Free Enterprise - The FindLaw Small Business Law Blog

Supreme Court Backs Employers in Arbitration Clause Cases

No business owner wants to find themselves litigating employment issues in court, and larger companies especially don't want to be facing off with an organized group of upset employees. That's why many employment contracts include a clause requiring employees to waive their right to resolve disputes through joint legal proceedings, and instead arbitrate their claims individually.

These mandatory or "forced" arbitration clauses have come under increasing legal scrutiny over the past decade, but the U.S. Supreme Court just handed business owners an "Epic" victory in finding that such clauses don't violate federal employment laws and are thus enforceable.

Employers and Employees ...

In Epic Systems Corp. v. Lewis and three related cases, employees cited the National Labor Relations Act, a federal law that protects the rights of certain employees to collectively bargain and to work together for "mutual aid and protection." They argued that forced arbitration clauses that prohibit employee class action lawsuits against employers violated this law.

In response, the employers involved in the cases relied on the Federal Arbitration Act, which states that agreements to arbitrate disputes "shall be valid, irrevocable, and enforceable." And where many saw conflict (the National Labor Relations Board in 2012 said the NLRA "effectively nullifies" the FAA in cases like these), the Supreme Court found compatibility. "Our rules aiming for harmony over conflict in statutory interpretation," Justice Neil Gorsuch wrote for the majority, "grow from an appreciation that it's the job of Congress by legislation, not this Court by supposition, both to write the laws and to repeal them."

... Living in Harmony

In balancing the two federal statutes, the Court tipped the scales in the FAA's favor, noting that the NLRA "focuses on the right to organize unions and bargain collectively." The law "does not express approval or disapproval of arbitration" and "does not mention class or collective action procedures," according to the majority. So the two laws could coexist peacefully:

"The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA -- much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress's statutes to work in harmony, that is where our duty lies."

This is obviously good news for employers relying on arbitration clauses to avoid class action employment lawsuits. If you want more information on how the Court's ruling could affect your employment contracts, or how arbitration agreements could be helpful to your business in general, talk to an experienced employment attorney.

Related Resources: