In Epic Systems Corp. v. Lewis, No. 16-285, 584 U.S. ____ (May 21, 2018), the United States Supreme Court upheld the enforceability of arbitration agreements between employers and employees that require claims to be arbitrated on an individual basis, rather than on a class, collective, or multi-employee basis. Specific to the facts of the cases involved in the Court’s decision, this ruling means that the plaintiffs must individually arbitrate their wage and other employment-based claims against their employers, rather than pursue them in court as a class or collective action on behalf of themselves and others.

As background, for the past few decades, the Court has consistently ruled in favor of strictly enforcing the terms of arbitration agreements under the Federal Arbitration Act (“FAA”). The challengers in the three consolidated cases in Epic Systems attempted to stem this tide by arguing that the National Labor Relations Act (“NLRA”) conflicted with, or at least could be harmonized with, the FAA in terms of the prohibition on class actions in arbitrations because the NLRA inherently protects “concerted activities” by employees. Indeed, the National Labor Relations Board (“NLRB”) had even ruled in 2012 that joining together in a class action was a form of concerted activity that was protected by the NLRA (and subsequently reaffirmed this proposition through its numerous decisions issued in the years following).  Therefore, the challengers sought to use the NLRA and the NLRB’s rulings to invalidate restrictions on class action imposed by the challenger’s arbitration agreements.

However, the Court disagreed. Writing for the majority, Justice Neil Gorsuch, found that the NLRA’s protections were not sufficient to overcome the FAA’s mandate to enforce arbitration agreements by their terms. The NLRA did not show a “clear and manifest” intention by Congress to overrule the clear language of the FAA. In addition, the Court concluded that the NLRB was not owed any judicial deference in its interpretation of the interplay between the NLRA and the FAA and that the FAA governed. On this basis, the Court ruled that the agreements to arbitrate employment related claims on an individual basis must be enforced.

In sum, the cloud of uncertainty surrounding class action waivers in arbitration has been lifted.  These agreements are now fully enforceable as long as their terms do not conflict with “generally applicable contract defenses, such as fraud, duress, or unconscionably” (and, of course, provided Congress does not pass legislation to overrule the Court’s decision).

Andrew MacDonald is an associate in the firm’s Labor and Employment Department, resident in its Philadelphia office.