Mandatory Arbitration Agreements for Employees: Employer Use of Class Action Waivers, 0319 COBJ, Vol. 48, No. 3 Pg. 26

• Author: BY JOHN HUSBAND
• Position: Vol. 48, 3 [Page 26]

48 Colo.Law. 26

Mandatory Arbitration Agreements for Employees: Employer Use of Class Action Waivers

Vol. 48, No. 3 [Page 26]

Colorado Lawyer

March, 2019

FEATURE LABOR AND EMPLOYMENT LAW

BY JOHN HUSBAND

In Epic Systems Corp. v. Lewis, the U.S. Supreme Court ruled that mandatory arbitration agreements requiring an employer and an employee to resolve employment-related disputes through one-on-one arbitration do not violate the National Labor Relations Act. This article discusses that opinion and considers when and how employers may want to use agreements containing class action waivers in the employment context.

On May 21, 2018, the U.S. Supreme Court in Epic Systems Corp. v. Lewis ruled 5 to 4 that the Federal Arbitration Act (FAA) dictates that arbitration agreements be enforced, and the National Labor Relations Act (NLRA) does not override that policy to permit employees to bring class or collective actions when employees have agreed otherwise.^[1]

The decision, authored by Justice Gorsuch, resolved a controversial issue that arose from the National Labor Relations Board's (NLRB) 2012 opinion in D.R. Horton, Inc. v. N.L.R.B. which, for the first time, put the NLRA in conflict with the FAA.² Epic Systems is seen by many as a win for employers, offering an effective tool to combat costly and time-consuming employee class actions. This article discusses the decision and its implications.

Epic Systems Overview

In Epic Systems, the Court resolved three consolidated cases³ in which employees had alleged wage claims and sought to certify collective actions under the Fair Labor Standards Act (FLSA) as well as class actions under Federal Rule of Civil Procedure 23 for alleged state wage law violations.^[4] In each case, the respective employer sought to dismiss the collective lawsuits, moving to compel individual arbitration, as provided in arbitration agreements the employees had signed.^[5]

Despite having agreed to arbitrate any employment-related claims on an individual basis, the employees (and the NLRB) argued that the class action waivers in their arbitration agreements were unlawful, violating the employees' rights to engage in concerted activities for their mutual aid and protection under § 7 of the NLRA. They also argued that, although the FAA generally requires courts to enforce arbitration agreements as written, the FAA's "saving clause"⁶ eliminates that obligation if an arbitration agreement violates some other federal law.⁷

The employers countered those arguments by focusing on precedent holding that the FAA demands that individual arbitration agreements be enforced.⁸ The employers further asserted that nothing in the NLRA overrides the FAA's enforcement provision.⁹

NLRA does not Protect Class and Collective Actions

The majority phrased the question presented as: "Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or. should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?"¹⁰ The Court ruled that the FAA requires courts to enforce arbitration agreements on the terms t hat the parties select, subject to the courts' refusal to enforce arbitration agreements "upon such grounds as exist at law or in equity for the revocation of any contract"¹¹ (e.g., fraud, duress, unconscionability—not arbitration-specific defenses). The Court stated that the NLRA does not override the FAA, and that § 7 focuses on the right of employees to organize unions and bargain collectively, not on the right to pursue class or collective actions.¹² The Court pointed out that the parties in these cases contracted for individual arbitration and specified the rules that would govern their arbitrations, indicating their intention to avoid any class or collective action procedures.¹³ The Court concluded that neither the NLRA nor the FAA's savings clause protected the employees' ability to resolve employment disputes through collective or class action when the employees agreed to arbitrate their disputes with their employers on a one-on-one basis.¹⁴

The Dissent's Focus: Policy and Employee Rights

Given that Epic Systems was a 5 -to -4 decision...