Litigation

Ca. Litig. Rev. 2018

Class Actions

By Jessica Riggin & Dylan Cowart

"Reports of My Death Are Greatly Exaggerated" –Mark Twain

On May 21, 2018, the Supreme Court of the United States issued its landmark decision in Epic Systems Corp. v. Lewis,1holding that an employer-imposed arbitration agreement prohibiting employees "from pursuing work-related claims on a collective basis" does not violate the protections guaranteed by the National Labor Relations Act2 (NLRA) allowing employees to engage in concerted activity. The Supreme Court’s decision resolved a circuit split over the issue of class action waivers, a provision often found in mandatory arbitration agreements requiring individualized proceedings. The Seventh and Ninth Circuits3 both previously held that engaging in class, collective, or representative proceedings was "concerted activity," a substantive right protected by the NLRA.4 Those courts found that class action waivers were unlawful pursuant to Section 7 of the NLRA and thus illegal because they qualified for the "savings" clause contained in the Federal Arbitration Act (FAA), which provides that arbitration agreements are only enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."5 The Seventh and Ninth Circuits reasoned that because the arbitration agreements at issue waived a substantive federal right, the FAA’s savings clause precluded enforcement of that class action waiver.

The Supreme Court’s Epic Systems decision, however, rejected this logic, siding with the Fifth, Second, and Eighth Circuits.6 These earlier circuit court decisions held, among other things, that "the use of class action procedures is not a substantive right" and that "[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA"—finding that the FAA’s savings clause did not provide a basis for invalidating class action waivers.7 Similarly, the Epic Systems decision held that there is no conflict between the FAA and NLRA because the NLRA does not provide a right to a class or collective action in the first instance: "The NLRA secures to employees rights to organize unions and bargain collectively but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum."8 In so holding, Epic Systems permits the enforcement of mandatory arbitration agreements under the FAA that require employees to sue individually, as opposed to collectively.

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