SCOTUS Decision: Epic Systems v. Lewis (Arbitration Agreements)

The U.S. Supreme Court issued a decision this week in Epic Systems Corp. v. Lewis, holding that individualized arbitration contracts between employers and employees that waive class actions are enforceable under the Federal Arbitration Act.

Previously, courts and the National Labor Relations Board have held that individualized arbitration agreements are enforceable. However, a 2012 NLRB decision ruled otherwise, and subsequent executive and solicitor general opinions have been conflicting. The SCOTUS decision clarifies the legal uncertainty for employers in these cases.

The Court combined the Epic case with two similar disputes: Ernst & Young LLP et al. v. Morris et al. and National Labor Relations Board v. Murphy Oil USA, Inc., et al. In each of the cases, the employers and employees entered into contracts requiring individualized arbitration proceedings for employment disputes. However, the employees sought to litigate claims in class actions.

The plaintiffs in this case argued that the contracts were invalid because the “saving clause” of the Federal Arbitration Act says that arbitration agreements need not be enforced if they violate another federal law. The plaintiffs held that their contracts violated the National Labor Relations Act’s (NLRA) provision that ensures employees the right to “concerted activities.” Further, they argued the Court should give Chevron deference to the NLRB’s recent decision that employees have a right to class actions outside of the enforceability of arbitration agreements. Chevron deference is a judicially created doctrine that requires courts to defer automatically to agency interpretations of statutes.

The Court ruled in favor of the employers, holding that, since NLRA focuses on collective bargaining and there is no clear reference to employees’ rights to class actions, NLRA does not displace the Federal Arbitration Act. The opinion, written by Justice Neil Gorsuch, emphasizes that under constitutional separation of powers, courts should not pick and choose between statutes when there is no overwhelming congressional intention implying the statutes are not harmonious.

The Court also held that Chevron deference to agencies does not apply here because Congress has statutorily given NLRB authority to administer the NLRA but not the Federal Arbitration Act. Furthermore, Chevron deference is due only when traditional tools for statutory construction leave ambiguity. The Court held that the statutes are clear enough in this case to dismiss Chevron deference to NLRA.

In a concurring opinion, Justice Clarence Thomas added that, under the Federal Arbitration Act’s “saving clause,” courts may revoke contracts under the grounds of improper formation but cannot refuse to enforce contracts for public policy reasons. The concurring opinion states the contracts in this case were not formed improperly, so they must be enforced.

In her dissent, Justice Ruth Bader Ginsburg argues that collective proceedings do fall under the scope of the “concerted activities” provision of the NLRA and that the NLRA’s specificity prevails over the more general Federal Arbitration Act. The dissent argues that employees should always have the right to address disputes with their employers collectively instead of on an individual basis.