Supreme Court Restricts Employee Class Actions in Pro-Arbitration Ruling

Author: David B. Weisenfeld, XpertHR Legal Editor

May 23, 2018

Companies may compel their employees to arbitrate workplace disputes individually rather than as part of a class action, the US Supreme Court has ruled. The Court's 5-4 decision in Epic Systems Corp. v. Lewis broke down along partisan lines and could affect an estimated 25 million employment contracts.

Writing for the Court, Justice Neil Gorsuch - the Court's newest member and President Trump's nominee - said that arbitration agreements must be enforced as written. He explained that Congress has instructed federal courts to enforce arbitration agreements according to their terms, including terms providing for individual arbitration proceedings.

Employees had claimed that the National Labor Relations Act (NLRA) makes these arbitration agreements illegal because the contracts denied the workers the right to engage in "concerted activities" for their mutual aid and protection. The contracts required employees to submit their wage and hour claims to binding arbitration and to do so only on an individual basis.

While the NLRA secures to employees the right to organize unions and bargain collectively, it says nothing about how judges and arbitrators must try legal disputes, Justice Gorsuch explains. "This Court has never read a right to class actions into the NLRA - and for three quarters of a century neither did the National Labor Relations Board," said Justice Gorsuch.

The ruling makes clear that employers have a vehicle to sidestep the threat of class and collective actions, especially under the Fair Labor Standards Act, said Ballard Spahr employment attorney Steven Suflas, who manages the firm's Denver office. Suflas added, "[It] may give employers "additional ammunition in resisting the expansive views of the Obama NLRB about the application of the NLRA to non-union workplaces."

In a withering dissent, Justice Ruth Bader Ginsburg called the Court's decision "egregiously wrong." She suggested that the majority had resurrected "yellow dog" contracts that employees must sign as a condition of beginning work. "The inevitable result of today's decision will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers," wrote Justice Ginsburg.

Duane Morris employment attorney Jonathan Segal, of the firm's Philadelphia office, said as a public policy matter the Supreme Court's ruling may spark renewed support for congressional action. As an example, Segal pointed to the Senate bill, "Ending Forced Arbitration of Sexual Harassment Claims," which has bipartisan sponsorship. "Some describe this [ruling] as a big win for employers," said Segal. "I think it can be described more accurately as an opinion that creates a decision point for employers."

Although the Court made clear that employment agreements can force lawsuits into the arbitral forum, Sulfas said, "A poorly written arbitration agreement could leave an employer stuck with litigating class and collective actions in arbitration - a result far worse than facing such legal claims in court."

Suflas concluded, "The key piece of advice at this point is for employers to carefully draft (and review/revise) their employment arbitration agreements to make sure they are worded to achieve the business goals that the companies are seeking."