How Epic Systems Corp v. Lewis Affects Your Business -- A Reason to Rethink Mandatory Employment Arbitration
On May 21, 2018, the United States Supreme Court, in a 5 to 4 decision, issued a ruling that has the potential to radically reshape employment law disputes. The case of Epic Systems Corp. v. Lewis involved an employer that required its employees to execute agreements providing that they would use individual arbitration proceedings to resolve any employment matter. Despite the agreement, an employee attempted to file a collective and class action lawsuit[1] against Epic Systems for alleged violations of overtime laws. The employee contended that the arbitration agreement was unenforceable because the bar on class or collective action claims violated the National Labor Relations Act, which protects concerted action by employees even when they are not unionized. The Supreme Court rejected this argument, finding that the National Labor Relations Act could not be interpreted in the way asserted by the employees.
If your company has not adopted a policy mandating arbitration of employment disputes, Epic Systems Corp. v. Lewis provides an enormous incentive for it to do so. What business wouldn’t want to eliminate the possibility of class action lawsuits against it by disgruntled employees? Even when the underlying allegations of a class action suit are flimsy, the costs to litigate and the amount of a possible award against the employer can be immense and this routinely compels employers to quickly settle. Since a waiver bars all but individual claims, it greatly reduces the risk and potential exposure your business faces. A related benefit of a waiver is that employees who would not otherwise sue are included as plaintiffs in class action lawsuits – waivers eliminate claims by employees who do not know about their rights or who are reluctant to take on the costs and burdens of arbitrating their dispute.
Arbitration provides other advantages. Perhaps most significantly, if parties enter into an arbitration agreement, any disputes are resolved by an arbitrator – your business will not have its lawsuit determined by a jury that will frequently be sympathetic to employees. (However, it should be noted that in many locations, employers can obtain the same protection by requiring employees to sign a waiver of their right to a jury trial). Arbitrations are far more private than court actions. Additionally, arbitration is often less costly than litigation and can be concluded in less time. Employers can also craft arbitration agreements that incorporate other protections, such as shorter time limits to file claims than those imposed by the law or requirements that employees arbitrate claims in a designated location.
At the same time, there are some serious disadvantages to arbitration that need to be evaluated before adopting a mandatory arbitration policy. In order to make an arbitration agreement enforceable, employer claims against employees must also be arbitrated. Employers may want to litigate some of these matters, such as disputes involving the theft of trade secrets or confidential information. Although it is not necessary to pay a judge for his or her time in adjudicating a lawsuit, employers are obligated to pay the large majority of an arbitrator’s fees and expenses, which can be substantial. As arbitration becomes more commonplace, the time savings compared to lawsuits has been decreasing. Moreover, while judges dismiss a significant number of employment lawsuits in advance of trial, arbitrators have proven much more reluctant to dismiss claims. Finally, it is extremely difficult to overturn an arbitrator’s decision. This means that employers may have to accept a ruling that could have been reversed by an appeals court had it been made by a trial judge or jury.
While the ruling in Epic Systems Corp. v. Lewis creates a substantial enticement to adopt arbitration agreements, the decision to implement a mandatory arbitration policy is not one that should be made without serious thought. Employers should consult with legal counsel to determine whether this type of policy makes sense in their specific circumstances.
[1] In a class action lawsuit, a class member does not have to take any action to join the litigation and needs to file a notice with the court to be removed from the class. In contrast, in a collective action lawsuit, an employee has to sign a notice that he or she wants to participate as a plaintiff.