Epic Systems Corp. v. Lewis
In Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), the United States Supreme Court addressed the issue of whether an agreement requiring an employer and an employee to resolve disputes through individualized arbitration (i.e. waiving class and collective proceedings) is enforceable under the Federal Arbitration Act (FAA) and the National Labor Relations Act (NLRA). The Court held, in a 5-4 decision, that neither the NLRA nor the “saving clause” of the FAA prohibits employees and employers from agreeing to individualized arbitration.
Lewis involved three separate cases regarding employees entering into agreements with their employers that requires them to arbitrate disputes on an individualized basis, barring collective or class action arbitration proceedings. Despite the arbitration agreement, the employees attempted to bring a class action in federal court against their employers alleging that they were not paid overtime in violation of the Fair Labor Standards Act (FLSA). The employees argued (1) that the “saving clause” of the FAA permits courts to refuse to enforce arbitration agreements if it violates some other federal law; (2) that the arbitration agreements, by requiring individualized arbitration, violate the NLRA, which guarantees employees “the right…to engage in concerted activities;”1 (3) that notwithstanding the “saving clause,” the NLRA overrides the FAA and renders individualized arbitration agreements unenforceable; and (4) that regardless of the Court’s interpretation, they must defer to the interpretation of the NLRA Board.
The Supreme Court (SCOTUS) held that the FAA was enacted to, and clearly instructs courts to, enforce arbitration agreements, including individualized arbitration. In response to the employees’ arguments, SCOTUS held, respectively: (1) that the “saving clause” deals with traditional contract defenses such as duress and illegality, which is not inherently present in individualized arbitration agreements; (2) that the NLRA does not conflict with the FAA because the phrase “concerted activities” implies collective bargaining and unionizing rather than class action or collective arbitration; (3) that there is no congressional intent that the NLRA override the FAA; and (4) that the NLRA Board’s interpretation that the NLRA overrides the FAA is not controlling.
Lewis is an important decision because it affects employees across the Country who are employed pursuant to contractual agreements that mandate arbitration of individual claims over collective actions. The case stands for additional principles as well. First, this decision reinforces the general preference to enforce arbitration agreements agreed upon pursuant to the FAA. Second, in the SCOTUS decision, favoritism seems to be shown towards freedom of contract as opposed to individual employee rights, including the right to pursue collective or class action, as pointed out by the dissent. And third, the Court will defer to the legislature by striving to have two potentially conflicting statutes coexist rather than choosing to invalidate one in order to avoid the resemblance of judicial lawmaking.
1That concerted activity, according to the employees, includes bringing a collective or class action.