Archis Parasharami is a partner and Dan Jones is an associate at Mayer Brown. Parasharami contributed to an amicus brief for the Chamber of Commerce in support of the employers in Epic Systems Corp. v. Lewis.
One year after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the National Labor Relations Board advanced a novel interpretation of Section 7 of the National Labor Relations Act, which gives employees the right to organize, bargain collectively and “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The board held that Section 7 encompasses the right to bring a class or collective action. The board went on to say that an employment agreement that requires employees to resolve their disputes by arbitration on an individual basis is an unfair labor practice under Section 8 of the NLRA. The NLRB had never asserted that view before in the 77 years since the adoption of the NLRA. And the NLRB’s general counsel stated as recently as 2010 that the NLRA has no impact on the validity of such arbitration agreements.
Yesterday, the Supreme Court, in an opinion by Justice Neil Gorsuch, rejected that approach to the interaction of federal labor and arbitration law. The court’s decision in Epic Systems correctly holds that the Federal Arbitration Act precludes the NLRB’s novel attempt to declare arbitration agreements requiring “one-on-one” arbitration unenforceable. Plaintiffs’ class-action lawyers and other critics of employment and consumer arbitration will inevitably attack this decision, but it is both legally correct and right as a matter of policy — although the opinion itself was careful not to make policy judgments.
Epic’s holding follows from the Supreme Court’s prior precedents interpreting the FAA. The court made clear in Concepcion and American Express Co. v. Italian Colors Restaurant that the FAA, in the words of the Epic court, “protect[s] pretty absolutely” the enforceability of agreements to arbitrate under “individualized rather than class or collective action procedures.” Indeed, the court emphasized in Concepcion that bilateral arbitration is the type of arbitration “envisioned by the FAA,” because it reflects the “fundamental attributes of arbitration” — providing a quick, informal and fair system for resolving disputes that is less expensive than litigation in court.
In addition, the Epic court correctly held that none of the exceptions to the FAA’s rule that arbitration agreements should be enforced according to their terms applied. The employees contended that their defense that the NLRA makes class and collective action waivers illegal is preserved by the FAA’s savings clause, which allows courts to refuse to enforce arbitration agreements on grounds that exist “at law or in equity for the revocation of any contract.” As we argued in our amicus brief, the savings clause saves state contract-law defenses of general applicability from FAA pre-emption and does not apply to defenses allegedly arising from federal laws.
The Supreme Court did not resolve this question, holding that — assuming that the savings clause applies and that the NLRA renders class and collective waivers illegal — the employees’ argument still suffered from a “fundamental” problem: The challenge to a class waiver is not a defense of general applicability, but rather attacks “one of arbitration’s fundamental attributes” — its “individualized nature.” The court admonished that “like cases should generally be treated alike,” and it made clear that “an argument that a contract is unenforceable just because it requires bilateral arbitration” is an argument that “impermissibly disfavors arbitration” and therefore runs afoul of the FAA’s equal-treatment principle. Simply put, the FAA does not permit “a rule seeking to declare individualized arbitration proceedings off limits.”
Next, the court considered and rejected the argument that the NLRA displaces the FAA’s rules for enforcing arbitration agreements. The court has held in a long line of cases that the FAA’s enforcement requirement can be displaced by another federal statute only when Congress demonstrates a “clear and manifest” intention to do so. That rule is consistent with the long-standing principle that federal statutes should not be interpreted to impliedly repeal or otherwise conflict with other federal laws. As Gorsuch correctly explained, the NLRA “does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly.” The NLRA does not mention arbitration or class or collective actions, which is “an important and telling clue that Congress has not displaced” the FAA. “Section 7 focuses on the right to organize unions and bargain collectively” — the ability to collaborate on workplace issues rather than a right to class or collective procedures for the resolution of disputes.
And it is significant that the employees were not relying on the actual statute under which they were suing — the Fair Labor Standards Act, which expressly permits opt-in collective actions — likely because the Supreme Court held nearly three decades ago that the “identical collective action scheme” under the Age Discrimination in Employment Act does not displace the FAA or prohibit the enforcement of agreements requiring bilateral arbitration of disputes under that statute.
In our view, the decision in Epic flows directly from Concepcion, Italian Colors and the Supreme Court’s other arbitration-related precedents. Nonetheless, we expect that critics of the Epic decision will — as Justice Ruth Bader Ginsburg’s dissent did — invoke perceived policy concerns with the holding, as they have with the Supreme Court’s other recent arbitration decisions.
But those concerns — the contentions that employees are unable to pursue their claims in arbitration and that class action lawsuits are the sole avenue of redress for employees — rest on deeply flawed premises. The best available empirical evidence shows that employees who arbitrate their claims are more likely to prevail than those who go to court, and to obtain awards that are the same as or larger than court awards in a shorter amount of time.
And arbitration is much cheaper for employees than our expensive and complex court system. The employment arbitration rules of the American Arbitration Association limit an employee’s costs to $300, and many employers agree to bear the entire cost of the arbitration. The availability of a simplified, low-cost system of dispute resolution is a significant benefit for employees. Most workplace disputes are individualized and could never be brought as class actions, and few plaintiffs’ lawyers will represent employees in individual claims unless those claims have substantial value ($60,000 according to one study), because otherwise the potential recovery of attorney’s fees is too small to attract their interest.
There is also nothing to prevent multiple employees from using the same lawyers and evidence (including experts, if appropriate) in multiple individual arbitrations. As Justice Anthony Kennedy noted at oral argument, three employees could “go to the same attorney and say please represent us, and we will share our information with you, we have three individual arbitrations.” And when employees have meritorious claims, they have meaningful settlement leverage over an employer faced with multiple individual arbitrations, each of which would require the employer to pay all (or nearly all) of the arbitration fees and costs.
By contrast, class-action litigation provides plaintiffs’ lawyers with a great deal of settlement leverage that does not depend on the merits or demerits of employees’ claims. Echoing Ginsburg’s observation in her dissenting opinion in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., the Epic court noted that it is “well known” that class actions “‘plac[e] pressure on the defendant to settle even unmeritorious claims’” in the event that a class is certified. Moreover, studies of class actions show that the beneficiaries of most class actions are predominantly the lawyers (on both sides, to be sure), rather than the actual class members.
Finally, some critics of arbitration have contended that arbitration requires employees to keep their claims a secret. But that is not true. Employees generally may speak publicly about their claims, obtain evidence from fellow employees and take their claims to enforcement authorities. And many courts have refused to enforce provisions in arbitration agreements that purport to stop employees from communicating in this manner. Moreover, some states — including California — require arbitration providers like the American Arbitration Association to make a number of disclosures about the outcomes of consumer and employment arbitrations that they administer, including identifying which party prevailed, the relief awarded and the name of the consumer or employee’s attorney (if any).
The features of modern employment arbitration provisions — along with arbitral rules carefully designed to ensure fair procedures in employment arbitration — ensure that most employees will have access to a simple method of resolving their workplace disputes. For the vast majority of employees, class actions do not offer employees a better way. Thus, while it is true that Epic means that fewer employment class actions will be brought and pursued, the biggest losers are not workers, but instead the lawyers who bring and defend those claims.