In late May, 2018, the United States Supreme Court held in Epic Systems Corporation v. Lewis (Epic) ruled that employers have the legal right to make employment contracts with employees that include agreements to settle disputes with one-on-one arbitration. In other words, employers are permitted to require employees to enter arbitration agreements that contain waivers of the right to participate in class or collective action as a condition of their employment.

A central issue in the case was how best to interpret the Federal Arbitration Act of 1925 (FAA) and the National Labor Relations Act of 1935 (NLRA). The FAA directs courts to treat arbitration agreements as “valid, irrevocable, and enforceable.” Writing for the majority, Supreme Court Justice Neil Gorsuch said that Section 7 of the NLRA does not override the FAA because Section 7 focuses on the right to organize unions and bargain collectively and not on class or collective action procedures. Section 7 includes a provision stating that employees have the right to engage in “other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” However, Justice Gorsuch writes that this “other mutual aid or protection” does not include the right to participate in class or collective action. This is because it only protects activities similar to the ones specifically listed in Section 7 which all pertain to “things employees do for themselves in the course of exercising their right to free association in the workplace.”

The majority also reasoned that the NLRA established a regulatory regime for each activity protected by Section 7, but it did not provide any guidance or rules for class and collective action. They also noted class and collective procedures were “hardly known” when the NLRA was adopted in 1935, pointing out that the collective litigation procedure of the Fair Labor Standards Act postdates Section 7 “by years” and, as previously held by the Supreme Court, does not prohibit mandatory individual arbitration.

What does this mean for employers? First, employers should consider whether or not they wish to require arbitration for any employment-related disputes. Arbitration can yield benefits such as quicker claims resolution and more predictable outcomes compared to a jury, but there are also downsides including the potential for significant arbitrator fees. Next, employers should consider the scope of any arbitration program. For example, some employers may wish to limit the arbitration requirement to wage and hour claims to manage potential of employee objections and/or public relations concerns. It is important to note there are current federal and state legislative pushes against mandatory arbitration in Title VII claims especially sexual harassment claims, and in her dissent in Epic, Justice Ginsburg said it would be “grossly exorbitant to read the FAA to devastate Title VII of the Civil Rights Act of 1964.”

Employers should also consider a few other factors. The Supreme Court’s decision may not save a poorly drafted arbitration agreement if it can be found procedurally and substantively unconscionable under state law principles. The FAA does not apply to certain employees, such as transportation workers, and governmental agencies are not subject to arbitration agreements. Employers with a voluntary arbitration agreement with a class waiver should consider whether making the program mandatory would yield worthwhile benefits. Finally, employers should consider that there is still the possibility of multiple individual arbitration claims being brought at one time, which could be costly and time-consuming to defend.

The Supreme Court’s decision in Epic provides the potential for valuable benefits to employers through the use of arbitration agreements with class waivers. With various factors to consider, Martin Pringle’s employment law attorneys recommend talking with counsel before making any changes or adding an arbitration program.