The Trump Effect: The Supreme Court Sides With Employers In Class Action Arbitration

The recent appointment of Justice Neil M. Gorsuch to the United States Supreme Court is already yielding dividends to employers.  On May 21, in Epic Systems v. Lewis, the Court ruled that, as a condition of employment, an employer may lawfully require its employees to agree to take all employment-related disputes to arbitration on an individual basis, and waive their right to participate in a class action suit or class arbitration.

The employees in Epic Systems sought to litigate Fair Labor Standards Act and related state law claims through class and/or collective actions in federal court, even though they had entered into contracts to resolve employment disputes solely through individual arbitration proceedings. The employer sought to dismiss the case because it insisted, as a condition of employment, that the employees waive their ability to go to court or be part of a class action; thus any dispute had to be resolved out of court, in arbitration.

The National Labor Relations Act (NLRA), a federal law adopted in 1935, protects a right for employees to engage in “concerted activities for the purpose of … mutual aid or protection.” But, Justice Gorsuch, joined by the conservative justices— John G. Roberts Jr., Anthony Kennedy, Clarence Thomas, and Samuel A. Alito Jr.— ruled that the arbitration clause in the employment contract had to be enforced, and the employees could not go to court, or even have a class arbitration. This decision is based on the Federal Arbitration Act, a law adopted in 1925, which provides that arbitration clauses in contracts shall be enforced. The Court rejected the claim that the NLRA (which focuses primarily on employees’ rights to organize unions and bargain collectively) protects an employee’s right to bring class or collective action claims in litigation.

This Supreme Court ruling is a tremendous win for employers. It shows a business friendly court that is going to continue to enforce arbitration clauses and preclude class remedies.  Arbitration agreements are now clearly enforceable, and provide employers a significant tool in mitigating the risk of class and collective litigation.  

Employers who (1) have adopted arbitration as the preferred method of resolving workplace disputes; and (2) may be vulnerable to class action lawsuits, should strongly consider including class action waivers as part of their arbitration agreements.