The Supreme Court put to rest years of uncertainty regarding the enforceability of class action waivers for employees when it decided Epic Systems Corp. v. Lewis, 582 U.S. ___ (2018) on May 21.  In a 5-4 decision, the majority held that employers do not violate the National Labor Relations Act (NLRA) or the Federal Arbitration Act (FAA) by requiring employees to sign arbitration agreements that waive their rights to bring class action suits.  While the Supreme Court’s decision focused on class action waivers in the context of arbitration agreements, its holding could be extrapolated to uphold employee class action waivers included in any agreement between an employer and employee.

That employee class action waivers were enforceable was a relatively settled issue prior to the 2012 decision by the National Labor Relations Board in D.R. Horton, 357 NLRB No. 184. In D.R. Horton, the Board held that class action waivers in the employment context violate the NLRA because they bar employees from exercising their right to act concertedly for mutual aid and protection under Section 7 of the statute.  On appeal, the U.S. Court of Appeals for the Fifth Circuit declined to enforce the Board’s decision, holding that it violated the FAA.  See D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).

The D.R. Horton case set off a series of splits in authority between the Board and various federal courts.  Despite the Fifth Circuit’s refusal to enforce D.R. Horton in 2013, the Board stood its ground and reaffirmed its decision in a separate matter in 2014.  Meanwhile, the Second and Eighth circuits sided with the Fifth Circuit, while the Sixth, Seventh, and Ninth circuits all issued decisions affirming the Board’s D.R. Horton reasoning.  Due to the split in authority, the Supreme Court granted certiorari in three cases—one from the Fifth Circuit that rejected the Board’s ruling, and two from the Seventh and Ninth circuits that adopted it—to settle the matter.

Writing for the majority in Epic Systems, Justice Neil Gorsuch explained that the FAA requires that arbitration agreements be enforced just like any other contract, and that the NLRA contains no contradictory provision excluding class action waivers from the FAA’s mandate.  Justice Gorsuch further asserted that employees’ right to bargain collectively and organize unions under Section 7 of the NLRA does not include a particular right to bring class action suits.  Finally, Justice Gorsuch declined to extend deference to the Board’s position because it involved interpretation of the FAA, which, he maintained, falls outside the Board’s statutory authority.

Justice Ruth Bader Ginsburg wrote a lengthy dissent, in which the Court’s other liberal justices joined.  Justice Ginsburg accused the majority of ignoring eighty years of Board precedent providing that the NLRA protects employees from interference when they pursue class actions related to the terms and conditions of their employment.  Justice Ginsburg’s dissent also touched on the policy considerations of the majority’s decision, asserting that the result of the decision would be “the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

The Court’s decision in Epic Systems is seen as a significant victory for employers.  The threat of class action litigation is often considered one of the most important legal risks in the employment law context, particularly for companies with large workforces.  Employers may now want to review their agreements with employees and consider whether to modify them to include class action waivers.

While the risk of class action lawsuits may be lower, violation of employment laws may still subject employers to individual arbitration.  Furthermore, arbitration agreements may not bar employees from filing complaints with the EEOC, which in turn may choose to investigate and initiate enforcement proceedings in court.  Employers should also analyze whether their arbitration agreements fall under the purview of the FAA.  If they do not, then they may be subject to state law alternatives.  For example, employees in California can bring suits on behalf of themselves and other workers under the Private Attorneys General Act, which can proceed in a similar manner as class actions.

Tags: arbitration, class action, epic
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Photo of Tom Plotkin Tom Plotkin

Tom Plotkin advises companies on a broad range of ESG issues with a focus on social responsibility, including business and human rights, equity and civil rights, and external engagement and brand reputation.

As a member of Covington’s Business and Human Rights practice, Tom…

Tom Plotkin advises companies on a broad range of ESG issues with a focus on social responsibility, including business and human rights, equity and civil rights, and external engagement and brand reputation.

As a member of Covington’s Business and Human Rights practice, Tom advises clients on all aspects of the corporate responsibility to respect human rights, including issues related to supply chain due diligence and responsible sourcing, downstream product use and human rights impacts, and strategies for integrating human rights oversight into broader compliance programs.

Tom is also a member of Covington’s Institutional Culture and Social Responsibility practice, where he assists companies in evaluating and managing the legal, business, and reputational risks associated with social impacts of business practices. Tom’s work in this area focuses on civil rights and diversity, equity, and inclusion.

As a member of Covington’s ESG practice, Tom draws on his social responsibility portfolio to assist companies in bridging internal practices and external engagement strategies. Tom assists with public ESG reporting, responding to shareholder ESG proposals, and external stakeholder engagement.

Tom is also a member of Covington’s Employment practice, where he advises on a range of domestic and international employment law issues.

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Photo of Lindsay Burke Lindsay Burke

Lindsay Burke co-chairs the firm’s Employment Practice Group and regularly advises U.S., international, and multinational employers on employee management and culture issues and international HR compliance. She is a key member of the firm’s Institutional Culture and Social Responsibility practice, working together with…

Lindsay Burke co-chairs the firm’s Employment Practice Group and regularly advises U.S., international, and multinational employers on employee management and culture issues and international HR compliance. She is a key member of the firm’s Institutional Culture and Social Responsibility practice, working together with white collar colleagues to conduct culture assessments, internal investigations of executive misconduct, and civil rights and racial equity audits and assessments. Lindsay has been at the forefront of the changing workplace issues impacting employers in the U.S. in the last decade, including #MeToo, Covid-19, and the renewed focus on diversity, equity, and inclusion. She frequently advises employers in relation to their processes and procedures for investigating complaints of discrimination, harassment, and retaliation and trains executive teams and board members on culture risk and the lawful implementation of DEI programs.

Lindsay also guides employers through the process of hiring and terminating employees and managing their performance, including the drafting and review of employment agreements, restrictive covenant agreements, separation agreements, performance plans, and key employee policies and handbooks. She provides practical advice against the backdrop of the web of state and federal employment laws, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act, and the False Claims Act, with the objective of minimizing the risk of employee litigation. When litigation looms, Lindsay relies on her experience as an employment litigator to offer employers strategic advice and assistance in responding to demand letters and agency charges.

Lindsay works frequently with the firm’s privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups. She also regularly provides U.S. employment law training, support, and assistance to start-ups, non-profits, and foreign parent companies opening affiliates in the U.S.

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