Presented by the Employment Law Practice Group

Legal Updates for Employment Law

June 20, 2018

SCOTUS Ruling in Epic Systems Upholds Mandatory Arbitration Agreements; Class/Collective Action Waivers Are Now Enforceable

Until now, employers have grappled with the legality of requiring employees to sign an arbitration agreement mandating that they individually arbitrate all employment disputes in order to avoid their participation in class or collective action lawsuits against their employers. The recent decision by the United States Supreme Court in Epic Systems Corp. v. Lewis, however, has clarified the issue to the favor of employers. In Epic Systems, a divided 5-4 Court upheld mandatory arbitration agreements that prohibit employees from bringing employment claims on a class or collective basis.

Employers throughout Pennsylvania routinely utilize arbitration agreements in the management of employees to minimize potential expense and exposure of litigation. When used properly, arbitration agreements can streamline employment disputes in a cost-effective and confidential manner. In fact, even before the Epic Systems decision, many arbitration agreements required that disputes be pursued individually, with employees waiving their ability to bring class and collective action claims. Over the past several years, however, “class action waivers” have been under attack, primarily through decisions handed down by the National Labor Relations Board (NLRB) during the Obama administration.

For employers, the Court’s decision in Epic Systems may be one of the most important decisions in employment law for the management of a company’s employees. With this decision, employers may include class action waivers in their mandatory employment arbitration agreements, and those provisions will be enforced.

In its holding, the Supreme Court held that the Federal Arbitration Act (FAA) is clear and unequivocal in its position that courts are to enforce arbitration agreements as written, absent very narrow grounds (such as fraud, duress or unconscionability). The Court also recognized that while the National Labor Relations Act (NLRA) secures employees’ rights to organize and bargain about the terms and conditions of their employment collectively, the Court rejected any notion that the NLRA dictates how judges and arbitrators must try legal disputes emanating from the workplace and, more importantly, noted that a right to class actions has never been written or read into the NLRA.

The majority also found noteworthy the fact that the underlying lawsuits at issue addressed wage claims. They did not arise under the NLRA, but under an entirely different statute, the Fair Labor Standards Act (FLSA). The Court held that, based upon its previous decisions, the FLSA’s collective action scheme does not displace the FAA or prohibit class action waivers in an arbitration agreement.

The take-away for employers from the Epic Systems decision is that a well-drafted mandatory arbitration agreement that contains a class/collective action waiver is enforceable. While some state laws prohibit class action waivers, Pennsylvania state law does not. For those companies that believe arbitration is the best method to resolve their employment disputes, this decision uniformly upholds their right to mandate individualized arbitration of their claims. Clauses requiring individualized arbitration permit an employer to resolve workplace disputes on a one-on-one basis, thereby avoiding the risk of large exposures seen in class/collective actions involving multiples of employees with wage and hour issues. Employers should be mindful, however, that the Epic Systems decision included a 30-page dissent. That dissent, some argue, may lay the groundwork and calls for new legislation in Congress to effectively reverse the Supreme Court’s Epic Systems ruling. At the present, however, the Epic Systems decision provides employers with the ability to effectively curtail the onslaught of class and collective actions, the expense of defending such actions, and the related liability risks that employers encounter when faced with such litigation.

Ronda K. O'Donnell chairs the Employment Law Practice Group and may be reached at rkodonnell@mdwcg.com.

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