On May 21, 2018, in a 5-4 decision, the United States Supreme Court upheld employers’ use of class action and collective action waivers in arbitration agreements. The opinion in Epic Systems Corp. v. Lewis resolves a trio of cases before the Supreme Court in which employees brought suits against their employers alleging state and federal wage and hour violations. In each situation, the employees had signed arbitration agreements banning collective judicial and arbitral proceeding of any kind. Despite the provisions in their agreements that required them to resolve any employment-related disputes in individualized proceedings, they sought to litigate their claims in class or collective actions.
Writing for the majority, Justice Neil M. Gorsuch said the court’s conclusion was dictated by a federal law favoring arbitration and the court’s precedents. “In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.” The Court noted that if workers could band together to pursue their claims collectively when they had previously agreed to waive that right, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.” The Court upheld the employment agreements that required the employees to submit their claims against their employers to binding arbitration, and to do so only one-by-one, and not as part of a class or collective action.
This is a significant victory for employers. By signing agreements containing these provisions, workers give up their right to band together and sue in court for back pay or damages and are instead forced to take their disputes to arbitrators individually. It is significantly more challenging for an employee to pursue his or her case alone rather than as part of a larger group of affected employees. Plaintiffs’ lawyers are reluctant to file individual complaints in which the judgments or settlements will be small and not worth their time, and many workers are hesitant to file their lawsuits as individuals, fearing their employers will ostracize or retaliate against them.
Employers can take advantage of this ruling by requiring all employees to sign written employment agreements that contain enforceable arbitration provisions and include a waiver of the right to proceed in class or collective judicial or arbitral proceedings. Careful drafting and preparation is required to ensure that the employment agreement will be enforced, and many factors must be considered and addressed in the agreement.
For more information about this topic, assistance reviewing your current arbitration agreement or preparing anew arbitration agreement in compliance with this recent ruling, please contact the attorneys at Saunders, Walsh & Beard.