This week, with a holding helpful to employers, the Supreme Court of the United States ruled that clauses in employment agreements requiring individualized arbitration of employment disputes are valid and enforceable. EPIC Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018). This decision allows employers to obtain a valid waiver of class and collective action proceedings from their employees, in favor of arbitration of the employee’s own individual claim.
The facts at issue were routine: (1) employee entered into agreement with employer that included a provision requiring individual arbitration of any dispute; (2) after termination of employee’s employment, employee sued employer, as part of a nationwide class of employees, alleging failure to pay overtime in violation of the Fair Labor Standards Act; and (3) employer moved to compel individual arbitration according to the contract language.
The question for the Supreme Court was whether employees can agree to and be held to such individualized proceedings, or whether such a clause was unenforceable, allowing the case to proceed as a class action. The employees argued that their statutory rights to collective action should prevent employees from agreeing to arbitration of only their individual claims. Four justices agreed, recognizing that if an employee can only bring one individual claim, claimants, particularly those with smaller, low-value claims, may be left without a practical or economically viable remedy. But the majority held in favor of employers, citing the Federal Arbitration Act, which has long granted deference to the use of arbitration and arbitration agreements.
This holding by the nation’s highest court provides a valuable opportunity for employers to manage their risk of facing expensive, and potentially dangerous, class or collective actions by their employees. If your business does not already have individualized arbitration agreements in place with its employees, the EPIC case should provide a nudge to consider such agreements. We encourage employers to review their current employment contracts and to give thought to whether individualized arbitration is workable for your business and employees.
As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such. Please contact one of our labor and employment lawyers if you have any questions. The choice of a lawyer is an important decision and should not be based solely on advertisements.
This update was prepared by Kevin A. Sullivan, D. Leo Human, and Erin M. Leach.