Supreme Court Gives Victory To Employers in Arbitration Case

In a split 5-4 decision in Epic Systems Corp. v. Lewis, the Supreme Court decided on May 21, 2018 that employers can prevent their employees from joining together to bring class action or collective action claims against the employer under the Federal Arbitration Act. Ordinarily, legal rules permit employees whose claims are sufficiently similar to join together and challenge common practices by an employer which violate the legal rights of a group of similarly situated employees. An example of such a claim would be if an employer unlawfully failed to pay overtime compensation to all of its employees who hold a certain job title and perform similar functions. In such a scenario, all of the employees who held that job in question and were deprived of overtime compensation could seek the wages owed to them in a single lawsuit in court, and notice would be sent to other employees about the existence of the lawsuit so that all of the employees whose rights are affected are made aware of the case. Such claims can involve dozens, or hundreds, or even thousands, of similarly situated employees, depending on the case. These rules which allow workers to join together and challenge the practices of an employer that violate the rights of many employees not only result in greater efficiency, but they are an important tool which helps to improve and enhance the enforcement of the law, and hold employers accountable when they violate the rights of employees.

However, in recent years, many employers have opted to impose mandatory arbitration policies on their employees, which prohibit employees from filing claims in court relating to their employment if they want to obtain or maintain their employment with the company. Instead, employers require employees to bring any claims relating to their employment through a different procedure called arbitration, which is secret and often more favorable to companies. In many of those mandatory arbitration policies, employers have also included language which prohibits the employees from joining together with other employees to bring class or collective action claims against the employer. As a consequence, any employee who wants to seek compensation for the violation of their rights must file their own individual claims in arbitration, and no notice is sent to other employees disclosing the existence of the case.

In reaching this decision, the majority of the Supreme Court concluded that the Federal Arbitration Act permitted employers to impose these mandatory arbitration policies which not only prevented employees from pursuing claims in court, but also prohibited employees from joining together to bring class actions or collective actions in a court or in an arbitration. The dissenting Justices of the Supreme Court disagreed, and reasoned that other statutes passed by Congress in the 1930s, which guaranteed workers the right to engage in “concerted activities” with other employees, protected the rights of employees to join together in class actions and collective actions to enforce their rights. The dissenting Justices also argued that empowering employers to impose these policies against their employees would result in decreased enforcement of the laws protecting workers, and would negatively impact the rights of workers who would be less likely to all come forward individually to bring claims against their employers in arbitration – resulting in employers not being held accountable for violations.

As a result of this decision, and others, it is likely that more and more employers will try to impose such mandatory arbitration policies against their employees. When presented with an arbitration policy by their employer, employees should seek legal advice and consultation. When challenged in court, employees are likely to focus more on trying to prove that an employers’ purported arbitration policy cannot be enforced against an employee because there was no agreement, or contract, to arbitrate claims in the first instance. One such case handled by Madsen, Prestley & Parenteau is available here.