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New Supreme Court ruling protects employers from class action lawsuits

The Supreme Court on May 21 handed down a ruling, Epic Systems Corporation v. Lewis, that protected employers whose employees had signed arbitration agreements from being sued by those same employees for employment related issues in a class action lawsuit.

The lawsuit pitted two separate federal laws against each other: the 1935 National Labor Relations Act (NLRA) and the 1925 Federal Arbitration Act (“FAA”). The NLRA gives employees the right to self-organization and to “engage in concerted activities for the purpose of mutual aid or protection.” The FAA, on the other hand, evinces the strong federal preference for enforcement of arbitration agreement. So, even if there was an employer-employee agreement requiring employees to individually arbitrate federal claims, could the employees nonetheless litigate an employment-based federal class action against the employer, since a class action was a “concerted activity” protected by the NLRA?

The Supreme Court answered with a clear “no.”  The Court had previously disapproved some collective action bans in consumer contracts, but it refused to extend the same reasoning to employment contracts.

It is important to understand that the Supreme Court did nothing to limit the scope or effect of federal labor and employment law in this decision. The employees still have the same substantive rights as they had before. This decision simply limits the type of remedy available to the employees who complain of an employment law violation. Rather than the ability to litigate the claim in court, the worker now has to arbitrate the claim. However, a practical effect of this decision is that employers who have contracts requiring their workers to arbitrate claims will not face class action litigation related to those claims. For example, if such an employer violates the Fair Labor Standards Act by failing to pay overtime to 1000 workers, those 1000 workers must individually arbitrate their separate claims. One employee cannot file a class action on behalf of all 1000 workers.

So, the bottom line is this: including an individual arbitration clause in your employment contracts will insulate you from ever having to deal with a class-action lawsuit related to alleged violations of federal or state employment law. If you have questions about this article, please contact Mike Donner at 804.377.1267 or Mdonner@setlifflaw.com.

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