On Oct. 2, 2017, the U.S. Supreme Court heard arguments in the Epic case concerning class waivers in employment contracts. The question before the Supreme Court was whether waivers in arbitration agreements were enforceable. The Court addresses how far businesses may go to require employees to sign away their right to pursue class actions, resulting in a decision that is favorable to employers in the Retail and Hospitality industry.
Here is what you need to know.
This May, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that businesses, that require workers to sign a waiver relinquishing their ability to pursue class actions, are not violating the National Labor Relations Act. 138 S.Ct. 1612 (2018). The consolidated action included three cases, involving employees of Epic Systems, Corp., Murphy Oil USA Inc., and Ernst & Young, LLP, respectively. The employees at these companies signed arbitration agreements as a condition of their employment, binding them to one-on-one arbitration for all disputes, the results of which would be final. Id.
The plaintiffs argued their employers were violating the Fair Labor Standards Act by denying them overtime pay. Specifically, they maintained that the mandatory waivers violated their right to engage in “concerted activities” under Section 7 of the National Labor Relations Act (NLRA). 29 U.S.C.A. § 157. Each employer replied with a motion to dismiss and compel arbitration.
Beginning with the passage of the Federal Arbitration Act (FAA) in 1925, courts have fully enforced arbitration agreements, absent some unlawful purpose. 9 U.S.C.A. § 2. Through the years, courts have adhered to this strict interpretation as evidenced by the Court’s ruling in Epic Systems. Federal courts have long enforced arbitration agreements according to their terms – including terms providing for individualized proceedings. 138 S.Ct. at 1619.
In Epic Systems, the Court considered whether the language of the NLRA displaced the FAA. Justice Gorsuch, writing for the majority, maintained that,
This Court has never read a right to class actions into the NLRA – and for three quarters of a century neither did the NLRB… 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. Id.
The Court considered the silence of Section 7 of the NLRA regarding class or collective action procedures as dispositive that Congress did not intend for Section 7 to supersede the Arbitration Act.
The takeaway: businesses are not violating the NLRA by requiring employees to waive their ability to pursue class actions through an arbitration agreement. Id. at 1618.
While some characterize this ruling as a way to insulate employers, the Court made clear that agencies are not entitled to an all-assuming deference when interpreting how the NLRA should be read in concert with other federal statutes.
This decision provides employers—no matter the size of the company— with the uninhibited freedom to modify their arbitration agreements in a manner that best serves company interests under the scope of Epic Systems. The Economic Policy Institute conducted a study finding that over 55 percent of workers are subject to mandatory arbitration, and approximately 30 percent of the employers who mandate arbitration include class waivers in their policies. For those who have not already included a class waiver in their arbitration agreement, we are likely to see a significant increase nationwide.
The Retail and Hospitality industry, due to its labor-centric nature, will surely feel the impact of the decision. High-dollar class actions pose a continuous concern for hotels, and for any large employer, the ability to guard against class and collective actions is refreshing.
Employers may find further support from the 2018 amendments to the Federal Class Action Rule 23. In the past, there have been cases in which class actions were viewed as a vehicle to drive up costs and force settlement, despite a weak underlying claim. Effective December 1, 2018, however, amendments to Rule 23 will require counsel to “front-load” information at the preliminary approval stage of class actions. This new requirement will help reduce costs, and force counsel to present more information than previously required,— protecting employers from weak claims advancing in the class certifying process.
No matter what, it is clear that if the agreement falls under the purview of the Federal Arbitration Act, the Supreme Court’s Epic Systems decision will affect the outcome, and now is the right time for employers to evaluate and strengthen their mandatory arbitration agreements.
. See Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Economic Policy Institute, (Apr. 6, 2018) https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration-access-to-the-courts-is-now-barred-for-more-than-60-million-american-workers/.