Epic Systems Corp. v. Lewis
138 S.Ct. 1612 (2018)
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Rule of Law:
The Federal Arbitration Act requires courts to enforce arbitration agreements according to their terms, including terms providing for individualized, non-class proceedings. The National Labor Relations Act does not contain a clear and manifest congressional command to override this mandate, as its protection of "concerted activities" does not guarantee a right to class or collective actions in litigation or arbitration.
Facts:
- Epic Systems Corporation, Ernst & Young LLP, and Murphy Oil USA, Inc. entered into employment contracts with their respective employees.
- These contracts contained arbitration clauses requiring any employment-related disputes to be resolved through binding arbitration.
- The arbitration provisions explicitly required that claims be brought on an individual, one-on-one basis and expressly waived the employees' right to participate in any class or collective action.
- Despite having signed these agreements, employees at each company sought to bring claims against their employers for alleged violations of the Fair Labor Standards Act and related state wage-and-hour laws.
- The employees attempted to pursue these claims collectively, either as a collective action under the FLSA or a class action under the Federal Rules of Civil Procedure.
Procedural Posture:
- In three separate cases, employees sued their respective employers (Epic Systems, Ernst & Young, and Murphy Oil) for alleged violations of the Fair Labor Standards Act.
- Employees in each case sought to pursue their claims as a class or collective action in either federal court or before the National Labor Relations Board (NLRB).
- The employers moved to compel individual arbitration based on employment agreements containing class and collective action waivers.
- In Lewis v. Epic Systems, the U.S. Court of Appeals for the Seventh Circuit (an intermediate appellate court) held the waiver was unenforceable, siding with the employee.
- In Morris v. Ernst & Young, the U.S. Court of Appeals for the Ninth Circuit (an intermediate appellate court) also held the waiver unenforceable.
- In NLRB v. Murphy Oil, the U.S. Court of Appeals for the Fifth Circuit (an intermediate appellate court) held the waiver was enforceable under the FAA, siding with the employer.
- The U.S. Supreme Court granted certiorari to resolve this split among the federal circuit courts of appeal.
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Issue:
Does an employment agreement requiring individualized arbitration proceedings violate the National Labor Relations Act by prohibiting employees from pursuing work-related claims on a collective or class basis?
Opinions:
Majority - Justice Gorsuch
No, an employment agreement requiring individualized arbitration proceedings does not violate the National Labor Relations Act. The Federal Arbitration Act (FAA) establishes a liberal federal policy favoring arbitration and requires courts to rigorously enforce arbitration agreements according to their terms. The employees' challenge targets a fundamental attribute of arbitration—its individualized nature—and is therefore not a valid defense under the FAA's saving clause, which only permits generally applicable contract defenses like fraud or duress, as established in AT&T Mobility LLC v. Concepcion. The Court found no clear and manifest congressional intention in the National Labor Relations Act (NLRA) to displace the FAA. Section 7 of the NLRA, which protects the right to engage in "concerted activities," focuses on the rights to organize unions and bargain collectively in the workplace, not on the procedures for resolving legal disputes in court or arbitration. The NLRA does not mention class or collective actions, which were not prominent procedures when the Act was passed in 1935, and provides no rules for how such actions should proceed. Therefore, the statutes can be read harmoniously, with the FAA governing the enforceability of the arbitration agreement and the NLRA governing workplace organization.
Concurring - Justice Thomas
No, the agreement does not violate the NLRA. Joining the majority opinion in full, the concurrence adds that the FAA's saving clause only provides grounds for the 'revocation' of a contract, which concerns defects in the contract's formation, such as fraud or duress. The employees' argument that the class waiver is illegal is a public-policy defense, not a defense related to contract formation. Because public-policy defenses do not concern whether the contract was properly made, the saving clause does not apply, and the arbitration agreements must be enforced as written.
Dissenting - Justice Ginsburg
Yes, an employment agreement requiring individualized arbitration proceedings violates the National Labor Relations Act. The core purpose of the NLRA was to remedy the severe imbalance of bargaining power between individual employees and their employers by protecting their right to act in concert. Pursuing legal claims as a group is a quintessential form of 'concerted activit[y]' for 'mutual aid or protection' protected by Section 7 of the NLRA. By forcing employees into one-on-one arbitration, employers effectively suppress this right and prevent the enforcement of workplace protections like wage-and-hour laws, as individual claims are often too small to be worth pursuing alone. The FAA's saving clause should preserve this right, as the NLRA renders the class-action waivers illegal, and illegality is a generally applicable defense to any contract. The majority's decision elevates the FAA, a statute intended for commercial disputes between equals, over foundational labor law, thereby reviving the judicial hostility to worker protections that characterized the Lochner era.
Analysis:
This decision significantly strengthens the position of employers by validating the use of mandatory arbitration agreements with class and collective action waivers. It effectively limits a primary avenue for employees to seek redress for widespread workplace violations, particularly low-value wage and hour claims that are impractical to litigate individually. The ruling continues the Supreme Court's trend of broadly interpreting the Federal Arbitration Act to favor arbitration, establishing that the FAA's mandate is not implicitly overridden by the general protections of other federal statutes like the NLRA. In future cases, parties arguing that another federal statute displaces the FAA will face the high burden of showing a 'clear and manifest' congressional command to that effect.
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