May 21, 2018

May 21, 2018:

Supreme Court affirms the validity of arbitration provisions in employment agreements that require individual arbitration of claims (no class treatment), rejecting challenges based on the savings clause in the FAA and the statutory protection for “concerted activities” in the NLRA.  Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018).

Employment agreements commonly contain arbitration provisions.  Such arbitration provisions often require that an employee's claim be arbitrated individually, that is, that claims of multiple employees cannot be aggregated for class-type treatment in a single arbitration proceeding.  In 2012, the National Labor Relations Board asserted for the first time that the National Labor Relations Act invalidated arbitration provisions that prohibited class treatment.  That assertion received mixed reviews among the courts of appeals.  The Executive Branch and the Solicitor General took a contrary position.  In Epic Systems the Supreme Court "clear[ed] the confusion," 138 S. Ct. at 1621, rejecting by a vote of five to four the Board's position and affirming the validity of arbitration provisions in employment agreements that require individualized treatment of claims.         

The employees' challenge to employment arbitration provisions that prohibit class treatment was twofold.  The employees first looked to the savings clause in the Federal Arbitration Act, which allows courts to refuse to enforce arbitration agrements "upon such grounds as exist in law or in equity for the revocation of any contract."  9 U.S.C. 2.  The employees argued that the NLRA rendered the arbitration provisions illegal and that such illegality was a "ground[]" for revocation of the arbitration provisions under the FAA's savings clause.  But under well-established Supreme Court precedent, the savings clause only allows arbitration provisions to be invalidated by "'generally applicable contract defenses, such as fraud, duress, or unconscionability.'"  138 S. Ct. at 1622 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).  The savings clause does not sanction express attacks on arbitration provisions or attacks that target a fundamental attribute of arbitration.  Id.  According to the Supreme Court, the challenge of the employees in Epic Systems was of the latter variety: "[B]y attacking (only) the individualized nature of the arbitration proceedings, the employees' argument seeks to interfere with one of arbitration's fundamental attributes."  Id.  The savings clause in the FAA, therefore, did not apply.     

The employees next pointed to section 7 of the NLRA, which guarantees to employees "the right to self-organization, . . . to bargain collectively . . ., and to engage in other concerted activities."  The employees argued that class arbitration was a "concerted activit[y]" protected by section 7 of the NLRA, and that such statutory protection overrode the FAA command that courts enforce arbitration agreements.  Again, the Supreme Court disagreed.  Construing the phrase "concerted activities" in the context of the other activities named in section 7, and considering the presumption in favor of harmonizing federal statutes rather than finding that one statute repeals another by implication, the Court determined that section 7 does not apply to procedures employed in litigation or arbitration.  Section 7 "does not express approval or disapproval of arbitration.  It does not mention class or collective action procedures.  It does not even hint at a wish to displace the Arbitration Act -- let alone accomplish that much clearly and manifestly, as our precedents demand."  Id. at 1624.    


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