Supreme Court Upholds Agreements Restricting Employees to Individual Arbitration

In one of only a few employment law cases being decided by the United States Supreme Court this year, new Justice Neal Gorsuch’s first authored opinion for the Court sided with employers and their right to require employees to pursue individual claims in arbitration via contractual agreement rather than attempt a class action in court.

The outcome of the dispute was fairly clear based on Justice Gorsuch’s framing of the issue in Epic Systems Corp. v. Lewis:

“Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?”

The arbitration agreement was not terribly onerous; it allowed the employee the opportunity to select the arbitrator service and gave authority to the arbitrator to provide any relief that could be granted by a court, but it limited actions to individual claims, instead of class actions.  The plaintiffs argued they could not be forced to take their Fair Labor Standards Act claims to individual arbitration, even though they signed employment agreements stating all claims would be handled through that process.  Their basis for this argument was in the Federal Arbitration Act’s savings clause, which generally requires courts to enforce contractual arbitration clauses, unless they run counter to a different federal law.

The plaintiffs argued that as class actions per se require the collective action of more than one person, this agreement ran contrary to the National Labor Relations Act, which protects an ever-expanding list of “concerted activities” by employees.

While the decision was a close one, at 5-4, with the conservative justices winning the day, the outcome of this case should not be a surprise.  Employers have long had the ability to require employees to pursue any and all claims against the employer in arbitration, and this decision simply reinforces the employer’s right to force them into individual arbitration, instead of class action.

This was a good win for employers looking to limit their litigation costs, as well as the exorbitant costs associated with defending class action claims.  What is important is to have a good employment agreement in place for your employees that covers all of the necessary aspects of an employment relationship, including how claims can be pursued.

If you are in need of assistance in shoring up your employment agreements, feel free to give us a call.