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FEATURE Drafting Employee Arbitration Agreements

After Epic Systems Corp. v. Lewis

BY PHILLIP CIANO & SARAH E. KATZ

he United States Supreme A. The Case mandatory arbitration provisions. While this
Court recently ruled that The consolidated condisputes leading to the Epic ruling may decrease the likelihood that a plaintiff
mandatory arbitration clauses Systems decision involved employment agreements could maintain a successful class action in court,
which simultaneously waive containing mandatory bilateral arbitration clauses if class arbitrations are not expressly prohibited
T class or collective proceedings requiring that the only form of dispute resolution by the parties’ contract, plaintiffs may still be free
do not violate the National Labor Relations be through individualized arbitration. The plaintiff- to pursue class arbitrations under the FAA. What
Act (NLRA) or the Federal Arbitration Act employees in these consolidated cases sought to are some pragmatic implications to consider?
(FAA). Epic Systems Corp. v. Lewis, 138 S. Ct. litigate Fair Labor Standards Act (FLSA) claims First, there may be a potential increase
1612, (2018). In Epic Systems, the SCOTUS through federal class actions, claiming that an in attempts to engage in class arbitration.
considered whether the NLRA prohibits arbitration clause that prohibits class action suits Second, employers and their counsel should
enforcement of employment agreements violates the NLRA. The plaintiffs alleged that class be prepared for increased challenges to
requiring employees to resolve employment and collective actions are “concerted activities” that the enforceability of mandatory bilateral
disputes through individual, “bilateral” are protected by §7 of the NLRA. The employees arbitration clauses based on contract defenses
arbitration under the FAA. Writing for the 5-4 argued that while the FAA requires courts to other than illegality. Therefore, it is important
majority, Justice Neil Gorsuch wrote that the enforce agreements to arbitrate, if that agreement that drafters of employment agreements
NLRA “does not mention class or collective violates another federal law, then the obligation to containing mandatory arbitration provisions
procedures” and thus cannot be read to follow this agreement is nullified. take precaution to carefully draft these clauses.
displace the FAA. Rejecting previous NLRB authority and the The first thing a drafter should be aware of
This holding effectively permits employees plaintiff-employees’ claims, Epic Systems held is that even when parties agree to arbitrate all
to waive their right to pursue a class action in that arbitration agreements must be enforced in disputes, that does not necessarily mean that
court while agreeing to resolve all employment accordance with the FAA. The Court held that they will be prohibited from pursuing arbitral
disputes through bilateral arbitration. While for one Act to displace another, congressional class action. Class arbitration is rare, but courts
this holding appears to be a boon to businesses intent must be “clear and manifest.” The Court may nonetheless mandate class arbitration. The
and employers, there are some precautions held that while §7 speaks about unions and Supreme Court has held that under the FAA,
that should be taken when drafting arbitration collective bargaining, it does not mention class a party may not be compelled to arbitrate a
provisions into employment agreements. or collective actions or express a “clear and class action without “a contractual basis for
This article will summarize the holdings in manifest” intent to displace the FAA. concluding that the party agreed to do so.” Stolt-
Epic Systems and offer drafting tips to labor Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662,
counsel seeking to incorporate mandatory B. Pragmatic implications of Epic Systems. 684 (2010); see also Epic Sys. Corp. v. Lewis,
arbitration clauses, waiving collective Epic Systems held that employees are permitted to 138 S. Ct. 1612, 1623, 200 L. Ed. 2d 889 (2018)
actions, into employment handbooks and/ waive their right to pursue class actions in court (“courts may not allow a contract defense to
or agreements. by signing employment contracts containing reshape traditional individualized arbitration
by mandating classwide arbitration procedures
without the parties’ consent”). However, to
date, the Supreme Court has not specified the
STOUT DISPUTE CONSULTING parameters for what constitutes agreement to
Opinions. Expertly formed class arbitration.
A case currently pending before the Supreme
and relentlessly defended. Court, Lamps Plus, Inc. v. Varela, may resolve

this issue. In Lamps, an employee initiated
Stout’s Dispute Consulting group is proud to deliver damages analysis, expert a class action suit against his employer, the
testimony, and forensic accounting services to the Cleveland Bar community. employer moved to compel arbitration in
With 20 offices across the U.S. and abroad, we serve clients ranging from large accordance with the employment contract, and
public corporations to small closely-held businesses across a range of industries.
the District Court compelled class arbitration.
Varela v. Lamps Plus, Inc., 701 F. App’x 670, 672
stout.com (9th Cir. 2017), cert. granted, 138 S. Ct. 1697,
Investment Banking | Valuation Advisory | Dispute Consulting | Management Consulting 200 L. Ed. 2d 948 (2018). The Ninth Circuit
held that where the phrase “arbitration shall
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