SCOTUS Rules for Employers on Arbitration

The Supreme Court rules arbitration agreements and collective-action waivers are enforceable.
By: | May 22, 2018 • 4 min read
Shot of the supreme court, individual arbitration agreements ruled legal according to Supreme Court

As you may have seen by now, the U.S. Supreme Court handed a major win to employers yesterday in its 5-4 decision in Epic Systems Corp. v. Lewis, ruling that individual arbitration agreements and class- and collective-action waivers are enforceable.

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The decision resolves a circuit split on the enforceability of class-action waivers in arbitration agreements, and repudiates the recent position of the National Labor Relations Board that these waivers were unenforceable.  It also addressed three consolidated cases: Epic Systems Corp. v. Lewis (Seventh Circuit), Ernst & Young LLP et al. v. Morris et al. (Ninth Circuit) and National Labor Relations Board v. Murphy Oil USA, Inc., et al. (Fifth Circuit).

According to Anthony Haller with Blank Rome, the decision puts to rest any argument that the National Labor Relations Act prevents or limits waivers’ enforceability, as well as “provides employers further options for limiting litigation risk, particularly with respect to costly wage and hour collective actions.”

The decision, Haller says, has significant ramifications for the scope of class-action waivers.  In each of the three consolidated cases, the plaintiffs sought to press class actions with Fair Labor Standards Act and related state law claims.

“The decision represents a broader affirmation, however, that arbitration agreements are enforceable regardless of the nature of an employee’s claim, even if the claims are brought pursuant to employment statutes that explicitly provide for collective action,” Haller says.

But Andrew Melzer, partner and co-chair of Sanford Heisler Sharp’s wage and hour practice, calls the SCOTUS decision “very disappointing” because it fails to recognize the basic realities of the modern workplace.

“Employers divert their employees’ claims to individual arbitration in order to deprive them of a remedy for employment claims,” he says, adding:

“The Supreme Court’s decision continues a trend of manipulating the Federal Arbitration Act to insulate companies from being held accountable for illegal conduct.”

The FAA was intended only to place arbitration agreements on the same footing as other contracts, Melzer says, not to act as a super statute supplanting a host of substantive rights and remedies. “Further, the idea that employees are legitimately agreeing to and choosing arbitration is a fallacy; the line of cases at issue is about mandatory arbitration agreements imposed as a condition of employment.”

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While the decision is garnering plenty of headlines, he says, the practical impact of it may be “quite limited” due to substantial public outcry against confidentiality agreements and arbitration clauses, particularly in the #MeToo era.

In light of the backlash, he says, some employers have been reluctant to impose such provisions on their employees. For example, he cites a number of big law firms that have backtracked on mandatory arbitration policies and that no longer require employees to arbitrate their claims.

“Accordingly,” Melzer says, “employers should think twice before imposing arbitration agreements on their workers.”

Web Editor Michael J. O’Brien has been with HRE for more than a decade and holds a degree in economics from Boston College. He can be reached at [email protected]