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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.