Supreme Court Scratches “Triple Bank Shot” Attempt to Invalidate Class/Collective Action Waivers

May 22, 2018

In a 5-4 opinion in Epic Systems Corp. v. Lewis and two companion cases, the U.S. Supreme Court on May 21, 2018, held that class and collective action waivers in employees’ arbitration agreements are enforceable under the Federal Arbitration Act (FAA), do not violate the National Labor Relations Act (NLRA), and can require employees to arbitrate their claims solely on an individual basis. This much-anticipated decision paves the way for employers to continue implementing arbitration agreements as a means of avoiding class and collective action employment claims, with far greater certainty that they will be enforced by the courts.

Epic Systems involved a series of challenges to the enforceability of class and collective action waivers in employees’ arbitration agreements, based primarily upon the NLRA. In holding that the arbitration provisions at issue in the three cases were each valid and enforceable, the court rejected a series of arguments advanced by the employees.

First, the employees argued that the FAA’s savings clause, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” applied because the NLRA rendered the class/collective action waivers illegal. The court held that the savings clause was inapplicable, finding that only “generally applicable contract defenses, such as fraud, duress, or unconscionability,” can be invoked under it, which the illegality argument posed by the employees did not entail. Rather, the employees objected to the nature of the individualized arbitration proceedings to which they were required to submit. The court concluded that this was merely an objection to a fundamental attribute of arbitration that is not subject to challenge under the savings clause.

Second, the court tackled the employees’ argument that the NLRA’s Section 7 rights to self-organize; to form, join or assist labor organizations; to bargain collectively; and to engage “in other concerted activities for the purpose of collective bargaining or other mutual aid or protection” override and displace the FAA’s so-called conflicting mandate that arbitration agreements be enforced as written. Noting the “heavy burden” a party faces when it seeks to displace one federal statute with another, the court found that there was no clear congressional intent that the NLRA displace the FAA in any respect, and that the conflict the employees claimed to exist was “no conflict at all.” The court held that, while the NLRA has a comprehensive regulatory scheme, neither the NLRA nor Section 7 contains any references to arbitration or class or collective action procedures, and the “catch-all” language in Section 7 protects only the same kinds of collective bargaining and associational activities that are otherwise protected under Section 7 — and does not constitute an unfettered right to pursue class and collective actions in court or arbitration. The court further held that the employees’ attempts to recast the NLRA, in order to dictate the procedures for Fair Labor Standards Act (FLSA) claims and to override the commands of the FAA, amounted to a doomed “interpretive triple bank shot.”

Lastly, the court rejected the employees’ argument that, under the Chevron doctrine, it should defer to the National Labor Relations Board’s (NLRB) most recent interpretation of the NLRA as displacing the FAA. After noting the NLRB’s conflicting opinions on this issue over the last eight years, the court held that, while the Chevron doctrine allows for deference to an agency’s interpretation of a “statute which [the agency] administers,” the NLRB was not merely seeking deference as to its interpretation of the NLRA. Instead, the court held that the NLRB was seeking to impose its interpretation of the NLRA in a way that not only interpreted the NLRA, but also interpreted and otherwise limited the FAA, a separate federal statute the NLRB does not administer. Accordingly, the court held that deference to the NLRB’s interpretation of the broad scope of the NLRA as overriding the FAA was not warranted.

This Epic decision is a sound win for employers and removes one of the last potential impediments to the enforcement of class and collective action waivers in employees’ arbitration agreements. It also may address a related issue — in California and the U.S. Court of Appeals for the Ninth Circuit, such waivers have been held to be unenforceable as applied to representative action claims pursued under the California Labor Code Private Attorney General Act (PAGA).  Although Epic does not directly address this issue, the decision speaks in the broadest of terms in describing the pre-emptive effect of the FAA with respect to any type of direct or indirect limitation imposed by courts or legislatures on the enforcement of arbitration agreements as written. It therefore can be read as invalidating this California and Ninth Circuit precedent. At a minimum, Epic sets the stage for the Supreme Court to finally grant certiorari in a case involving arbitration of PAGA claims and resolve that issue once and for all.

For assistance or advice on implementing or updating employment arbitration agreements to utilize a class and collective action waiver, or for questions related to this article, please contact the authors, your McGuireWoods contact or a member of the firm’s labor and employment group.