On May 21, 2018, in a 5-4 decision, the United States Supreme Court upheld the use of class action waivers in employment arbitration agreements. Epic Systems Corp. v. Lewis, No. 16-285 (2018). Many employers require employees to sign agreements that require that any employment disputes be arbitrated, and many of those agreements prohibit class action arbitrations, and require that such arbitrations be brought on an individual basis.
In Epic, despite having signed arbitration agreements requiring that employment disputes be taken to arbitration on an individual basis, employees sought to sue their employer under the Fair Labor Standards Act (“FLSA”) and related state laws for alleged wage and hour violations, and to bring these actions as collective actions (under the FLSA) or class actions (under state law). They claimed that the arbitration provisions requiring that matters be individually arbitrated violated the National Labor Relations Act (“NLRA”), which prohibits employers from interfering with employees’ rights to engage in protected, collective activity.
The employers argued that the Federal Arbitration Act required that legally signed arbitration agreements be enforced, and that the NLRA did not require a different outcome. The Supreme Court agreed. The Court held that parties may contract to resolve their disputes by individual arbitration, as long as the agreement is not invalidated by state law contract defenses, such as duress, fraud, or unconscionability.
This decision paves the way for employers to require individual arbitration of employment law claims, which often may be more efficient and less costly than litigation. While a well-written arbitration provision with a class action waiver should halt wage and hour collective and class actions by employees, it will not stop the Department of Labor from pursuing investigations and audits of employers, and bringing suit against employers to benefit multiple employees. It also will not stop the Equal Employment Opportunity Commission from seeking group data when investigating claims.
What Does This Mean For You? If you have employment agreements that require individual arbitration of employment disputes, the questions that have surrounded the validity of these agreements have been laid to rest for now. If you do not have such agreements, but think they may be right for your business, you should speak to counsel to see if this option is a good fit for your business, and should work with counsel to draft appropriate contract language. If you have any questions about this or any other employment or labor law issue, please contact Whitney Rahman at (717) 509-7237 or at firstname.lastname@example.org.