The Supreme Court of the United States issued a decision this week holding that collective action waivers in employment contracts remains enforceable. This decision validates over 25 million employment contracts in the country and re-affirms employers’ rights to engage in alternative dispute mechanisms with employees on a bilateral basis.  

In Epic Systems Corp. v. Lewis ¹, the Court resolved a split in authority among the federal courts of appeals ² and concluded that the Federal Arbitration Act (“FAA”) validates all forms of arbitration and that the National Labor Relations Act (“NLRA”) does not provide substantive rights to employees to resolve employment-related disputes through collective action. Following this decision, employers will not have to alter their employment practices with respect to employment contracts. 

Facts of the Case:

In 2014, Epic Systems (“Epic”), a health care software company, sent an email to its employee Jacob Lewis requesting his signature on an arbitration agreement stipulating that “wage-and-hour claims could be brought only through individual arbitration.” Despite acceptance of the arbitration agreement, Lewis later brought a collective action lawsuit against Epic in the Western District of Wisconsin contending that the agreement mandating individual arbitration was unenforceable under the NLRA.

Arguments: 

In a consolidation of a trio of cases before the Supreme Court (including a Fifth Circuit decision in support of the employers) ³, the Supreme Court heard arguments on October 2, 2017 related to the interplay between two federal laws, both of which date back nearly a century. Employers argued that such collective actions waivers are not only permissible, but are encouraged under the FAA through its public policy in favor of arbitration. Employers further pointed out that even if the NLRA does contemplate some protection for collective action, class action is a procedural vehicle which squarely falls outside of the scope of the NLRA’s substantive protections. Therefore, any substantive rights to use class procedures under various employment-related statutory frameworks should not be recognized.

Employees unsuccessfully argued that a logical reading of Sections 7 and 8 of the NLRA provides a clear prohibition of any practice that prevents employees from engaging in “concerted activities”. Employees also asserted that the practical realities of the workforce reflect the need for the Court to account for the diminished bargaining power of employees, many of whom either do not comprehend the complexities of bilateral arbitration procedure imposed upon them or do not present enough incentives for attorneys to bring such claims on their behalf. 

What Does This Decision Mean for You?

This decision re-affirms the long-standing Texas view that arbitration could only be initiated between the employer and employee. It provides further reassurance to employers that if they have an arbitration clause in their employment agreements, they should not find themselves defending against multiple plaintiffs or a class action lawsuit. As a practical matter, agreements containing collective action waivers will be duly enforced and no modification is necessary. Employers should feel encouraged by this decision to continue to include such waivers in employment contracts. While the extent of this ruling as applicable to collective action waivers in other types of arbitration agreements remains to be litigated, the decision today should be a victory to small businesses and employers nationwide. 

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¹ Consolidated with Ernst & Young v. Morris and National Labor Relations Board v. Murphy Oil USA, Inc.

² Compare Lewis v. Epic Systems Corp. , 823 F.3d 1147 (7th Cir. 2016) with D.R. Horton, Inc. v. NLRB , 737 F.3d 344 (5th Cir. 2013). 

³ D.R. Horton, Inc. v. NLRB , 737 F.3d 344 (5th Cir. 2013)

Contact Monty & Ramirez LLP to schedule a conference call to make sure you are using an arbitration agreement in line with this week's ruling from the Supreme Court.