U.S. Supreme Court Upholds Epic Systems Class Action Waivers

May 21, 2018

Today, the United States Supreme Court, in what will likely be an important decision for employers and employees, ruled in a five to four decision that employees who sign agreements with their employers, can be required to arbitrate employment claims (nothing new) and, in arbitration, can give up proceeding on a class or collective basis.  Epic Systems Corp. v. Lewis¸ 584 U.S. ___ (2018).  Employees at Epic Systems sued the company, claiming that Epic Systems’ pay practices violated the Fair Labor Standards Act, the federal law governing payment of minimum wages and overtime compensation.  The employees had signed agreements that required they arbitrate all employment disputes, including wage and hour claims.  Arbitration is an alternative to filing a lawsuit in court.

The arbitration agreement also required that the employees pursue their claims, including wage and hour claims, on an individual basis and not part of a class or collective action.  The employees challenged the arbitration and class/collective action waiver provision.  The employees won at the trial court and the court of appeals levels.

The United States Supreme Court disagreed with the lower courts and ruled for Epic Systems.  The Supreme Court, again, spoke approvingly of the importance of arbitration as an alternative to court litigation for resolving disputes.  Although the Epic Systems case involved the employees bringing a collective action under the Fair Labor Standards Act, the parties and the Supreme Court addressed the enforceability of the class/collective action waiver under a separate federal law, the National Labor Relations Act (“NLRA”).  The NLRA protects employees, whether or not unionized, who engage in protected concerted activity in the workplace.  These rights are often referred to as Section 7 rights.  The employees argued that this protection forbids an employer from having employees waive the right to engage in class or collective actions.  The Supreme Court observed that Section 7 of the NLRA was primarily to protect unionized employees.  The Supreme Court ultimately concluded that employees could waive their rights under Section 7 to proceed as part of a class or collective action.

The Supreme Court’s decision in Epic Systems will certainly result in increased use by employers of arbitration agreements containing class and collective action waivers.  The decision will also reduce the number of employment class and collective actions in federal and state court.  Because the Epic Systems decision was based on language in the federal laws, Congress can amend these laws, if it chooses, and permit employment claims to be brought as class or collective actions.  One thing is for sure, the Epic Systems case will be a boon for arbitration.  Employees who believe they have suffered the same wrong, such as being misclassified as exempt from overtime, may now bring dozens or even hundreds of individual claims in arbitration, rather than a single class claim.