Supreme Court Affirms Yet Another Arbitration Provision

In a big win for employers, the U.S. Supreme Court ruled 5-4 last week in Epic Systems Corp. v. Lewis that employers may include in employment agreements arbitration provisions that require employees to arbitrate their disputes individually, rather than through legal proceedings with other plaintiffs, such as a class or collective action. Writing for the majority, Justice Gorsuch first notes that the Federal Arbitration Act (“Arbitration Act”) mandates that arbitration agreements (and the specific terms of the arbitration identified in the agreements) be enforced. Moreover, the Arbitration Act’s saving clause permits courts to reject enforcement of arbitration provisions for the same types of reasons that contracts can be revoked, but does not permit interference with the fundamental aspects of arbitration. And according to the majority, the fact that an employment agreement provision requires individualized arbitration is one such “fundamental aspect.”

The majority also considered various arguments posited by the employees concerning the National Labor Relations Act (“NLRA”) and its overlap with the Arbitration Act. The Court first explained that where two Acts address the same topic, the Court must do its best to give effect to both. And absent “clear and manifest” congressional intent to replace one Act with another, there is a strong presumption against repeal by implication. The Court also refused to defer to the NLRB’s conclusion that the NLRA trumps the Arbitration Act, reasoning that the NLRB, in so concluding, had not merely interpreted the NLRA but limited the Arbitration Act despite having no authority to do so.

The Court also rejected the employees’ arguments based on the text of the NLRA. The Court concluded that the NLRA’s protection of “concerted activities” does not include class and collective actions, but rather relates to activities such as the right to bargain collectively and form labor organizations.

Here are my big takeaways from the ruling:

1. Employers have an even greater incentive than before to include arbitration provisions in their employment agreements. Arbitration provisions are oftentimes included as a cost-saving and outcome-control measure. The fact that a plaintiff cannot sidestep an arbitration provision by filing a class or collective action—generally very expensive legal proceedings with costly outcomes to unsuccessful defendants—only enhances the merit of this cost-saving measure for employers.
2.  Strict construction is the big winner here. Consistent with all other recent Arbitration Act rulings, the majority emphasized that its role, as executed in the decision, is to interpret the law, not make it. Justice Gorsuch pointed out that whether the decision results in sound policy “may be debatable,” but is not the question before the Court. Congress can change the law if it chooses, but the majority of the current Court—at least in the area of arbitration clause enforcement—is not playing activist.
3.  Class action plaintiffs’ attorneys are the biggest loser here. While many criticize the ruling as a blow to workers, it is class action plaintiffs’ attorneys who will likely feel the greatest impact. Practically speaking, many workers bring individualized claims across the country each and every day. Indeed, most employment cases will not be litigated through the class or collective action mechanism. But for lawyers who bread-win exclusively through those methods, the ruling is sure to leave a mark.

Photo credit: Photo by kjetil_r on Foter.com / CC BY-SA

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