Supreme Court Upholds Individualized Arbitration Clauses in Employment Contracts

Employees Can Waive Their Right to Class Actions in Arbitration Agreements. On May 21, 2018, the Supreme Court of the United States passed

down a ruling in the case Epic Systems Corp. v. Lewis, which would affect employees’ rights and legal interpretations of employment contracts nationwide. [1] 

In recent history, employers have compelled employees to sign employment contracts that contain an arbitration agreement. These arbitration agreements state that if an employee has a legal dispute against the employer, the dispute will be resolved through one-on-one arbitration. Essentially, the employee will not be allowed to join his or her cause of action with other employees to bring a class action against the employer. A surprisingly large amount of employment contracts contain this arbitration language and it is constantly overlooked by employees.

A few employees in the fifth, seventh, and ninth circuits attempted to bring a class action against their respective employers on the foundation of being underpaid, ignoring the individualized arbitration agreement in their employment contracts, as they believed it to be unenforceable. The Supreme Court decided to hear all of these cases and issue a ruling to clear up any confusion as to the validity of these one-on-one arbitration agreements in employment contracts.

The Supreme Court issued its ruling after relying on the Federal Arbitration Act. This Act provides that courts must respect arbitration agreements and enforce them according to their specific terms. The Supreme Court held that enforcing arbitration agreements pursuant to their specific terms includes allowing employers and employees to contract on whether their future arbitration will be individualized or not.

In the Epic Systems Corp. case, the employees claimed the individualized arbitration term violated the National Labor Relations Act. The National Labor Relations Act protects an employee’s right of unionization and collective bargaining. The Supreme Court was not swayed by this argument and held that the two Acts can coexist and still honor Congress’ intentions, as the National Labor Relations Act does not mention class or collective actions specifically.

What does this Supreme Court decision mean for employees and employers nationwide?  Employees have not lost their right to unionize and therefore, may collectively bargain with employers. This right is clearly granted in the National Labor Relations Act and has not been modified in any way. Ultimately, while employees may still unionize, employers can place this “take it or leave it” individualized arbitration term in the employment contract and it will be fully enforceable. Therefore, employers legally have the power to prohibit their employees from commencing class actions against their respective companies. While the Supreme Court ruling did not explicitly prohibit employee class actions on the basis of sex, gender, and wage discrimination, such actions, if commenced, will understandably be scrutinized under the Epic Systems Corp. case.*

Access to the Supreme Court decision can be found here:

*The information in this article is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Rozario & Associates, P.C. or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s state. For assistance with Labor and Employment-related matters, please contact our office at [email protected] or 212-301-2770. 

[1] Epic Systems Corp. v. Lewis, 584 U.S. _____ (2018).