When Arbitration is in Play, Class Action is off the Table

In the decision rendered by the Supreme Court in Epic Systems Corp. v. Lewis, employers are able to enforce individual arbitration proceedings if arbitration was agreed to in an employment contract. Settling a Circuit split on the issue, the Supreme Court decision affirmed the Fifth Circuit holding in Murphy Oil, and remanded the Ninth and Seventh Circuit decisions in Ernst & Young, LLP v. Morris and Epic Systems Corp. v. Lewis. Justice Gorsuch, writing for the majority, found that as a matter of law the answer is clear. [ . . . ] Congress has instructed federal courts to enforce arbitration agreements according to their terms–including terms providing for individualized proceedings.” (Epic Systems Corp. v. Lewis, 584 U.S. ___ (2018) (slip op., at 2).

The Court, when looking at the Arbitration Act and the National Labor Relations Act (“NLRA”), decided the two provisions could be read in harmony. When confronted with two Acts of Congress allegedly touching on the same topic, this Court is not at liberty to pick and choose among congressional enactments’ and must instead strive to give effect to both.’” (Id., slip op. at 10) (quoting Morton v. Mancari, 417 U.S. 535, 551 (1974). The Court was unable to find any clear and manifest” intent, as required by Morton, of Congress to displace the Arbitration Act with the NLRA.

The Court found that their holding was consistent with the prior decisions in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991) and NLRB v. Alternative Entertainment, Inc., 858 F. 3d 393, 413 (CA6 2017) finding that the Fair Labor Standards Act and Age Discrimination in Employment Act do not displace the Arbitration Act. The Court likened the employee’s theory to an interpretive triple bank shot” that raise[s] a judicial eyebrow.” (Epic Systems Corp., slip op., at 15). Justice Gorsuch also reminded the employees that Congress does not, one might say, hide elephants in mouseholes.” (Id., quoting Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001). Therefore, the Court sided with the employers and held that Congress has instructed that arbitration agreements like those before us must be enforced as written.” (Id., slip op., at 25).

Justices Roberts, Kennedy, Thomas, and Alito joined in the majority. Justice Thomas also issued a concurring opinion, stating that the arbitration provisions should be enforced because the illegality issue is a public-policy defense that does not concern whether the contracts were properly made. (Id., Thomas, J., concurring). Justices Ginsburg, Breyer, Sotomayor, and Kagan dissented, finding that the majority’s decision egregiously wrong” because the Arbitration Act does not permit employers to insist their employees seeking redress for commonly experienced wage loss, go it alone.” (Id., Ginsburg, J., dissenting). Nor does the Arbitration Act require subordination of the NLRA’s protections.” (Id.). Justice Ginsburg also articulated her fears that individualized arbitrations of employee complaints can give rise to anomalous results.” (Id.).

What Does This Decision Mean For Employers Going Forward?

If employers have an arbitration provision in their contracts with their employees, that arbitration agreement will be enforced. That means when the employer and employee have an agreement to pursue arbitration rather than litigation, employees are not allowed to pursue class action litigation. As Justice Gorsuch explained, “[t]he parties before us contracted for arbitration. They proceeded to specify the rules that would govern their arbitrations, indicating their intention to use individualized rather than class or collective action procedures. And this much the Arbitration Act seems to protect pretty absolutely.” (Id., slip op., at 6). Therefore, if an employer is already using an employment contract that contains an agreement to arbitrate, they can expect that the agreement will be enforced and the costs of defending a class action litigation will be avoided.