On May 21, the Supreme Court decided a trio of cases consolidated as Epic Systems Corp. v. Lewis, holding that employers may include class- and collective-action waivers in arbitration agreements with their employees.
The Court was tasked with balancing between two federal statutes, the Federal Arbitration Act (FAA) and Section 7 the National Labor Relations Act (NLRA). The employees argued that class action waivers violated their NLRA rights to participate in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157. Effectively, the employees contended that bringing a class action lawsuit was a right conferred upon them by the NLRA, and any agreement governed by the FAA inhibiting that right was unenforceable.
Justice Gorsuch, writing for the Court, dispatched the employees’ argument, noting “[t]his Court has never read a right to class actions into the NLRA – and for three quarters of a century neither did the National Labor Relations Board.” He went on to state that the FAA “pretty absolutely” protects the rights of employers and employees to define the terms of their arbitration agreements, including terms that would require employees to forfeit their right to pursue claims on a class or collective basis in the courts.
What does this mean for employers?
Arbitration agreements for employers can be a double-edged sword. On one hand, any employer faced with the prospect of a class-action lawsuit would readily prefer to invoke an arbitration agreement and force the claimant to proceed on an individual, rather than a class basis. Class action lawsuits, by their very nature, collectivize the damages of many individuals, each of whom may have relatively small or insubstantial claims if forced to litigate on their own.
But be careful. Invoking an arbitration clause means foregoing relief from the court system and placing a matter in the hands of an arbitrator. While arbitration is often touted as being quicker and less expensive than the court system, employers in arbitration often find themselves footing the bill for administrative expenses and the arbitrator’s fees. And with larger employers in particular becoming more likely to impose arbitration agreements, the rates for arbitrators is expected to rise. At last one Plaintiff’s attorney has opined that employees, in the face of class waivers, will simply file a multitude of individual arbitration proceedings. Because of this, an employer may find that defending a host of arbitration claims is “death by a thousand paper cuts.”
Can employers impose class action waivers without an arbitration agreement?
It depends on where you are.
Courts remain somewhat split on this issue. The Epic decision is limited to the enforceability of waivers are embedded in arbitration agreements. In 2017, the Fifth Circuit Court of Appeals (covering Louisiana, Mississippi, and Texas), held that class- and collective-action waivers are enforceable, whether they appear in an arbitration agreement or not. In 2014, the Sixth Circuit (Kentucky, Michigan, Ohio, Tennessee) refused to enforce a class waiver that appeared outside an arbitration agreement. In Epic, the Supreme Court reversed a Seventh Circuit (Illinois, Indiana, Wisconsin) decision holding that class waivers contained within arbitration agreements were unenforceable. A reading of the tea leaves suggests the Seventh Circuit would continue to find class waivers unenforceable absent the protective bootstrap of the FAA.
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