May 31, 2018

Supreme Court upholds employers’ rights to prohibit employee class action in arbitration agreements

The 5-4 decision represents a major victory for employers seeking to avoid costly class actions.

In a decision issued early last week, the U.S. Supreme Court affirmed an employer’s right to prohibit employees from joining together as a class when arbitrating employment-related disputes.

Although the decision does not come as a surprise to experts, the 5-4 ruling in Epic Systems Corp. v. Lewis represents a major victory for employers looking to avoid costly class actions featuring work-related disputes –especially wage and hour claims.

What does this mean for employers?

More than 60 million American workers are already barred from litigating their employment-related claims in court and must arbitrate their disputes. The Epic decision affirms an employer’s right to require its employees to sign arbitration agreements that specifically waive the employee’s right to class actions.

Employers that currently use arbitration agreements but have yet to adopt class action waivers in those agreements may now want to consider whether they want to begin adopting waivers. Employers considering using arbitration agreements for the first time will want to ensure that the arbitration agreement will survive a challenge of unconscionability in court.

Subject to state and local federal circuit law, an arbitration agreement is usually not unconscionable if it is presented to the employee for signing with plenty of notice, the employer accurately conveys the importance of the agreement, and signing the agreement is not coerced. An arbitration agreement that balances the rights of the employee and employer while binding both parties to arbitration is also generally viewed more favorably by courts.

What happens next?

Although Congress has not yet indicated a serious interest in acting on the Epic decision to protect workers’ rights, Justice Ruth Bader Ginsburg made it clear in her dissent in Epic that she thought Congress should urgently move to protect “workers’ rights to act in concert.”

While the Epic decision represents a victory for employers,  they will still need to comply with state and federal laws that prohibit agreements that are “unconscionable," or that too one-sidedly benefit the party with greater bargaining power. Nevertheless, existing state laws that restrict or forbid the use of pre-dispute arbitration agreements will likely face immediate court battles as pro-arbitration advocates argue that states no longer have the authority to declare arbitration agreements unenforceable.

Some arbitration agreements are silent on whether employees can pursue their claims in arbitration as a class. The Supreme Court is expected to issue a decision sometime next year in Varela v. Lamps Plus, Inc. deciding whether arbitration agreements that are silent on class arbitration can be read to allow class actions.


Disclaimer: The information provided in this post is provided for informational purposes only and should not be relied upon or construed as legal advice and does not create an attorney-client relationship. You should review with your legal advisors how the laws identified in this post may apply to your specific situation.

Emerson Beishline

Emerson is Compliance Counsel at Ceridian with many years of experience in U.S. and international legal research and writing. In his current role, Emerson tracks U.S. and international employment legislation impacting Ceridian products, works closely with development teams to integrate compliance changes into the company’s Dayforce HCM software, and conducts legal research as needed. 

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