On May 21, 2018, the United States Supreme Court held in Epic Systems Corp. v. Lewis, and two related cases, that class action waiver provisions contained in arbitration agreements do not violate the National Labor Relations Act. This decision is a significant favorable development for employers. Justice Gorsuch, writing in a 5 to 4 decision, held that although the public policy is debatable, the Federal Arbitration Act allows arbitration agreements with such waiver provisions to be enforced despite claims that “concerted activity” under the National Labor Relations Act includes the right to file class actions. In a strongly worded dissent, Justice Ginsburg called the decision “egregiously wrong.”

What Does This Mean?

 As we alerted you previously, this is a hot button issue that provides key insight into the current Supreme Court’s view on arbitration and the National Labor Relations Act. The decision continues a long line of cases favoring arbitration. Stated simply, it means that employers may require employees to sign valid arbitration agreements prohibiting class actions as a condition of employment.

Under these waiver provisions, it will be more difficult for employees to challenge employment practice violations through the usually more expensive and burdensome class action litigation process. (The cases before the Court were alleged wage-hour violations under the FLSA.) Instead, such challenges will be decided individually on the merits through what is generally regarded as a more expedient and efficient arbitration process. Critics of the Court’s decision argue that this will discourage claims, lead to inconsistent decisions and result in less protection of employee rights. Proponents argue otherwise: the more efficient arbitration process could result in more claims being filed. Proponents also note that the costly and burdensome class action process was being misused to leverage large settlements from employers.

In addition to the major impact this decision could have on the employment law landscape, the decision also is significant because it foreshadows the current Court’s more limited view on deference to administrative agencies, such as the NLRB, under the so-called “Chevron deference” doctrine.

What Should Employers Do?

Employers should revisit the pros and cons of requiring their employees to arbitrate employment claims. The Court’s decision in Epic Systems is a major factor, among others, in favor of binding arbitration.  However, other countervailing factors should be considered, such as reduced chances of prevailing on dispositive motions and limited appellate review. Yet there is no question that most large employers could benefit from limiting their exposure to class actions, particularly given the recent surge in class or collective wage-hour litigation. As a caveat, employers should recognize that there are essential components that must be included to establish a legally enforceable, mandatory arbitration procedure.

Given the controversy surrounding the Court’s decision and the policy questions it raises, state legislatures might seek to minimize or undermine the Court’s decision. We will continue to monitor this area and update you as the law develops. At the same time, we continue to work with clients as they modify policies in response to this important development.

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