The Federal Arbitration Act (FAA) requires courts to enforce agreements to arbitrate. However, its “saving clause” states that written arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
On the other hand, the National Labor Relations Act (NLRA) protects employees’ “concerted activities,” such as the right to self-organization and “the right to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
In the case of Epic Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018), the Supreme Court consolidated three cases faced with the following issue: Does the NLRA override the FAA? Should employees be allowed to file collective actions regardless of prior agreements to submit to arbitration?
In all three cases (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc.), employees signed agreements providing that they would arbitrate any disputes between them and their respective employers. Later, certain employees filed collective actions against their respective employers for violations under the Fair Labor Standards Act (FLSA). Epic Systems, Ernst & Young, and Murphy Oil each moved to compel arbitration.
The employees argued that the FAA’s saving clause removes the court’s obligation to enforce arbitration agreements if such an agreement violates a federal law. In this case, they argued that the FAA violated the NLRA because the latter protects “concerted activities,” which, according to the employees, includes filing class or collective actions. Thus, they argued, arbitration agreements, which waive the ability to file a class or collective action, should not be enforced.
In ruling against the employees, the Supreme Court held that the saving clause recognizes only defenses that apply to contracts (e.g., fraud, duress, or unconscionability) and not to defenses that apply only to arbitration or arising from the fact that an agreement to arbitrate is at issue. In other words, unless one party’s consent to arbitrate was obtained through, for example, fraud or duress, or said agreement was unconscionable, courts are obligated to enforce agreements providing for individualized proceedings. They cannot object to arbitration agreements just because they require individualized arbitration instead of class or collective actions.
Moreover, the court noted that the NLRA’s provision on the right to organize unions and bargain collectively does not mention class or collective action procedures. In fact, “concerted activities” cover only employees’ efforts related to organizing and collective bargaining in the workplace—not the treatment of class or collective actions in court or arbitration proceedings.
The Court in Epic Systems Corp made the law very clear: Arbitration agreements requiring employees to arbitration their individual claims do not violate the NLRA. When considering pursuing legal action against their employers, employees should take note of any agreements they signed submitting disputes to arbitration.
Read the entire the Epic Systems Corp decision here.