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The Supreme Court Just Threw a Wrench into Class-Action Lawsuits


By Michael J. Anthony and Kristin Hammond

"Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?" - JUSTICE GORSUCH.

The legal court system is slow and inefficient and in need a major reform. It’s a system manipulated by plaintiff and class action attorneys looking for big payouts, based upon, in many cases, technicalities. One lawsuit, even a frivolous one, can cost tens and hundreds of thousands in defense costs alone and go on for years. An entrepreneur’s dreams can vanish based upon the whims of a litigant. Unfortunately, there is no such “speedy trial” for business disputes. This is why the Supreme Court’s decision in Epic Systems Corp. v. Lewis is a win for workers and the businesses that support them.

In Epic Systems Corp. v. Lewis, the Supreme Court upheld class-action waivers in arbitration agreements, commonly found in employment contracts. The Court primarily relied on the Federal Arbitration Act which provides for employment matters to be resolved efficiently and effectively through arbitration. The Court found that said Act superseded the National Labor Relations Act (“NLRA”) and the Fair Labor Standards Act (“FLSA”); both of those acts were created in the 1930s, during the industrial era.

Mandatory arbitration agreements require that disputes be brought through arbitration rather than litigation through the legal court system, and that claims be argued on an individual basis rather than in large groups. Arbitration agreements are nothing new – they’ve been around for decades but they have grown increasingly more common. In 1992, only 2% of employers used mandatory arbitration agreements. Today, more than 54% of companies have incorporated these agreements into their employment contracts. The NLRA guarantees workers the right to collective bargaining.  Until this ruling, mandatory arbitration clauses had been heavily ridiculed. In 2012, the National Labor Relations Board held that the NLRA nullifies arbitration clauses in cases that involve wage disputes. However, in its ruling, the Court stated that the Federal Arbitration Act, which invalidates class-action waivers, supersedes the NLRA.

Mandatory arbitration provisions are typical in many contracts, including those for cell phones, credit cards, and rental cars. However, prior to the Supreme Court ruling, many companies were doing away with them. Uber executives have recently said the company would be eliminating the provisions as they relate to sexual misconduct claims, and Microsoft has said it will stop enforcing these agreements in sexual harassment cases.

How Businesses Should Respond

So, what can companies and employees expect as a result of this outcome? For starters, it is likely that mandatory arbitration agreements will quickly become much more prevalent in employment contracts. Many employment experts are expecting a huge increase in these agreements within the next three to six months.

There are several strategies that companies can apply in order to ensure that mandatory arbitration agreements are beneficial to both the employer and employee. For one, companies can emphasize the benefits that employees have in arbitration, such as:

  • Confidentiality: The issues brought up in an arbitration are private and cannot be divulged or published.

  • Comparable Relief: Employees are generally able to seek the same rights and remedies in arbitration as they would be allowed in litigation.

While arbitration agreements can lead to favorable results for both parties, there are important considerations companies should take in when drafting the agreement. Some of these considerations include:

  • The agreement must comply with federal and state laws and cannot benefit one side to the point that it would be considered unconscionable.

  • Arbitrators must also be neutral, and not lean heavily in favor of one side.

Employers should stay up-to-date on state requirements and regulations, which could affect how the agreements are analyzed and how disputes are resolved. Crafting employment contracts and arbitration agreements to fit these specifications can be a nuanced task requiring diligence and attention to detail but should be painless with a skilled and knowledgeable business attorney.

One final thought from a business lawyer whose firm is and has been involved with litigious opposing parties and class action litigation – the civil court system is in need of major reform. We need courts specializing in commercial matters, overseen by judges who have specialize knowledge in the matters at hand. Cases must be resolved efficiently and fairly, lasting no more than twelve months. Until reform takes place, arbitration is the only real alternative protect these businesses and, by way of that, the employees who rely on their success.

Anthony Law has an extensive employment law practice, advising small, medium and emerging companies on critical and relevant matters in the HR and employment law area. Please visit our employment law section for more information and always feel free to contact any one of our employment law lawyers with any questions.