Briefing: The Supreme Court on Arbitration Agreements

On May 21, 2018, the U.S. Supreme Court issued its long-awaited decision on the enforceability of arbitration agreements in the context of class action or collective lawsuits. Justice Neil Gorsuch, who was appointed to the Court last year, authored the majority opinion of the Court, which was split 5-4 on its decision to allow enforcement of such agreements.

In Gorsuch’s words, the Court was tasked with answering two questions:

  • Should employees and employers be allowed to agree that any disputes between them will be resolved through
    one-on-one arbitration?
  • Or should employees always be permitted to bring their claims in class or collective actions,
    no matter what they agreed with their employers?

In answering these questions, the Court consolidated three suits: Epic Systems Corp. v. Lewis, Ernst & Young v. Morris, and National Labor Relations Board v. Murphy Oil USA.

In Ernst & Young v. Morris, a junior-level accountant with the accounting firm sought to sue his employer for misclassification as an exempt professional under the Fair Labor Standards Act (FLSA). Ernst & Young sought to compel arbitration under an ostensibly valid agreement entered into between the employee and Ernst & Young, which request was granted by the district court, but reversed by the U.S. Court of Appeals for the Ninth Circuit in 2016.

In National Labor Relations Board v. Murphy Oil USA, the Board accused Murphy Oil USA of engaging in an unfair labor practice by requiring employees at its Alabama facilities to sign an arbitration agreement which waived class action and collective lawsuit rights. The U.S. Court of Appeals for the Fifth Circuit reversed, finding no such unfair labor practice, and the Board appealed the decision to the Supreme Court.

In Epic Systems Corp. v. Lewis, Epic Systems sent an e-mail to certain employees requiring that they enter into an arbitration agreement for a variety of FLSA claims. Lewis, an employee, ignored the agreement and instead brought suit for wage-and-hour violations in federal district court. Epic Systems argued that the claim should be dismissed due to the arbitration agreement entered into by Lewis, but the district court disagreed. On appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s decision, holding that the arbitration agreement violated employees’ rights under the National Labor Relations Act (NLRA). This led to an appeal before the Supreme Court.

In reaching its decision, the Supreme Court evaluated three laws: the FLSA, the NLRA, and the Federal Arbitration Act (FAA). The former employees argued that the FAA “Savings Clause” and the NLRA prohibited employers from entering in to arbitration agreements with employees to forestall class and collective action lawsuits. The Supreme Court, briefly, held against this argument and discussed that for over three-quarters of a century, the NLRA and FAA had not come into conflict. It was first in 2012 that the NLRB reversed course and found that arbitration agreements that waive class and collective action may violate the NLRA.

The Supreme Court was unambiguous in its finding: it did not find that arbitration agreements that waive class and collective action violate either the FAA “Savings Clause” or the NLRA.

For a more in-depth analysis, please review the Employers Council’s upcoming June Bulletin. For practical guidance, please contact you staff representative for assistance.