Epic Systems Corp. v. Lewis: Employers' Perspective

• Publication year: 2018
• Author: By Mary-Christine Sungaila, Alex Stevens and Marco A. Pulido

Epic Systems Corp. v. Lewis: Employers' Perspective

By Mary-Christine Sungaila, Alex Stevens and Marco A. Pulido

Mary-Christine Sungaila is an appellate partner in Haynes and Boone's Costa Mesa office. Alex Stevens and Marco A. Pulido are associates at the firm. Sungaila and Stevens authored an amicus brief on behalf of the International Association of Defense Counsel in Epic Systems Corp. v. Lewis.

The U.S. Supreme Court's recent decision in Epic Systems Corp. v. Lewis² confirms that the Federal Arbitration Act (FAA) requires arbitration agreements to be enforced according to their terms, even individual arbitration agreements between an employer and an employee. In this article, we detail the impact of the high court's decision on Fair Labor Standards Act (FLSA) claims. We also outline the decision's implications for the arbitrability of claims arising under California's Labor Code Private Attorneys General Act (PAGA).

Epic Answers Whether Employers and Employees Can Agree to Individually Arbitrate Employment-Related Claims

Epic concerned three consolidated FLSA cases involving employer-employee agreements requiring bilateral (i.e., individual) arbitration: Epic Systems Corp.³, which arose from the U.S. Court of Appeals for the Seventh Circuit; Ernst & Young, LLP v. Morris⁴, from the Ninth Circuit; and National Labor Relations Board v. Murphy Oil USA, Inc.⁵, from the Fifth Circuit. The trio of cases before the Supreme Court differed "in detail but not in substance."

In Ernst & Young, the accounting firm and one of its junior accountants, Stephen Morris, entered into an arbitration agreement specifying individualized arbitration, with claims pertaining to different employees to be heard in separate proceedings. After his employment ended, Morris brought a class and collective action against Ernst & Young in federal court, alleging that the firm had misclassified its junior accountants as professional employees and had violated the FLSA and California law by paying them salaries without overtime pay. The district court granted Ernst & Young's motion to compel arbitration, but the Ninth Circuit reversed that decision.

In Lewis v. Epic Systems, Jacob Lewis (a technical writer) and Epic Systems (a health care software company) entered into an agreement requiring any wage-and-hour claims against the company to be brought only through individual arbitration. After a dispute with Epic Systems, Lewis sued in federal court, alleging that Epic Systems violated the FLSA and Wisconsin law by misclassifying Lewis and his fellow technical writers to avoid paying them overtime. Epic Systems moved to compel arbitration. The district court denied that request, and the Seventh Circuit affirmed.

In Murphy Oil, the National Labor Relations Board (NLRB) issued an order in which it concluded that Murphy Oil USA Inc. unlawfully obligated certain employees to sign an arbitration agreement waiving their right to pursue class and collective actions. Murphy Oil petitioned the Fifth Circuit for review of the NLRB's decision. The Fifth Circuit partially granted the company's petition, holding that the company did not commit unfair labor practices by requiring employees to sign its arbitration agreement, or by seeking to enforce the bilateral arbitration agreement in federal district court.

The U.S. Supreme Court reversed the judgments of the Ninth Circuit in Ernst & Young and the Seventh Circuit in Epic, but affirmed the Fifth Circuit's judgment in Murphy Oil. The Court held that the FAA requires courts to enforce arbitration agreements between employers and employees according to their terms, even when the agreements provide only for arbitration through "individualized proceedings" rather than class procedures. In so holding, the Court refused to read the National Labor Relations Act (NLRA) as prohibiting arbitration agreements requiring individualized arbitration as an impermissible restriction on employees' rights under NLRA § 7 to "engage in . . . concerted activities for the purpose of . . . mutual aid or protection,"⁶ holding that § 7 "focuses on the right to organize unions and bargain collectively" and "does not even hint at a . . . wish to displace the [FAA] ."⁷ The Court reasoned that the employees' theory ran "afoul of the usual rule that Congress does not alter the fundamental details of

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