The Supreme Court put to rest years of uncertainty regarding the enforceability of class action waivers for employees when it decided Epic Systems Corp. v. Lewis, 582 U.S. ___ (2018) on May 21. In a 5-4 decision, the majority held that employers do not violate the National Labor Relations Act (NLRA) or the Federal Arbitration Act (FAA) by requiring employees to sign arbitration agreements that waive their rights to bring class action suits. While the Supreme Court’s decision focused on class action waivers in the context of arbitration agreements, its holding could be extrapolated to uphold employee class action waivers included in any agreement between an employer and employee.
That employee class action waivers were enforceable was a relatively settled issue prior to the 2012 decision by the National Labor Relations Board in D.R. Horton, 357 NLRB No. 184. In D.R. Horton, the Board held that class action waivers in the employment context violate the NLRA because they bar employees from exercising their right to act concertedly for mutual aid and protection under Section 7 of the statute. On appeal, the U.S. Court of Appeals for the Fifth Circuit declined to enforce the Board’s decision, holding that it violated the FAA. See D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).
The D.R. Horton case set off a series of splits in authority between the Board and various federal courts. Despite the Fifth Circuit’s refusal to enforce D.R. Horton in 2013, the Board stood its ground and reaffirmed its decision in a separate matter in 2014. Meanwhile, the Second and Eighth circuits sided with the Fifth Circuit, while the Sixth, Seventh, and Ninth circuits all issued decisions affirming the Board’s D.R. Horton reasoning. Due to the split in authority, the Supreme Court granted certiorari in three cases—one from the Fifth Circuit that rejected the Board’s ruling, and two from the Seventh and Ninth circuits that adopted it—to settle the matter.
Writing for the majority in Epic Systems, Justice Neil Gorsuch explained that the FAA requires that arbitration agreements be enforced just like any other contract, and that the NLRA contains no contradictory provision excluding class action waivers from the FAA’s mandate. Justice Gorsuch further asserted that employees’ right to bargain collectively and organize unions under Section 7 of the NLRA does not include a particular right to bring class action suits. Finally, Justice Gorsuch declined to extend deference to the Board’s position because it involved interpretation of the FAA, which, he maintained, falls outside the Board’s statutory authority.
Justice Ruth Bader Ginsburg wrote a lengthy dissent, in which the Court’s other liberal justices joined. Justice Ginsburg accused the majority of ignoring eighty years of Board precedent providing that the NLRA protects employees from interference when they pursue class actions related to the terms and conditions of their employment. Justice Ginsburg’s dissent also touched on the policy considerations of the majority’s decision, asserting that the result of the decision would be “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”
The Court’s decision in Epic Systems is seen as a significant victory for employers. The threat of class action litigation is often considered one of the most important legal risks in the employment law context, particularly for companies with large workforces. Employers may now want to review their agreements with employees and consider whether to modify them to include class action waivers.
While the risk of class action lawsuits may be lower, violation of employment laws may still subject employers to individual arbitration. Furthermore, arbitration agreements may not bar employees from filing complaints with the EEOC, which in turn may choose to investigate and initiate enforcement proceedings in court. Employers should also analyze whether their arbitration agreements fall under the purview of the FAA. If they do not, then they may be subject to state law alternatives. For example, employees in California can bring suits on behalf of themselves and other workers under the Private Attorneys General Act, which can proceed in a similar manner as class actions.