On May 21, 2018, the Supreme Court of the United States ruled that, pursuant to the Federal Arbitration Act (FAA), mandatory arbitration agreements with employees requiring individualized arbitration actions for disputes with the employer, rather  than collective actions in court, are enforceable. Epic Sys. Corp. v. Lewis, No. 16-285, 2018 WL 2292444 (U.S. May 21, 2018).

In Epic, the Court resolved three cases that were argued together on October 2, 2017:  Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP et al. v. Morris et al., No. 16-300; and National Labor Relations Board v. Murphy Oil USA, Inc., No. 16-307. In each case, an employee, who had entered into an employment agreement that contained an arbitration provision, sought to litigate Fair Labor Standards Act (FLSA) and State law claims against the employer through class or collective actions in Federal court.

The employees contended that their claims were properly filed in Federal court. Specifically, the employees argued that the FAA’s “saving clause” removes the obligation to arbitrate if the arbitration agreement violates another Federal law. Id. at *6. The employees alleged that the individualized proceedings required in the arbitration agreements violated National Labor Relations Act (NLRA). Id. Next, the employees argued that, even if the arbitration provisions are enforceable, the NLRA overrides that obligation because class or collective actions are “concerted activities” under Section 7 of the NLRA. Id. at *8–9. This was consistent with a position taken by the National Labor Relations Board for the first time in 2012.

The employers countered by arguing that neither the FAA “savings clause” nor the NLRA render the provisions unenforceable. Id. at *1. The Court agreed with the employers in a 5-4 decision delivered by Justice Gorsuch. Specifically, the Court held that, in the FAA, “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  Id. at *3. The Court was not persuaded by the employees’ argument that the FAA “savings clause” applied to their cases because the “savings clause” “recognizes only defenses that apply to ‘any’ contract.”  Id. at *6.

With respect to the employees’ argument that the NLRA overrides the FAA’s requirements, the Court found that Section 7 of the NLRA “focuses on the right to organize unions and bargain collectively . . . [b]ut does not express approval or disapproval of arbitration,” “it does not mention class or collective action procedures,” and “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 *9.

For healthcare providers, this decision may increase the use of required arbitration agreements with employees, including language prohibiting collective or class action types of arbitration. The Department of Labor (DOL) has identified healthcare as a “low wage, high violation” industry due to the high number of cases that the DOL pursues in the industry. The Court’s decision and greater use of such arbitration agreements will lessen risks from large private enforcement actions in the future and increase reliance on DOL for effective enforcement.

The Court’s Opinion may be found here.