Waivers

The Supreme Court yesterday extended its arbitration-friendly precedent holding in Epic Systems Corporation v. Lewis that the National Labor Relations Act (NLRA) does not prohibit employers and employees from agreeing to class action waivers in employment contracts.

Epic Systems involved consolidated appeals from the Fifth, Seventh and Ninth Circuit Courts of Appeal. In each case, an employee signed an employment contract denoting that the employee would arbitrate any disputes arising between the employee and the employer and providing further that the arbitration would occur on an individualized basis, with claims “pertaining to different employees to be heard in separate proceedings.” After a dispute arose between a particular employer and employee, the employee attempted to pursue his or her claims as a class action. The employer sought to compel individual arbitration, and the circuit courts split on whether contracts mandating individualized arbitration violates the NLRA,  29 U.S.C. § 157, by barring employees from engaging in “concerted acvitit[y].”

Writing for a 5-4 majority, Justice Gorsuch explained that the task before the Court was determining whether the Federal Arbitration Act, 9 U.S.C. §§ 1 et al. (FAA) could be read in harmony with the NLRA. The Court concluded it could. Observing that Congress passed the FAA to override judicial hostility to arbitration and manifested a “liberal federal policy favoring arbitration,” Justice Gorsuch noted that the FAA requires courts to enforce not only parties’ agreements to arbitrate, but also their preferred procedures for arbitration. Op. at 5-6 (citing 9 U.S.C. §§ 3-4). This directive, as the Court has held previously, requires courts to enforce arbitration agreements containing class action waivers. Op. at 6.

The Court held further that nothing in the NLRA conflicted with this broad interpretation of the FAA. The Court rejected the employees’ argument that 29 U.S.C. § 157 guarantee of workers’ “right to self-organization . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid of protection” reflected a congressional command to prohibit class action waivers. Op. at 11. The majority pointed out that § 157 did not address arbitration specifically, and reasoned that the “other concerted activities” catch-all must be read in light of the language that preceded it—all of which concern collective bargaining rather than alternative dispute resolution. Id. In so holding, the Court placed its ruling in Epic Systems in line with prior decisions rejecting purported conflicts between the FAA and other federal statutes:  “In many cases over many years, this Court has heard and rejected efforts to conjure conflicts between the Arbitration Act and other federal statutes. In fact, this Court has rejected every such effort to date,” with statutes involving the Sherman Act, Clayton Act, RICO and the Securities Acts of 1933 and 1934, amongst others. Op. at 16.

The Court’s opinion in Epic Systems is the latest in a series of decisions enforcing class action waivers against attempts to invalidate them. That line of authority began with AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which held that a California state rule that prohibited the enforcement of class action waivers was incompatible with, and thus preempted by, the FAA.  Two years later, the Supreme Court once again rejected a challenge to class action waivers in American Express Company v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), holding that class action waivers were compatible with the Sherman Act, even where plaintiffs may be disincentivized to pursue Sherman Act claims on an individualized basis given the expense typically associated with pursuing antitrust claims. And two years after that, in DIRECTV, Inc. v. Imburgia, 577 U.S. ___ (2015), the Court once again rejected a California state court rule that invalidated all arbitration agreements as unenforceable when they contained a class action waiver.

The Court in Epic Systems took care to remind the parties and the public alike that plaintiffs seeking to invalidate arbitration agreements are not without recourse. As the Court recognized in Concepcion, and reiterated in Epic Systems, state law defenses generally applicable to all contracts—including fraud, duress, and unconscionability—still apply and may still render an arbitration agreement unenforceable. But defenses to an arbitration agreement—including the procedures for arbitration chosen by the parties—that single arbitration out for special and disfavored treatment inevitably conflict with the FAA and cannot be sustained. In the face of a strident dissent by Justice Ginsburg, Epic Systems clarifies that this rule is broadly applicable and applies with full force to contracts between employers and employees, notwithstanding prior NLRB decisions to the contrary.

For more on the enforceability of arbitration agreements with class action waivers in the employment context, please see Foley’s Labor & Employment Perspectives blog post by clicking here.

For previous Foley coverage of the Epic case, please see Foley’s Wisconsin Appellate Law blog post by clicking here.