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July 2nd, 2018
employment
SUPREME COURT AFFIRMS VALIDITY OF EMPLOYMENT AGREEMENTS CONTAINING WAIVERS FOR CLASS OR COLLECTIVE ACTIONS

On May 21, 2018, in Epic Systems Corp. v. Lewis, the Supreme Court upheld the enforceability of arbitration agreements containing class and collective action waivers of wage and hour disputes.  In deciding the case, the majority held that the Federal Arbitration Act (“FAA”) mandates the enforcement of arbitration agreements and the right to pursue class or collective relief is not a protected concerted activity under Section 7 of the National Labor Relations Act (“NLRA”).

The case made its way to the Supreme Court after Jacob Lewis (“Mr. Lewis”), an employee of Epic Systems Corp. (“Epic Systems”), filed a collective action suit on behalf of himself and other Epic Systems employees in the United States District Court for the Western District of Wisconsin, asserting Epic Systems violated the Fair Labor Standards Act (“FLSA”) by failing to pay overtime.  Epic Systems moved to dismiss the case, arguing that Mr. Lewis’s employment agreement contained an arbitration agreement prohibiting collective actions and requiring individual arbitration.  The District Court declined to dismiss the case, stating that the arbitration agreement violated Mr. Lewis’s right to collective bargaining guaranteed under Section 7 of the NLRA.  Epic Systems appealed to the Seventh Circuit Court of Appeals, arguing that the arbitration agreement was valid under the FAA.  The Seventh Circuit upheld the District Court’s decision.  Epic Systems appealed and after the Supreme Court consolidated two similar cases from the Fifth Circuit Court of Appeals, it granted writs of certiorari. 

In a 5-4 decision, the Supreme Court held that the FAA allows for arbitration agreements to contain provisions compelling individualized arbitrations, and because the NLRA does not expressly provide a right to collective or class action, employment agreements containing such arbitration provisions are enforceable.  The Court explained its rationale, stating that while Section 7 of the NLRA allows employees to self-organize and to engage in concerted activities for the purpose of collective bargaining, it is silent as to whether employees have a right to class action.  The Court refused to read such a right into the NLRA.  Because Section 7 of the NLRA provides no such right, the Court declined to find that the NLRA was in conflict with the FAA’s presumption in favor of enforcing otherwise valid arbitration agreements.

Now, employers can be certain that class or collective action waivers in arbitration agreements do not violate the NLRA.  Employers that do not have arbitration clauses in their employment agreements should review their employment agreements and consider whether it makes sense to add such clauses.

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