On May 21, 2018, the U.S. Supreme Court upheld employment arbitration agreements which prohibit employee class and collective actions. Epic Systems Corporation v. Lewis No. 16-285, involved three consolidated cases where former employees attempted to make claims under the Fair Labor Standards Act (FLSA) and state wage and hour laws as collective and class action plaintiffs. They had all signed agreements with their respective employers that provided only for individualized arbitration proceedings. The Supreme Court in a 5-4 decision authored by Justice Neil Gorsuch resolved a split in the Circuit Courts and ruled that the NLRA does not trump the Federal Arbitration Act (FAA), which mandates the enforcement of arbitration clauses according to their terms, and precludes the employees’ ability to bring collective or class actions.
The employees argued that the arbitration provisions in their employment agreements were unenforceable under the FAA “savings clause,” which provides that arbitration clauses need not be enforced if they violate some other federal law. The employees claimed that the clauses violated the National Labor Relations Act (NLRA). In 2012, the National Labor Relations Board (NLRB) issued a decision which agreed with the employees’ interpretation of the FAA. Other courts had similarly upheld the position of the NLRB, that the NLRA’s Section 7 guarantee of workers’ rights to engage in “concerted activities” extended to the right to bring class actions. The Supreme Court, however, ruling in favor of the employers, declined to extend the protections of Section 7 to class action litigation where employees had previously agreed to arbitrate disputes individually via arbitration proceedings.
The Court held that Section 7 of the NLRA focuses on workers’ right to organize unions and bargain collectively, but does not mention class or collective action procedures “or even hint at a clear and manifest wish to displace the Arbitration Act.” In addition, the underlying legal causes of action brought by the employees were not causes of action available under the NLRB, but rather were initiated under the FLSA, where the employees made no argument that the FAA should be displaced by the FLSA under the savings clause.
Additionally, the Court also rejected the employees’ arguments that the NLRB decisions deserve a higher level of deference on the basis of the Court’s previous decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., which upholds the legal interpretations made by federal administrative agencies. Chevron stands for the proposition of generally affording administrative agency decisions greater deference. Justice Gorsuch reasoned that the NLRB decisions, which had effectively nullified the FAA arbitration enforcement provisions by holding that the NLRA Section 7 precluded the FAA, placed the NLRB decisions beyond the reach of Chevron deference.
Employers should now review the provisions of their employment agreements to ensure that they are taking full advantage of potential arbitration options, should a dispute arise. The attorneys at Pickrel, Schaeffer and Ebeling are available to review existing employment agreements and to draft arbitration provisions and other provisions which will help you protect your rights.