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Supreme Court's Ruling Regarding Arbitration Clauses is Positive News for Employers

On May 21, 2018, in a 5-4 majority decision, the U.S. Supreme Court in Epic Systems Corp. v. Lewis ruled that employers can require as a condition of employment that workers waive their rights to participate in class action lawsuits by entering into a mandatory arbitration clause in their employment agreement. Supreme Court Justice Neil Gorsuch wrote the majority opinion which sided with businesses whose employment contracts include mandatory arbitration clauses that prevent class action lawsuits. The Court ruled that workers who have signed agreements with these types of clauses included in the document must pursue their claims individually and not as part of a class action. The Court's ruling strengthens employers' arguments that employment contracts that impose mandatory arbitration clauses regarding disputes of any kind do not violate their employees' constitutional rights. Many businesses impose mandatory arbitration clauses that specifically forbid class action lawsuits. With this most recent ruling it is estimated that companies will increasingly use these types of clauses to limit their liability exposure.

Mandatory arbitration clauses in employment agreements are likely to be used with more frequency because such clauses can limit an employees' ability to be represented collectively in a class action lawsuit against their employer and therefore reduce the legal exposure for companies. This decision specifically stated that an employer's right to enforce arbitration agreements under the Federal Arbitration Act does not conflict with workers' rights under the National Labor Relations Act (NLRA). This ruling is significant for employers in limiting potential liability and reducing the costs in defending class action lawsuits. Employers need to be careful how they draft arbitration provisions, but if done correctly, these provisions can be very beneficial to employers.

The decision applied to a number of consolidated cases. However, in each case, workers sought to have their Fair Labor Standards Act wage-and-hour claims litigated as class/collective actions, claiming that they had been underpaid. In each case, the employer had employees sign employment agreements which require the employees to resolve such disputes in arbitration rather than in court and that they file their claims one by one. This case determined how far companies can go in insisting that disputes be resolved in individual arbitrations rather than in Court. Critics of the decision claim it will hurt workers' rights by allowing class actions to be stamped out through arbitration agreements.

Arbitration clauses with class waivers are commonplace in contracts for cell phones, credit cards, rental cars and nursing home care contracts. After this ruling it is expected that many more employers will have this type of clause in their employment agreements. In this Supreme Court case, workers argued that employment contracts are different. They argued that the NLRA prohibited class waivers and that the NLRA protected workers' rights to engage in "concerted activities." A majority of the Supreme Court believed otherwise. The practical result of the Supreme Court ruling is that if companies have well drafted arbitration clauses in their employment agreements, they can limit their employees' ability to go to court to sue over alleged violations of workplace laws - instead employees would need to go through the process of binding arbitration and bring their complaints as individuals and not as part of any group or class. This revision will greatly benefit employers in the long run. Wessels Sherman can help employers draft employment agreements that include mandatory arbitration clauses.

Questions? Contact Attorney Joseph Laverty in our Davenport office at (563) 333-9102 or by email at [email protected]

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