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Supreme Court Gives Green Light on Employer Arbitration Contracts That Prohibit Class Actions

On May 21, 2018, the United States Supreme Court decided Epic Systems Corp. v. Lewis, ruling that companies can draft employment contracts to include arbitration clauses that bar employees from joining together in court and taking legal action concerning workplace issues. For thousands of companies, this decision means they can continue to require arbitration agreements as conditions of employment. For others, it means they now have the option to include arbitration clauses in employment agreements to protect against expensive class action lawsuits.

The employment contracts at issue in Epic Systems required employees to resolve workplace disputes in arbitration rather than in court and to file their claims one-by-one rather than collectively. In analyzing consumer contracts, the Supreme Court previously ruled that companies may require arbitration and forbid class actions. The issue for the justices in Epic Systems, however, was whether consumer contract rules also applied to employment contracts. Workers argued that allowing arbitration clauses in employment agreements is different than allowing them in consumer contracts because the National Labor Relations Act prohibits class waivers and protects workers’ rights to engage in “concerted activities.” Federal appeals courts in Chicago and San Francisco had accepted that argument; a federal appeals court in New Orleans had rejected it.

The majority of the Supreme Court Justices disagreed with the workers’ arguments and instead affirmed the precedent favoring arbitration. If workers were allowed to join together to pursue their claims, Justice Neil M. 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.”

In sum, this Supreme Court decision is a big win for employers who favor arbitration over litigation and who wish to avoid class action suits.

For more information or to discuss arbitration clauses in light of Epic Systems, contact author Nicole Meyer.