Supreme Court’s Decision in Epic Systems: Employees can be Required to Arbitrate and Waive Their Right to File Class Actions

The US Supreme Court recently handed down its opinion in Epic Systems v. Lewis, 584 US  (2018) holding that employers can require their employees to agree to mandatory arbitration and to waive their rights to file class actions. See Opinion here. See news report here.

This is a “win” for businesses in several respects. It reaffirms the legal and judicial support for arbitration in general. We have discussed the value of mandatory arbitration clauses for San Diego and California businesses here. The Epic Systems case is also interesting for the Court’s approval of the METHOD by which the employer was able to obtain the employees’ consent – take-it-or-leave-it emails announcing the new company policies and indicating that the employees’ continued employment signified agreement. Here is a quick rundown of the case. Note that the decision was close at 5 to 4.

San Diego Corporate Law — Epic Systems

Epic Systems is a software company. The case itself involved several companies, each of which had variously required their employees to sign employment contracts limiting their rights to file class actions and requiring mandatory arbitration to resolve employee grievances. Class action lawsuits allow groups of plaintiffs — from dozens to millions — to join together in one lawsuit against one or more defendants. For obvious reasons, many businesses dislike class action lawsuits.

The Epic Systems case set up a potential conflict between the Federal Arbitration Act and the National Labor Relations Act (“NLRA”). The former allows and promotes use of arbitration and the latter allows and promotes unionization. In general, the courts do not allow the unionization rights afforded under the NLRA to interfere too much with the ability of employers and employees to make contracts. In the Epic Systems case, the Supreme Court continued that trend. The majority opinion stated, for example:

“The respective merits of class actions and private arbitration as means of enforcing the law are questions constitutionally entrusted not to the courts to decide, but to the policymakers in the political branches where those questions remain hotly contested.”

San Diego Corporate Law: Contracts of Adhesion

As noted, the other interesting aspect of the case was the majority’s approval of the METHOD by which the employers had imposed the contractual provisions. See Justice Ginsberg’s dissenting opinion, fn. 2. With respect to Epic Systems, the company sent an email to its employees attaching an arbitration agreement. The email stated that, if the employee continued to work for the company, the employee would be deemed to have accepted and agreed to the arbitration agreement. Another company involved in the case, Ernst & Young, did the same thing: An email was sent attaching an arbitration agreement, which stated that the employees’ continued employment would indicate their assent to the arbitration agreement. Under California law, these are classic examples of “contracts of adhesion.” An adhesive contract is a contract having these characteristics:

• A standardized contract
• Which is imposed and drafted by the party of superior bargaining strength
• And which provides the subscribing party — here, the employees — with only the opportunity to adhere to the contract or reject it

The dissenting Justices in Epic Systems stated that the contracts were adhesive in nature, stating that the workers “… faced a Hobson’s choice: accept arbitration on their employer’s terms or give up their jobs.” On those grounds (and others), the dissenting Justices would have struck down the arbitration agreements.

Contact San Diego Corporate Law Today

If you need help with any legal issues with respect to running your business, including issues related whether to add mandatory arbitration clauses to your business and employment contracts, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a complete array of legal services for businesses here in San Diego and surrounding communities including reviewing and drafting business contracts and all services related to business formations. Mr. Leonard can be reached at (858) 483-9200 or via email.

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