U.S. Supreme Court Holds Mandatory Arbitration Clauses do not Violate NLRA

In Epic Systems v. Lewis,[1] the Supreme Court held that employers may force their employees to resolve disputes in individual arbitration proceedings. The case presented a legal issue involving an apparent conflict between two federal statutes, the Federal Arbitration Act (“FAA”) and the NLRA.  The FAA requires courts to enforce private arbitration agreements[2]  The NLRA protects employees’ rights to engage in “concerted activities for the purpose of  . . . mutual aid or protection.”[3] 

In 2012, the Board held that an employer violates Section 8(a)(1) of the NLRA when it requires employees, as a condition of employment, to sign an agreement that precludes them from filing class claims against the employer in court, or in arbitration proceedings.[4]  The Board noted that it “has long held, with uniform judicial approval, that” Section 7 of the Act – which vests employees with the right to engage in concerted activities for “mutual aid or protection” – protects “employees’ ability to join together to pursue workplace grievances, including through litigation.”[5] The Board also found its ruling did not conflict with the FAA because the FAA’s savings clause provides that arbitration agreements are not enforceable if there are grounds that “exist at law or in equity for the revocation of any contract.”[6] 

Thereafter, a group of employees brought a class action under the Fair Labor Standards Act. The employer moved to dismiss the case because the employees had signed individual arbitration agreements. The U.S. Court of Appeals for the Seventh Circuit, agreeing with the Board, refused to enforce the arbitration agreement on the grounds that it violated the NLRA and was not enforceable under the FAA.[7]

In a 5-4 decision, the Supreme Court reversed the Seventh Circuit and held employers can lawfully require employees to sign individual arbitration agreements as a condition of employment.  Justice Gorsuch, who authored the opinion for the majority, noted that under the FAA courts should presumptively enforce arbitration agreements. He then interpreted the NLRA’s term “other concerted activities” narrowly and concluded Section 7 does not protect collective litigation. Justice Ginsburg, writing for the dissent, emphasized that Congress enacted the NLRA to address the power imbalance between workers and employers, and that collective litigation is one of the ways in which workers can associate to improve their working conditions. She also urged Congress to overturn the Court’s decision: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.”

[1]           Epic Systems v. Lewis, 138 S. Ct. 1612, 200 L. Ed. 2d 889, 211 LRRM (BNA) 3061 (2018).

[2]           9 U.S.C. §§ 1 et seq.

[3]           29 U.S.C. § 157.

[4]           D.R. Horton, Inc., 357 NLRB 2277, 192 LRRM (BNA) 1137 (2012).

[5]           Id. at 2278.

[6]           9 U.S.C. § 2.

[7]           Lewis v. Epic Systems Corp., 823 F.3d 1147, 206 LRRM (BNA) 3293 (7th Cir. 2016).