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Supreme Court Considers Class Arbitration in Employment Law Claims

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On October 29, 2018, the Supreme Court heard oral argument concerning class arbitration in employment law claims in Lamps Plus, Inc. v Varela. What’s on the line? Whether general arbitration clauses in employment contracts preclude the right to a collective or class arbitration.

Cases affecting class arbitration in employment law claims

Dallas employment law attorney, Ben DuBose, says “Last year, the Supreme Court’s Epic Systems ruling struck a big blow by holding that arbitration clauses in employment papers override a worker’s rights to bring Fair Labor Standards Act claims in the court system.” Now, DuBose says, “Lamps Plus could further whittle down worker rights.”

The lower appellate court found against Lamps Plus by holding that the general arbitration clause, which did not expressly state it prevented collective or class arbitration, because of its ambiguity permitted class or collective arbitration.

While Lamps Plus does not directly involve Fair Labor Standards Act (FLSA) claims, its impact could apply to a broad range of employment law based claims.

The combination of last year’s Epic Systems ruling which held that forced arbitration clauses are enforceable in employment contracts, coupled with an adverse ruling in Lamps Plus would result in employees only being able to bring individual cases in arbitration – absent express language in an arbitration clause consenting to class arbitration.

Employee rights at stake

In an arbitration, the parties give up their 7th Amendment right to a trial by jury as well as their right to appeal on substantive grounds to a court of law. Instead, arbitration takes place outside of the court system with a private arbitrator, often selected by the employer per the terms of the arbitration clause.

Questioning from the Court during oral argument suggests the Court will be closely divided on what standard should be applied to determine parties have agreed to class arbitration. The Lamps Plus decision will be issued during the spring or early summer of 2019.

U.S. Supreme Court Strikes Big Blow to Worker Rights

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Supreme Court strikes big blow to worker rights

The U.S. Supreme Court’s recent decision in Epic Systems Corp. v. Lewis struck a big blow to worker rights. At issue was whether employer arbitration agreements, often signed as beginning day employment papers, can prevent workers from pursuing their right to participate in class or collective actions against their employer under the Fair Labor Standards Act (FLSA).

The history

Enacted in the 1930s, the FLSA established wage and hour rights including the federal minimum wage and overtime pay for hours worked over 40 during the workweek. Under the FLSA, workers can recover for underpaid and miscalculated wages. The statute also provides that current and former employees can pursue a type of class action known as a collective action so that other workers that have suffered similar wage losses can be identified and joined into the case. Collective actions can also help streamline litigation by creating efficiencies in time and money.

The opposing statute at issue in Epic Systems Corp. is the Federal Arbitration Act (FAA). The FAA provides that parties may contractually agree to resolve disputes through binding arbitration rather than the court system. In an arbitration, the parties give up their 7th Amendment right to a trial by jury as well as their right to appeal on substantive grounds to a court of law.

The ruling

In Epic Systems Corp, the Court rejected National Labor Relations Board’s contention that class waivers violate employee rights to take collective steps for their “mutual aid and protection.” The Court ruled that employers can require employees to arbitrate disputes with their employer and waive their right to pursue or participate in class or collective actions. The FLSA is silent about overriding arbitration agreements. Ultimately, “[i]n the Federal Arbitration Act,” the Court held, “Congress has instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings.”

The future

As both Justice Gorsuch, writing for the majority and Justice Ginsburg, for the dissent, point out – this result is something Congress can fix statutorily by clarifying that collective action rights cannot be waived by arbitration agreements. The Court also provides a sliver of daylight to workers by acknowledging state law contractual defenses to arbitration clauses still exist with respect to class waiver arbitration agreements.

Arbitration can be equitable and advantageous for parties of comparable bargaining power that willingly enter into such an agreement. But, more often than not, employment agreements with arbitration clauses involve a large disparity in favor of the employer. Employees often aren’t even aware they’ve signed an arbitration agreement.

The U.S. Supreme Court’s broad holding that forced arbitration clauses and class action waivers are enforceable in employment contracts will have a broad impact on millions of workers and will likely impact other areas of employment law beyond wage and hour disputes.