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LLAC Update: Supreme Court Upholds Individual Arbitration Agreements

  • May 21, 2018

LLAC Update: Supreme Court Upholds Individual Arbitration Agreements 

Labor Law

We posted earlier today about the Supreme Court decision in three consolidated cases—Epic Systems Corporation v. Lewis; Ernst & Young, LLP v. Morris; and NLRB v. Murphy Oil USA, Inc. in which the Court upheld the right of employers to require employees to use private arbitration to resolve workplace disputes in a 5-4 decision.   Now we have a more detailed summary of the impact of the decision for CUE members shared by CUE LLAC member Rob Buikema and written by his colleague Joel S. Aziere.

Earlier this week, in Epic Systems Corp. v. Lewis, the United States Supreme Court issued a decision granting significant rights to employers seeking to limit liability in class action cases.  In a 5-4 decision, the Court upheld the legality of class action waivers in individual employment agreements.  This means employees who sign agreements obligating them to resolve claims against their employer through individual arbitration cannot bring, or be a party to, class or collective action claims against their employer, including claims under the Fair Labor Standards Act (FLSA).

In 2012, the National Labor Relations Board (NLRB) held for the first time that these types of agreements were prohibited and unenforceable under the National Labor Relations Act.  Since then, some, but not all, courts have either agreed with or deferred to the Board and refused to enforce these individual arbitration provisions.  The Supreme Court has now reversed the Board’s mandate and rendered the individual arbitration provisions enforceable.  This means employers are now free to place a provision in an employment agreement or severance agreement waiving the right of the employee to engage in any class-action against the employer (either in court or in arbitration) and requiring the employee instead to engage in individual arbitration to resolve any employment-related claims against the employer.

The issue before the Court was whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act (FAA), notwithstanding the provisions of the National Labor Relations Act (NLRA).

In each case, the employer entered into an agreement with an employee providing for individualized arbitration proceedings to resolve employment disputes.  Despite these agreements, the employees filed FLSA and related state law claims through class or collective actions in federal court.  The employees argued the arbitration agreements, which required individual proceedings, violated the NLRA, which entitles employees to engage in protected concerted activity with regard to their terms and conditions of employment, including joining together in litigation against their employer in class or collective actions.  In response, the employers argued the FAA protects mandatory arbitration agreements from judicial interference and the NLRA did not require a different result.

Until recently, courts, as well as the National Labor Relations Board’s general counsel, generally agreed that mandatory arbitration agreements between employees and their employers were enforceable.  However, in D.R. Horton, a landmark decision in 2012 that provoked widespread consternation among employers, the NLRB held the NLRA’s protections for concerted activity entitled employees to join together in class proceedings, even in arbitration, notwithstanding the FAA.  The NLRB’s legal position on this issue been upheld by the appellate courts for the Seventh and Ninth Circuits but rejected by the Second, Fifth and Eighth Circuit Courts of Appeals.

In its May 21, 2018, decision, the Supreme Court rejected the Board’s position and held Congress made clear in the FAA that arbitration agreements must be enforced by their own terms, including individualized proceedings and nothing the NLRA suggests otherwise.  Justice Gorsuch delivered the opinion of the Court, joined by Justices Roberts, Kennedy, Thomas, and Alito.  Justice Thomas filed a concurring opinion.  Justice Ginsburg filed a dissenting opinion joined by Justices Breyer, Sotomayor, and Kagan.

The Court recognized the FAA requires courts to enforce agreements to arbitrate, including the terms of arbitration selected by the parties.  By challenging the agreements because they require individualized arbitration, without allowing for class or collective proceedings, the employees sought to interfere with this fundamental feature of the FAA.

The contention advanced by the Board and the employees – that the NLRA overrides the FAA’s directive – was rejected by the Court.  The Court pointed out that the NLRA does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the FAA.  Finally, the Court pointed to precedent and cited cases in which the Court rejected many efforts to manufacture conflicts between the FAA and other federal statutes.

This decision is a huge win for employers who utilize individual arbitration agreements with their employees and clears the way for continued use of such agreements.