Epic Systems Corp. v. Lewis
The Federal Arbitration Act requires courts to enforce employment arbitration agreements that call for individualized proceedings, and neither the FAA’s saving clause nor the National Labor Relations Act permits a court to refuse enforcement of a class- or collective-action waiver.
Epic Systems Corp. v. Lewis (2018) 584 U.S. 497
Arbitration
Class/Collective Waivers
NLRA Section 7
FAA Saving Clause
U.S. Supreme Court
In brief. In three consolidated cases, employees who had signed arbitration agreements requiring individualized proceedings sought to litigate wage-and-hour claims on a class or collective basis, arguing that the waivers violated their right to engage in “concerted activities” under section 7 of the National Labor Relations Act. The Court held, 5–4, that the agreements “must be enforced as written.” Neither the Federal Arbitration Act’s saving clause — which preserves only generally applicable contract defenses, not objections to the individualized nature of arbitration — nor the NLRA supplies a basis to refuse enforcement. (Epic Systems Corp. v. Lewis (2018) 584 U.S. 497, 504–509.)
Facts
The decision resolved three cases that, as the Court put it, “differ in detail but not in substance.” (584 U.S. at p. 503.) In Ernst & Young LLP v. Morris, a junior employee’s agreement specified individualized arbitration, yet he sued in federal court seeking to pursue a Fair Labor Standards Act collective action for misclassification and unpaid overtime; the companion cases — Epic Systems (a Wisconsin technology company) and Murphy Oil (a national service-station operator) — presented the identical conflict between an individualized-arbitration clause and an employee’s effort to proceed collectively. (584 U.S. at pp. 502–504.) In each, the employee did not contend the agreement was procured by fraud or duress; the only objection was to its insistence on one-on-one proceedings. (Id. at p. 504.)
Two federal statutes, enacted a decade apart, framed the dispute. The Federal Arbitration Act, adopted in 1925 to overcome the “judicial hostility” that had long led American and English courts to refuse to enforce arbitration agreements, commands that such agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U.S.C. § 2) — the so-called “saving clause.” (584 U.S. at pp. 504–506.) The National Labor Relations Act, enacted in 1935, guarantees employees the right “to self-organization, to form, join, or assist labor organizations . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” (29 U.S.C. § 157; 584 U.S. at pp. 504, 511.) The National Labor Relations Board, in its 2012 D. R. Horton decision, had taken the position that section 7 renders class- and collective-action waivers in employment arbitration agreements unlawful — the theory the employees pressed and the Court confronted. (584 U.S. at pp. 504–505.)
Procedural history
The lower courts had divided sharply. The Seventh Circuit (in Epic) and the Ninth Circuit (in Ernst & Young) accepted the employees’ NLRA theory and declined to enforce the waivers; the Fifth Circuit (in Murphy Oil) rejected the Board’s position and enforced the agreement. (584 U.S. at pp. 503–504.) The Supreme Court granted certiorari, consolidated the three cases, and — over a four-Justice dissent — held the agreements enforceable, reversing and remanding the decisions favoring the employees and affirming Murphy Oil. (Id. at pp. 504, 540.)
Issue
Must arbitration agreements that provide for individualized proceedings be enforced according to their terms under the FAA, or does the FAA’s saving clause — or section 7 of the NLRA — render class- and collective-action waivers unenforceable? (584 U.S. at pp. 504–505.)
Holding
The agreements must be enforced as written. “[N]either the [FAA’s] saving clause nor the NLRA” authorizes a court to refuse to enforce an agreement requiring individualized arbitration. (584 U.S. at pp. 497–498.) The saving clause “recognizes only defenses that apply to ‘any’ contract” — a “sort of ‘equal-treatment’ rule” — and “does not save defenses that target arbitration,” including objections to its individualized nature. (Id. at pp. 507–508.) Section 7 of the NLRA protects organizing and collective bargaining; it neither approves nor disapproves arbitration and does not displace the FAA or guarantee class or collective procedures. (Id. at pp. 509–522.) The decisions favoring the employees are reversed; Murphy Oil is affirmed. (Id. at p. 540.)
Reasoning
1. The FAA’s mandate and the lesson of Concepcion. The Court began from the FAA’s direction that arbitration agreements be enforced according to their terms, and from AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, which held that requiring the availability of class procedures “interferes with fundamental attributes of arbitration.” (584 U.S. at pp. 505–509.) Reinforcing the point, the Court invoked Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. 662, which had held that class arbitration may not be imposed on parties who did not agree to it. (584 U.S. at p. 509.) An agreement specifying individualized proceedings is precisely the kind of term the FAA protects. (Id. at p. 508.)
2. The saving clause is an equal-treatment rule, not an escape hatch. The employees argued the saving clause let courts refuse enforcement because the NLRA made the waivers “illegal.” The Court disagreed: the saving clause “recognizes only defenses that apply to ‘any’ contract” and operates as “a sort of ‘equal-treatment’ rule for arbitration contracts,” permitting agreements to be invalidated only “by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.’” (584 U.S. at pp. 507–508.) A defense aimed at the individualized character of arbitration “interfere[s] with [its] fundamental attributes” and so falls outside the clause. (Id. at pp. 508–509.) Justice Thomas, concurring, would have reached the same result on a narrower ground: in his view the saving clause preserves only defenses that “concern the formation of the arbitration agreement,” which an illegality-of-the-bargain objection is not. (Id. (conc. opn. of Thomas, J.).)
3. Section 7 addresses organizing and bargaining — not court or arbitral procedure. Turning to the NLRA, the Court held that section 7’s protection of “concerted activities” secures “the right to organize unions and bargain collectively”; its enumerated rights — “self-organization,” “form[ing], join[ing], or assist[ing] labor organizations,” and “bargain[ing] collectively” — “focus[] on the right to organize unions and bargain collectively,” and the residual “concerted activities” clause does not, in that context, “confer[] a right to class or collective” litigation procedures. (584 U.S. at pp. 511–512.) The Court found it telling that when the NLRA was enacted in 1935, the modern device the employees invoked — Federal Rule of Civil Procedure 23 class litigation — “didn’t exist,” making it implausible that Congress silently guaranteed access to it. (Id. at p. 512.)
4. The two statutes coexist; no implied repeal. Even if the statutes were in tension, the Court held, the employees could not overcome the “‘stron[g] presum[ption]’” against implied repeals, which requires “‘a clearly expressed congressional intention’” that one statute displace another. (584 U.S. at pp. 510–511.) Courts must read “Congress’s statutes as a harmonious whole rather than at war with one another,” and the FAA and NLRA — which “have long coexisted,” dating “from 1925 and 1935” — can be reconciled, with the FAA governing the enforceability of the arbitration agreements and the NLRA governing collective organizing and bargaining. (Id. at pp. 502, 504, 510–512.)
5. No Chevron deference to the Board. The Court declined to defer to the NLRB’s D. R. Horton interpretation under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. (1984) 467 U.S. 837. (584 U.S. at pp. 505, 519–522.) The Board, the Court reasoned, was not merely construing the NLRA (the statute it administers) but seeking to override the FAA (which it does not), and the policy judgment about the wisdom of class waivers belongs to Congress, not the agency or the Court. (Ibid.)
6. The dissent. Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented, calling the decision “egregiously wrong.” (584 U.S. at pp. 542–543 (dis. opn. of Ginsburg, J.).) She argued that section 7’s guarantee of “concerted activities . . . for . . . mutual aid or protection” has always encompassed employees’ joint pursuit of workplace claims, including collective legal action, and that mandatory individual-arbitration clauses function like the “yellow dog” contracts — promises not to act collectively — that the Norris-LaGuardia Act and the NLRA were enacted to outlaw. (Id. at pp. 546–553.) On her reading, the waivers were illegal under the NLRA and so unenforceable through the FAA’s saving clause, or alternatively the NLRA worked a partial implied repeal of the FAA to the extent of any conflict. (Id. at pp. 549–553.) She warned that the ruling would let employers “stave off collective employment litigation” for claims realistically vindicable only in the aggregate, and urged a congressional fix. (Id. at pp. 550–551.)
Significance
Epic Systems federalized and entrenched the enforceability of individualized employment arbitration with class- and collective-action waivers, foreclosing the NLRA-based challenge that the NLRB and two circuits had embraced and affecting an estimated tens of millions of employees subject to such agreements. It is the national counterpart to California’s Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, which had likewise recognized that class waivers are enforceable while preserving the representative PAGA action as the state’s non-waivable claim. It also sits in the line of class-arbitration decisions — Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. 662 and later Lamps Plus, Inc. v. Varela (2019) 587 U.S. 176 — that together make class procedures available in arbitration only by clear consent. The practical upshot in California: with class and collective vehicles largely closed off by Concepcion, Epic, and Iskanian, plaintiffs turned to PAGA, and the next battles moved to Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 and Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104. The decision’s reach has since been narrowed by statute in one important domain: the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (effective 2022) makes predispute arbitration agreements unenforceable, at the claimant’s election, for sexual-assault and sexual-harassment disputes. See the Review’s coverage of the arbitration and PAGA lines.
Key quotes
The saving clause “recognizes only defenses that apply to ‘any’ contract” and operates as “a sort of ‘equal-treatment’ rule for arbitration contracts.” (Epic Systems, supra, 584 U.S. at p. 507.)
Courts must read “Congress’s statutes as a harmonious whole rather than at war with one another.” (Id. at p. 502.)
From the dissent: the decision is “egregiously wrong,” because section 7’s protection of concerted activity “for . . . mutual aid or protection” reaches employees’ joint pursuit of legal claims. (Id. at pp. 542–543, 546 (dis. opn. of Ginsburg, J.).)
Practice pointer
Do not premise a class- or collective-waiver challenge on the NLRA — Epic Systems forecloses it, and the FAA’s saving clause will not rescue an objection that targets the individualized nature of arbitration. In California, the durable responses are the representative PAGA action (preserved by Iskanian as the state’s claim, outside the FAA) and generally applicable unconscionability under Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, applied even-handedly so as to survive Concepcion/Epic. Screen every matter for a statutory carve-out — most importantly the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which lets a claimant avoid arbitration of those claims — and watch for waiver of the right to arbitrate under Morgan v. Sundance, Inc. (2022) 596 U.S. 411 and Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562 when an employer litigates first. Plead PAGA prominently and treat the arbitrability of the individual claims as a near-certainty.
Open questions
Epic settled the NLRA question, but the frontier shifted to statutory carve-outs and to representative actions. How broadly the Ending Forced Arbitration Act reaches (including non-harassment claims joined in the same case), how the representative PAGA action survives after Viking River and Adolph, and whether Congress will limit mandatory employment arbitration more generally all remain unresolved. The dissent’s structural concern — that some statutory rights are realistically enforceable only through aggregate litigation — continues to drive both legislative proposals and the strategic migration of California wage enforcement into PAGA.