U.S. Supreme Court Holds Federal Labor Law Does Not Displace Federal Arbitration Act's Mandate Requiring Enforcement of Arbitral Class Action Waivers
May 29, 2018
Epic Systems Corp. v. Lewis
(No. 16-285, May 21, 2018)
The United States Supreme Court has held that the Federal Arbitration Act (FAA) mandates the enforcement of class action waivers in arbitration agreements between employers and employees and that the National Labor Relations Act (NLRA) does not displace the FAA’s mandate.
In these consolidated cases, employees sued their employers for allegedly violating wage-and-hour laws, and the employers moved to compel individual arbitration of each claim. The employees had signed arbitral class action waivers, but they argued these waivers were unenforceable because the NLRA confers a substantive right to pursue employment claims on a class or collective basis, and this substantive right overrode the FAA’s mandate.
In ruling for the employers, the Supreme Court held that the FAA’s saving clause—which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract”—“does not save defenses that target arbitration either by name or by more subtle methods, such as by ‘interfer[ing] with fundamental attributes of arbitration.’” Here, the employees “object[ed] to their agreements precisely because they require individualized arbitration proceedings instead of class or collective ones.” “[B]y attacking (only) the individualized nature of the arbitration proceedings, the employees’ argument seeks to interfere with one of arbitration’s fundamental attributes.”
The Court also rejected the employees’ argument that the NLRA displaced the FAA’s mandate in wage-and-hour cases brought by employees. The Court held that section 7 of the NLRA—which guarantees workers the right to organize unions, bargain collectively, and “engage in other concerted activities for the purpose of . . . mutual aid or protection”—does not even mention the FAA, arbitration, or class or collective actions, and that this failure to expressly address the FAA or class actions was fatal to the employees’ position. In short, the Court concluded that the NLRA could not override the FAA’s mandate by such silence.