By James Goodridge
Recently, in Epic Systems Corporation v. Lewis, the United States Supreme Court upheld the enforceability of class and collective action waivers in employment arbitration agreements.[1] The 5-4 decision provides clarity to employers who use waivers, but it also overrules recent New York State precedent on the issue.[2]
Writing for the majority, Justice Gorsuch held (1) the waivers did not run afoul of the Federal Arbitration Act (FAA); (2) the National Labor Relations Act (NLRA) does not override the FAA absent a “clear and manifest” intention of Congress; and (3) the National Labor Relations Board (NLRB) was not entitled to Chevron deference in its interpretation of the NLRA.[3]
The Court rejected the employees’ reliance on the FAA’s “saving clause,” which permits revocation of arbitration agreements by “generally applicable contract defenses” (i.e. fraud, duress, or unconscionability), since attacking the “individualized nature of arbitration proceedings” is not a generally applicable contract defense.[4]
Moreover, the Court noted that when two Acts of Congress touch similar topics, the Court “must strive ‘to give effect to both.’” Thus, the Court found that Section 7 of the NLRA—which guarantees workers “the right to . . . bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection”—does not address class or collective action procedures and does not express approval or disapproval of arbitration. As such, the Court held the NLRA “does not even hint at a wish to displace the [FAA],” let alone present a “clear and manifest” intention of Congress.[5]
In a concurrence, Justice Thomas argued that, under the FAA’s saving clause, formation defenses are the only grounds for revoking an arbitration agreement. Thus, since the employees’ claim of unenforceability was a public policy defense, Justice Thomas argued the FAA’s saving clause was inapplicable.[6]
Dissenting, Justice Ginsburg, joined by the Court’s three other liberal Justices, argued the majority ignored the “labor market imbalance” that gave rise to the NLRA and the “destructive consequences” of diminishing the right of employees to act in concert. For example, she argued employees may bring fewer claims due to the “fear of retaliation,” slim prospects of relief, and overall expense associated with pursuing individual claims. Moreover, such employee reluctance may tip employers’ “cost-benefit balance of underpaying workers . . . heavily in favor of skirting legal obligations.”[7]
At the federal level, the Epic Systems holding largely follows Second Circuit precedent.[8] Conversely, at the state level, Epic Systems reverses course on prior New York State decisions. For example, in July 2017, the First Department held class and collective action waivers in employment arbitration agreements violated the NLRA and, therefore, were unenforceable. The court in that case, agreeing with a Seventh Circuit decision, interpreted NLRA Section 7’s “other concerted activities” language to include arbitration proceedings.[9] Thus, since the waiver of collective arbitration action violated rights guaranteed by the NLRA, the court held the arbitration agreements were rendered unenforceable.[10]
Following Epic Systems, however, a New York Supreme Court judge in New York County upheld the enforceability of class action waivers in employment arbitration agreements. There, an employee sued her former employer alleging gender discrimination and retaliation in violation of New York City Human Rights law. In response, the employer moved to compel arbitration in accordance with the terms of her employment agreement. In opposition, the employee claimed the class waivers in the arbitration agreement rendered the agreement illegal. Accordingly, citing Epic Systems, the court upheld the enforceability of the agreement since the employee failed to raise a “generally applicable contract defense[].”[11]
The enforceability of class action waivers in employment arbitration agreements is no longer at issue. However, questions remain surrounding an arbitrator’s authority to certify a class,[12] and the extent to which Epic will clash with recent State and Federal legislative efforts to curb mandatory arbitration of sexual harassment claims in light of the #MeToo movement.[13]
[1] Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1619 (2018).
[2] Gold v. New York Life Ins. Co., 59 N.Y.S.3d 316, 320 (N.Y. App. Div. 2017) (holding that collective action waivers violated the NLRA, rendering the arbitration agreement unenforceable).
[3] Epic Systems, 138 S. Ct. at 1623-24, 1629.
[4] Id. at 1622.
[5] Id. at 1624.
[6] Id. at 1632-33.
[7] Id. at 1633, 1649, 1647-48.
[8] Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 (2d Cir. 2013) (upholding enforceability of class action waiver and reversing District Court’s decision to deny motion to compel arbitration of plaintiffs’ FLSA and NYLL overtime claims); Qin Hui Li v. Wok 88 Inc., 2018 WL 3384441, at *5 (S.D.N.Y. 2018) (holding that arbitration agreement containing collective action wavier enforceable between deliveryman and Chinese restaurant employer); Thompson v. Body Sculpt Int’l, LLC, 2018 WL 3235545, at *7 (E.D.N.Y. 2018). But See Gomez v. MLB Enters., Corp., 2018 WL 3019102, at *12 (S.D.N.Y. 2018) (finding class action waivers in arbitration agreements between waitresses and employers not enforceable since employers materially breached the agreements).
[9] Gold, 59 N.Y.S.3d at 320 (citing Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016), cert. granted, 137 S. Ct. 809 (2017), and rev’d, 138 S. Ct. 1612 (2018)).
[10] Id.
[11] Tsoflias v Barclays Capital Inc., 2018 WL 2971165, at *3 (N.Y. Sup. Ct., N.Y. Cty. 2018).
[12] Jock v. Sterling Jewelers, 284 F. Supp. 3d 566 (S.D.N.Y. 2018), appeal docketed, No. 18-153 (2d Cir. Jan. 18, 2018) (addressing the validity of an arbitrator’s certification of a class including members who did not affirmatively opt in to the class).
[13] See Legal Developments Affecting the Workplace: New York State Passes Significant Sexual Harassment Legislation, Sullivan & Cromwell LLP Publications, (April 23, 2018) https://www.sullcrom.com/siteFiles/Publications/SC_Publication_New_York_State_Passes_Significant_Sexual_Harassment_Legislation.pdf (noting potential for preemption of recent New York State Budget provisions prohibiting enforcement of mandatory arbitration of sexual harassment cases).
