Arbitration Post-Epic

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Arbitration Post-Epic

Last year, the U.S. Supreme Court made an impactful ruling regarding class action lawsuits and arbitration agreements. In Epic Systems, the Court held that agreements requiring employees to waive their right to file a class action lawsuit, and instead file claims individually in a private arbitration system, are enforceable.

The Court evaluated two potentially competing federal laws, the National Labor Relations Act (“NLRA”) and the Federal Arbitration Act (“FAA”). The NLRA permits employees to engage in “other concerted activities for the purpose of . . . other mutual aid or protection.”See 29 U.S.C. § 157. Thus, the NLRA could be interpreted to allow class action lawsuits even if employees agreed to waive such rights. But the FAA upholds the rights of employees and employers to enter into arbitration agreements as a condition of employment, potentially superseding the permissive language of the NLRA.

The employer in Epic “e-mailed its employees an arbitration agreement requiring the resolution of wage and hour claims by individual arbitration” See Epic Sys. Corp., v. Lewis, 584 U.S., (2018), slip op. at 7 n.2 (Ginsburg, J., dissenting). When employees banded together and filed a class action lawsuit, there was a question as to whether the arbitration agreements were enforceable, and required the employees to instead individually arbitrate their legal claims. The Court found no violation of the NLRA, as Justice Gorsuch explained in the majority opinion: “Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the [the NLRA] – much less that it manifested a clear intention to displace the Arbitration act.” Id., slip op. at 25.

In light of Epic, more employers have used arbitration agreements, but this use has been met with employee backlash. For example, in the legal industry, some law students made pacts not to work for firms that require employees to sign arbitration agreements. And law firms responded by omitting the requirement. Courts have also struck back: several judicial rulings have annulled arbitration agreements, including Kentucky and New Jersey state courts, and the Fifth Circuit Court of Appeals in Huckaba v. Ref-Chem, L.P., 892 F.3d 686 (5th Cir. 2018), because the employer did not sign the agreement.

Legislative change might also be on the horizon. In late 2017, a group of bipartisan lawmakers proposed legislation (the “Ending Forced Arbitration of Sexual Harassment Act”) to prohibit forced arbitration agreements in cases involving sexual harassment and assault. The U.S. attorney generals for all 50 states – along with the attorney generals for D.C. and five territories – signed and sent a letter to Congress seeking to end mandatory arbitration clauses in sexual harassment cases.

These responses have highlighted key factors for employers to consider. What does an arbitration agreement indicate about a company’s culture? Will such an agreement make it harder to recruit talent? If there is going to be legislative change, is the potential PR or culture hit worth taking? And does an arbitration agreement help companies?

Certain claims are naturally hard to arbitrate (for example, a courtroom is likely preferable for an emergency injunction against an employee violating a non-compete agreement). Certain arbitration rules also require the employer to pay the arbitration expenses, which can be substantial. These are only some of the considerations employers must weigh in determining if arbitration will best serve their business. Before implementing a company-wide policy, discuss these and other issues with an experienced employment attorney.