The U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis has significant ramifications for the scope of class action waivers in employee arbitration agreements. In each of the three consolidated cases that the Court’s opinion addressed, the plaintiffs were pursuing class/collective actions with Fair Labor Standards Act (“FLSA”) claims for unpaid overtime. Plaintiff Sheila Hobson’s FLSA claim in the Murphy Oil case had been dismissed by the trial court as a result of the arbitration provision in the employment agreement she signed when she started work at a gas station in Alabama. By contrast, plaintiff Jacob Lewis, a technical communications employee, had overcome a motion to dismiss his FLSA overtime class action in the Epic Systems case by arguing that a class action waiver in an arbitration agreement that had been emailed to him by his employer was unenforceable. In the Ernst & Young case, plaintiff Stephen Morris sought unpaid overtime under the FLSA and the California Labor Code for working long hours during audit season. As a result of the Supreme Court’s ruling, after remand, all of these claims now appear destined for arbitration unless they are resolved. The Epic Systems decision represents a broader affirmation, however, that arbitration agreements are enforceable regardless of the nature of an employee’s claim, even if the claims are brought pursuant to employment statutes that explicitly provide for class or collective actions.
In recognition of the benefits of arbitration, “the promise of quicker, more informal, and often cheaper resolutions for everyone involved,” as Justice Gorsuch put it, the decision contains important implications for drafting or updating arbitration clauses. The decision reiterates that employers may generally fix the procedures to govern arbitration in the terms of the arbitration agreement with the expectation that they will be upheld. Guidance can be drawn from the three agreements in these cases which the court held enforceable, each with varying terms. For example, one of the arbitration agreements gave the employee the option to choose the arbitrator, whereas another did not. Employers will continue to have latitude to customize arbitration agreements in ways appropriate for their business on the heels of the Epic Systems decision. Yet for many employers, the decision raises a longstanding question that has garnered increased attention recently—is arbitration right for your company? In the wake of Epic Systems, some employers are reevaluating whether arbitration makes sense for their particular circumstances.
For employers that are interested in more fully developing an arbitration program, the recent ruling leaves them with a variety of issues to consider.
- What procedures will govern the proceeding?
- What jurisdiction’s law will govern?
- Where will disputes be adjudicated?
- Does law in a given jurisdiction require the employer to pay the costs of arbitration?
- Could a plaintiff argue that terms are procedurally or substantively unconscionable?
- Is class arbitration prohibited?
- When must claims be filed?
- What evidentiary guidelines will apply?
- How is cost shifting addressed?
- Is arbitration voluntary or mandatory?
These factors will come into greater focus for employers as the Epic Systems ruling reverberates through the lower courts. While there are many issues to evaluate, the Supreme Court’s ruling assures employers of one critical point: arbitration agreements with class action waivers remain a useful option for employers seeking to minimize litigation risk exposure.