiting those agreements to ensure the maximum protections affirmed by the new decision are in place. Employers who have been hesitant to adopt such agreements, should seriously reconsider revisiting that decision.
Kyle D. Kring is a Partner and Kerri N. Polizzi is an Associate of Kring & Chung, LLP. They can be reached at (949) 261-7700 or via email at [email protected].