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Supreme Court Rules That Class Action Waivers Can Be Included In Employee-Employer Arbitration Agreements

In Epic Systems Corp. v. Lewis the United States Supreme Court reviewed three circuit court cases involving employer-employee arbitration agreements.[1] The central issue in each case was whether employees and employers should be allowed to agree that any dispute between them will be resolved through arbitration, or whether employees should always be allowed to bring class actions no matter what they agreed to with their employers.

In each case the employee and employer had entered into an agreement providing for individualized arbitration proceedings to resolve employment disputes between the parties. However, the employees brought class actions against the employers and argued that courts were not compelled to order individual arbitration proceedings, as stated in the agreements, because the agreements violated the National Labor Relations Act (NLRA). The employees sought to have class action lawsuits classified as a "concerted activity" protected by §7 of the NLRA. That section guarantees employees "the right to self–organization, to form, join, or assist labor organizations, to bargain collectivity…, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection".[2]

The Federal Arbitration Act requires courts to enforce private agreements to arbitrate. However, the Act's savings' clause allows courts to refuse to enforce an arbitration agreement when grounds exist at law or in equity for the revocation of any contract. The employees' argued that the Act's savings' clause applied in this situation, because the NLRA rendered the class and collection action waiver illegal, which is a ground that exists in law for revocation.

In delivering the Court's opinion, Justice Gorsuch noted that the NLRA focused on the right to organize unions and bargain collectively, but it did not mention class or collective action procedures. He explained that the savings' clause did not provide a basis for refusing to enforce arbitration agreements that waive collection action procedures, and the NLRA did not manifest an intent to displace the Federal Arbitration Act and to outlaw class action waivers.

The Court held that the law was clear, and the Federal Arbitration Act required courts to enforce arbitration agreements – including the terms of an agreement that provides for individualized arbitration proceeding. The Lewis holding further expands the scope of terms parties may include in an arbitration agreement, and confirms that these agreements will be enforced according to the terms contained in the agreement.

[1] Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1151 (7th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017) and rev'd, 138 S. Ct. 1612 (2018); Morris v. Ernst & Young, LLP, 834 F.3d 975, 979 (9th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017) and rev'd sub nom. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013, 1015 (5th Cir. 2015), aff'd sub nom. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018).

[2] 29 U.S.C. §157.