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SCOTUS Ruling has Far-Reaching Effects on Employment Litigation and Class Action

On Monday, May 21, the Supreme Court, in a 5-4 decision, ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together to bring class action suits over workplace issues. This decision resolves a split in authority among the federal Court of Appeals, and affects an estimated 25 million employment contracts.

Collective bargaining and litigation

The case heard was Epic Systems v. Lewis, a consolidation of three separate cases. Employees challenged arbitration provisions in their contracts where they agreed they could not file a lawsuit in an employment related dispute. The employees argued that since the National Labor Relations Act (NLRA) of 1935 guaranteed employees the right to organize in labor unions and to collectively bargain with their employers, the "other concerted activities for the purpose of . . . other mutual aid or protection" covered class actions. Therefore, they reasoned that the NLRA overrules these arbitration provisions because class actions are activities for mutual protection.

Justice Neil M. Gorsuch, who wrote the majority opinion, disagreed with this reading of the NLRA. In the decision, Gorsuch stated that while the NLRA is meant to guarantee collective activities like union organizing, litigation is completely different because it is not in the same category as the other activities in the list. Therefore, litigation cannot be included in the catchall provision, as the employees argue.

Private arbitration to replace class action in employment litigation

There is another federal law, the Court noted, that covers this situation, which is the Federal Arbitration Act (FAA). The FAA states that arbitration agreements must be strictly enforced. The majority felt that in order to follow this federal law, the Court was required to conclude that employment agreements with arbitration provisions are binding. Gorsuch wrote, “the virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace.” He went on to say, “the respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide but to the policymakers in the political branches where those questions remain hotly contested.”

Decision split along party lines

It comes as no surprise the more conservative judges signed the majority decision, while the more liberal judges signed the dissent, saying that the decision will likely lead to less enforcement of minimum wage or anti-discrimination laws. Justice Ruth Bader Ginsberg, who authored the dissent, called the majority opinion “egregiously wrong.” In her oral statement, she said there now, “will be huge under-enforcement of federal and state statutes designed to advance the well-being of vulnerable workers.”

Wage and hour class action rights

This ruling’s effect on wage and hour class actions could be dramatic and immediate and the prevalence of arbitration clauses in employment agreements is bound to increase. However, this issue is hardly going away. Now that this case has worked its way through the court system, the next step is to watch for Congress to tackle this issue. Voters may take this to heart when voting in the next mid-term election.

Samantha Green is the manager of thought leadership for Epiq, and an expert on all aspects of electronic discovery, data privacy, and cybersecurity, drawing on her more than 15 years of litigation and consulting experience. As a litigator, Green has taken a number of cases from pre-discovery through trial, and has handled a broad spectrum of cases, from government investigations (including FCPA and antitrust matters) to HSR second requests and commercial litigation matters.

Filed under: case law, class action, collective action, government remediation, litigation, settlement