U.S. Supreme Court upholds arbitration agreements that waive class and collective actions and require individualized arbitration

Epic Systems Corp. v. Lewis, Nos. 16-285, 16-300, 16-307 (US May 21, 2018).

The U.S. Supreme Court recently ruled that employers and employees can agree to resolve disputes through individualized arbitration. In other words, if the employer and employee enter into an agreement to resolve disputes through individualized arbitration, the employee cannot later join with other employees to bring a class or collective action against the employer for disputes covered by the agreement. Instead, each employee is required to resolve their dispute through one-on-one arbitration, as required by agreement.

In Epic Systems Corp. v. Lewis, the U.S. Supreme Court had three cases before it, which presented the same substantive legal issue regarding the enforceability of arbitration provisions that waived class and collective actions. In one such case, Ernst & Young LLC v. Morris, a junior accountant, Stephen Morris, entered into an agreement whereby he and the company agreed to resolve all claims, controversies, and other disputes through mandatory mediation and arbitration, including claims under the Fair Labor Standards Act ("FLSA") and other claims concerning wages and salary. The agreement also required individualized arbitration, specifying claims "pertaining to different [e]mployees [to] be heard in separate proceedings." Opinion at p. 2. Yet, after his employment ended, Morris sued Ernst & Young in federal court, alleging the company misclassified him as an exempt professional employee and failed to pay him overtime as required by the FLSA and state law. In his lawsuit, he also sought to bring his FLSA claim as a collective action on behalf of others and his state claim as a class action. Id. at 3. Ernst & Young moved to compel arbitration, which the District Court granted. However, on appeal, the Court of Appeals for the Ninth Circuit reversed, ruling that the individualized arbitration provision was unenforceable and in violation of the National Labor Relations Act ("NLRA"), which protects employees' right to engage in "concerted activities". Id.

However, Justice Gorsuch, writing on behalf of the majority, ruled that the arbitration agreement, including the provision waiving class and collective actions, was enforceable by its terms pursuant to the Federal Arbitration Act ("FAA"). Justice Gorsuch stated: "As a matter of policy these questions are surely debatable. But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms–including terms providing for individualized proceedings." Id. at 2. In response to the employee's argument that the NLRA invalidated these provisions, the Court stated: "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." Id. Later in the opinion, Justice Gorsuch provides a colorful analogy to expose the implausibility of the employee's reasoning: they "suggest[] that one statute (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the Arbitration Act). It's a sort of interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow." Id. at 15.

If you have any questions regarding arbitration agreements, please contact Ray Rinkol at rrinkol@bradleyriley.com or 319-861-8780.