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Employer-Employee Arbitration Agreements Are Enforceable and Are Not Prohibited by the National Labor Relations Act

By Maureen A. Murphy

On Monday, May 21, 2018, in a 5-4 opinion written by Justice Neil Gorsuch, the Supreme Court upheld the enforceability of “one-on-one” arbitration agreements between employers and employees. These types of arbitration agreements prohibit employees from bringing class action suits to challenge employer conduct.[1]  The Court rejected the argument of the employees that the National Labor Relations Act, which allows unionized and non-union employees the right to “engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection,[2]” makes illegal and unenforceable arbitration agreements between employers and employees that otherwise comply with the requirements of the Federal Arbitration Act.[3]  As a result, agreements whereby employees agree to resolve through one-on-one arbitration any disputes that arise between them and their employer are valid and enforceable by virtue of the Federal Arbitration Act.  These agreements can only be invalidated if a standard contract defense, such as fraud, duress or unconscionability, can be pled and proven.[4]  The Supreme Court made it clear that employer-employee arbitration agreements are enforceable even though they require bilateral arbitration.[5]

In Epic Systems Corp. v. Lewis., the Supreme Court resolved the conflict that had developed among the federal circuit courts about the enforceability of employer-employee arbitration agreements when the National Labor Relations Board took the position that such agreements violated the NLRA.[6]  The Court noted that, up until 2012 the National Labor Relations Board seemed to agree that such agreements did not violate the NLRA.[7]  In 2012, however, the NLRB took the position that the NLRA nullified arbitration agreements of the type presented to the Supreme Court in this case.[8]  As a result, since 2012, there was a split among the circuits regarding the enforceability of arbitration agreements between employers and employees.[9]  Both the Seventh Circuit and the Ninth Circuit had taken the position that the NLRA nullified such agreements, while the Fifth Circuit had taken the contrary position.[10]

In each of the circuit cases that gave rise to the Supreme Court’s May 21, 2018 opinion, the employees had sued their employers under the Fair Labor Standards Act in federal court and had sought to bring their claims as class actions.  In each case, the employer responded by moving to compel arbitration.  In Epic Systems Corp. v. Lewis[11]  and Ernst & Young LLP v. Morris et al.[12], the Seventh and Ninth Circuits, respectively, held that the arbitration agreements were unenforceable by virtue of the NLRA.  The Fifth Circuit in NLRB v. Murphy Oil USA, Inc., et al,[13] reached the contrary result on similar facts, granting the employers’ Motion to Compel arbitration and denying the employees the right to litigate in federal court and bring a class action.  The Supreme Court reversed the judgments of the Seventh and Ninth Circuits, and affirmed the judgment of the Fifth Circuit.[14]

What does the Supreme Court’s opinion mean for employers?  The Court’s opinion can certainly be seen as a victory for employers who want to use arbitration agreements as a means of managing the risks and costs associated with resolving employment disputes.  Arbitration agreements, however, must still be valid contracts, meaning that they must be supported by adequate consideration, and must not be entered into under fraud or duress, and the terms of them must not otherwise be unconscionable.  Signed arbitration agreements should be maintained in the personnel file of each employee that has signed the agreement, so that the existence of the agreement and the rights it grants to the employer, are not overlooked if/when the employee attempts to sue the employer.  Legal counsel should be consulted when drafting arbitration agreements and in connection with the enforcement of these agreements.

For further information, please contact Andrew Kopon at [email protected] or 312-506-4470, Maureen Murphy at [email protected] or 312-506-4475; or Colette Kopon at [email protected] or 312-506-4459.

[1] Epic Systems Corp. v. Lewis, No. 16-285, slip op. at 2 (May 21, 2018).

[2] 29 U.S.C.A. § 157 (West).

[3] Epic Systems Corp. v. Lewis, No. 16-285, slip op. at 11 (May 21, 2018).

[4] Id. at 7, 9.

[5] Id. at 9.

[6] Id. at 4.

[7] Id.

[8] Epic Systems Corp. v. Lewis, No. 16-285, slip op. at 4 (May 21, 2018).

[9] Id.

[10] See Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013, 1015 (5th Cir. 2015) (holding “that the corporation did not commit unfair labor practices by requiring employees to sign its arbitration agreement or seeking to enforce that agreement in federal district court.”); Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016) (finding that the employer’s arbitration clause restricting collective action by its employees violated the NLRA.); Morris v. Ernst & Young, LLP, 834 F.3d 975, 983 (9th Cir. 2016) (stating that the concerted action waiver at issue violated both the NLRA and the FAA.).

[11] Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1155 (7th Cir. 2016).

[12] Morris v. Ernst & Young, LLP, 834 F.3d 975, 983 (9th Cir. 2016).

[13] Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013, 1015 (5th Cir. 2015).

[14] Epic Systems Corp. v. Lewis, No. 16-285, slip op. at 25 (May 21, 2018).