Established 1958 ~ Hardball Business Litigation & Complex Negotiations

US Supreme Court Enforces Individual Arbitration Agreements

In May 2018, the Supreme Court in Epic System Corp. v. Lewis ruled in favor of employers in a matter involving the enforcement of individualized arbitration agreements. 2018 WL 2292444. In this case, the plaintiffs were all workers who had signed arbitration agreements which required them to pursue their grievances through individualized arbitration. Plaintiffs instead attempted to sue under two central claims. First, the plaintiffs insisted that the arbitration agreements should not be enforced because of  the “saving clause” of the Federal Arbitration Act (“FAA”) which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” in combination with the National Labor Relations Act (“NLRA”) which governs workers’ rights to “bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining.” Secondly, the plaintiffs argue that even if the “saving clause” of the FAA does not protect their claim, Congress intended for the NLRA and not the FAA to be the controlling regulation.

When faced with determining the merits of the plaintiffs’ first argument, the Court relied primarily on the text of the regulation to determine the meaning and implications of the “saving clause.” When analyzing the clause, the Court focused on the inclusion of the term “any contract.” Id. at 6. The Court believed that this language instructs the courts to treat all contracts, including arbitration agreements, equally. The reason the interpretation of an equal treatment requirement is significant is that under general contract law, the court may only choose to invalidate a contract under the general defenses of fraud, duress, or unconscionability. Id. at 6. The majority held that the illegality claim was not a claim of unconscionability, but instead narrowly interpreted the argument to be no more than stating a contract should not be enforced “because it requires bilateral arbitration.” Therefore, the majority denied plaintiffs’ first claim because they found that the defense was not founded in the traditional defense to contracts, and thus not covered under the “saving clause” of the FAA.

Similar to its denial of the first argument, the majority focused primarily on the text of the NLRA in determining Congress intention regarding NLRA. Plaintiffs’ argument rests on the language in §7 of the NLRA which guarantees workers the right “to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining.” Plaintiffs’ claim that the language of this act prevents the enforcement of agreements which inhibit the workers right to engage in class action suits. The Court in this matter did not find that the language provided in §7 provided a clear congressional command to displace the Arbitration Act. In making its decision the majority focused on the direct language of the act and refused to read into the meaning of “concerted action for the purpose of collective bargaining.” The Court held that not only did this language fail to amount to a clear congressional command to overrule the FAA, but it also failed to establish any relation to class action lawsuits. The Court found that since Congress is well aware of how to explicitly state that one act is overruling another and chose not to do so in the NLRA, Congress did not intend for this act to override the FAA. Since the language was placed along with actions involving the forming and joining of labor organizations and collective bargaining, it was intended to mean concerted action in furtherance of those actions, not workers’ involvement in class action suits.

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.