In a 5-4 decision, the U.S. Supreme Court ruled today that employers can force their employees to arbitrate disputes individually, rather than allow them to proceed together in a class-action lawsuit. Although that may not seem very “sexy,” it could significantly reduce the number of claims companies could face against them.
The decision decided three cases that were brought together: Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA.The Epic case was from our own Seventh Circuit (and was decided in the employee’s favor).
Each of these cases arose out of an employment agreement containing an arbitration clause requiring employees to submit any employment-related claims to arbitration, rather than bringing them in court. In each of the cases, an employee filed a collective/class action on behalf of him/herself and others in federal court against his/her respective employer. The employers then pulled-out the arbitration provisions and attempted to force the employees to arbitrate their claims individually, rather than bring their claims collectively in federal court.
The legal issue in this case pitted the Federal Arbitration Act (“FAA”), which provides among other things that an arbitration agreement “shall be valid, irrevocable, and enforceable,” against the National Labor Relations Act (“NLRA”), which provides among other things that employees can work together for their “mutual aid and protection.” The argument espoused by the employers involved in these cases was that the FAA trumped the NLRA. You are free to assume the exact opposite was argued by the plaintiffs.
In ruling in favor of the employers in this case, the Supreme Court highlighted that the FAA “instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings,” and that nothing in the NLRA “express[ed] approval or disapproval of arbitration” and “does not mention class or collective action procedures.” In short, the FAA trumps the NLRA in this instance.
The import of this decision does not just impact Epic Systems, Ernst & Young, and Murphy Oil, it impacts all employers who utilize or are considering utilizing arbitration agreements with their employees. Many large employers already have arbitration agreements in place, but you can bet we will be seeing them everywhere, now that there is a ruling that such agreements are enforceable and, more importantly, will insulate employers from facing collective/class actions in federal court.
Think about it: a company with thousands of employees has a timekeeping system that shaves 5 – 10 minutes of work time from each employee’s workday, resulting in each employee being shorted 25 – 50 minutes of overtime each week over the course of multiple years. In a collective/class action, those employees can bring their claims together and in federal court, where the proceedings are public. However, if the employer has an arbitration agreement with those same employees, those same employees have to bring individual claims against the employer in arbitration and out of the public eye.
While there are pros and cons to having an arbitration agreement with your employees (and you should always discuss those pros and cons with highly intelligent, sensible, and affable employment law attorneys *cough), the potential benefits just got a boost.