Supreme Court curtails employees’ rights

The U.S. Supreme Court in a pro-employer pronouncement upheld arbitration clauses in employment contracts.

The question of whether a signed employment contract that contains an arbitration clause - a clause in which the parties agree to resolve legal disputes only through private, individual arbitration - can prevent an employee from joining with other employees in collective or class action suits has been at the forefront of legal discussion lately.

Arbitration is a private proceeding in which the two parties meet out of court before an arbitrator, who functions like a judge. Although the parties may be represented by attorneys and may present evidence and legal arguments, the procedure is less fulsome, albeit faster, than litigation. The decisions made under arbitration are usually binding under the terms of the employment contract and only pertain to the individual employee involved in the arbitration.

Collective and class action lawsuits, in contrast, allow a number of employees to challenge workplace discrimination, harassment, wage-and-hour practices, and other legal issues related to their common workplace, together in a single suit. The arguments surrounding the issue of arbitration clauses have been especially controversial in the context of sexual harassment allegations.

The Epic case

On May 21, 2018, the U.S. Supreme Court announced its opinion in Epic Systems Corp. v. Lewis that a previously signed employment agreement containing an arbitration clause was legally enforceable and prevents the employee from participating in a class action suit with colleagues.

Conflict in federal law

The Epic case interpreted a conflict between two major federal statutes: the Federal Arbitration Act ("FAA") and the National Labor Relations Act ("NLRA"). According to the FAA, agreements to arbitrate are "valid, irrevocable, and enforceable." The NLRA, however, provides that employees have the right to "mutual aid and protection."

In a five-to-four decision, the Supreme Court ruled that the arbitration clause in Epic was a binding contractual provision that prevents the employee from later bringing or participating in a collective lawsuit with colleagues. The Court came to this conclusion despite the language of the NLRA, which the Court interpreted as creating the right to collective action in forming or participating in a union, rather than the right to bring or participate in collective lawsuits.

This decision has been widely viewed as pro-employer for several reasons.

Significantly, when employees can join together in one legal action against their employer, it is less expensive for the workers than individual lawsuits. Critics say this holding will stifle employees from filing individual lawsuits, as they may be hesitant to make accusations against their employer alone, even when the allegations are significant, out of fear of retaliation such as the risk of termination.

Critics of the Epic decision also argue that arbitration provisions should not be upheld because they do not actually represent a "bargained-for" agreement between the parties. They assert that most employees feel they must accept the terms of any employment contract offered to them. Employees may not understand the arbitration provisions or may feel that they have no power to negotiate with respect to the provisions.

Justice Ruth Bader Ginsburg issued a scathing dissenting opinion, which she read from the bench, a rare action that emphasized her objections. The dissent concurred with critics' concerns, saying that courts and agencies have long regarded the mutual assistance for employees under the NLRA as including class action suits, and that the holding will suppress individuals from bringing individual claims.

Seek legal advice

Any employee being asked to sign an agreement with an arbitration clause should seek the advice of an attorney before executing it. Similarly, anyone who feels that his or her employer may have violated employment laws regarding discrimination, harassment, wages, hours, classification of workers, or other matters, should talk to an attorney about possible legal options.

Similarly, any employer seeking to draft or enforce an employment agreement with an arbitration clause, or that is facing potential arbitration or a lawsuit, should also engage immediate legal representation to protect its interests.

The legal team at Shepherd, Finkelman, Miller & Shah, LLP ("SFMS") has significant experience representing employers and employees nationwide in a wide range of employment law matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

SFMS is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.