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WSHB Case Update: Epic Systems Corp. v. Lewis

May 23, 2018

Epic Systems Corp. v. Lewis (— S. Ct. —, May 21, 2018, J. Gorsuch) (J. Ginsburg, dissenting)

On Monday, May 21, 2018, the Supreme Court issued a decision every private employer will be ecstatic to understand and implement into their practice. The majority opinion, authored by Justice Neil Gorsuch, held employers: (1) may rely upon clauses in their employment contracts requiring employees to arbitrate their disputes individually; and (2) may require employees to waive the right to resolve those disputes through joint legal proceedings.

This decision is being lauded as a tremendous boon for employers as it will undoubtedly cut down on employee lawsuits, whether it be wage and hour violations or overtime claims. Forcing employees to individually arbitrate their claims—and thus individually rather than collectively pay for counsel—will drastically reduce the financial viability of those claims. Justice Ginsburg, in a dissent joined by Justices Breyer, Sotomayor, and Kagan, pointedly observed (using figures from the cases before the bench as an example) that a typical employee will now likely need to spend in excess of $200,000 at arbitration in order to recover $1,867.02 in overtime pay. Only the most begrudging and vindictive employees would see such prospective pyrrhic victories as acceptable.

Understanding the rationale and legal framework for this employer-favoring outcome is best accomplished by examining the three cases the Supreme Court addressed in issuing this ruling: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA. In each case, an employment agreement containing an arbitration provision and a provision waiving rights to class-action suits was required as a condition of employment. Nonetheless, the employees filed individual and collective claims in federal court. Understandably, the employers moved to compel arbitration pursuant to their respective employment agreements. When both the Seventh and Ninth Circuit ruled in favor of the employees, the Supreme Court granted certiorari to address ostensible conflict between the National Labor Relations Act (NLRA) and Federal Arbitration Act (FAA).

At oral argument before the Supreme Court, the employees argued the NLRA’s reference to the right to engage in “other concerted activities for the purpose of collective bargaining or other mutual aid or protection” superseded the FAA’s arbitration mandate. (In general, the FAA requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select, except in cases of fraud, duress, or unconscionability.) In rejecting this argument, the Court wrote, in no uncertain terms, that the NLRA “does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.” Accordingly, the Court found no legal basis for ignoring the FAA’s mandate.

A foreseeable and perhaps even inevitable consequence of Monday’s decision is an immediate increase of arbitration agreements in employment contracts. As Justice Ginsburg’s dissent notes, the inclusion of arbitration clauses was already on an upwards trajectory: only 2.1% of nonunionized companies used arbitration clauses in 1992, whereas 53.9% use them today. We are certain to see this trend accelerate. However, whether more widespread use of arbitration agreements will effect the “underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers” portended by the dissent is perhaps more speculative. After all, as the Justice Ginsburg recognizes, the U.S. Department of Labor, state labor departments, and state attorneys general may still uncover and obtain recovers for some violations.

As a bottom-line takeaway for employers, Monday’s decision is a great incentive to include mandatory arbitration agreements in all employee contracts, and should provide significant leverage in settling potential claims early in the litigation process while claimant costs are low. It also signals the Gorusch Court will favor employers. And, with the possible retirement of the dissent’s author, Justice Ginsburg, age 85, an extended period of employer-favored decisions may be on the horizon.

 

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