In a 5-4 decision, the United States Supreme Court ruled this week that the Federal Arbitration Act (FAA) requires enforcement of agreements in which employees waive their rights to class and other forms of collective relief in court in favor of individual arbitration. The high court’s ruling in Epic Systems Corp. v. Lewis, No. 16-285, and two related cases, upends a decades-long relative balance of power between management and workers ensured by the National Labor Relations Act and other federal laws. The decision will undoubtedly have far-reaching consequences throughout the United States, where, according to a recent study published by the Economic Policy Institute, roughly 60 million people are subject to employment agreements requiring mandatory arbitration of disputes.
Employers that want to protect themselves from class and collective action by groups of employees would do well to ensure that they have tightly-drafted employment agreements requiring individual arbitration in the event of a dispute. Employers that already have mandatory arbitration agreements with employees should consider having their existing agreements reviewed by legal counsel to determine if the terms can be redrafted to take advantage of one of the key implications of the Supreme Court’s ruling: employers can require, as a condition of employment, that employees agree to arbitrate disputes and waive relief in the courts. In the past, some employers included “opt-out” provisions in their arbitration agreements whereby employees had the ability to maintain their right to class and collective relief in the courts and nevertheless retain their jobs. Such provisions arguably protected employers from claims their arbitration agreements violated federal law. With the Supreme Court’s decision in Epic Systems, however, employers may be relieved from the need to include such opt-out provisions in their arbitration agreements.
Regardless of your feelings about the central issues in the debate, the Epic Systems decision, lauded by management and derided by workers, will have broad-sweeping effects for years to come.
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