Epic Systems v. Lewis

Citation. 548 U.S. ____ (2018)

Brief Fact Summary.

Plaintiff entered into an employment contract with Defendant, providing that any disputes between the parties would be resolved through arbitration. The agreement stated that such arbitration could not be with a group or class of other similarly situated employees. Plaintiff filed a class-action suit against Defendant claiming a violation of the Fair Labor Standards Act. Defendant filed a motion to compel arbitration, based on the employment contract. The district court granted the motion based on the Federal Arbitration Act (FAA). The United States Court of Appeals for the Ninth Circuit reversed based on a savings clause in the FAA, holding that Plaintiff’s agreement violated the National Labor Relations Act’s (NLRA) provision allowing employees to collectively bargain. The United States Supreme Court granted certiorari.

Synopsis of Rule of Law.

The FAA requires arbitration agreements to be enforced according to their terms unless an agreement may be invalidated by generally applicable contract defenses.

Plaintiff entered into an employment contract with Defendant, providing that any disputes between the parties would be resolved through arbitration. The agreement stated that such arbitration would be on an individual basis, and could not be with a group or class of other similarly situated employees. Despite this clause, Plaintiff filed a class-action suit against Defendant claiming a violation of the Fair Labor Standards Act. Defendant filed a motion to compel arbitration, based on the employment contract. The district court granted the motion based on the Federal Arbitration Act (FAA), which provided that arbitration agreements should be enforced according to their terms. The United States Court of Appeals for the Ninth Circuit reversed based on a savings clause in the FAA. The clause provided an exception to mandatory enforcement if a party could invalidate an arbitration agreement based on “such grounds as exist at law or in equity for the revocation of any contract.” The court of appeals held that Plaintiff’s agreement violated theNational Labor Relations Act’s (NLRA) provision allowing employees to collectively bargain. The United States Supreme Court granted certiorari.

Issue.

Does the FAA require arbitration agreements to be enforced according to their terms unless an agreement may be invalidated by generally applicable contract defenses?

Held.

Yes. The Court held that employees who entered into contracts with employers providing for individualized arbitration proceedings to resolve employment disputes between parties were not entitled to litigate Fair Labor Standards Act or related state-law claims through class or collective actions in federal court.

Concurrence.

Justice Thomas

Justice Thomas argued that the case could have been decided on narrower grounds, that the FAA’s saving clause did not apply to the case because it referred only to traditional contract defenses like duress or fraud.

Discussion.

The FAA requires arbitration agreements to be enforced according to their terms unless an agreement may be invalidated by generally applicable contract defenses. Such defenses include fraud, duress, and unconscionability. The FAA creates a type of equal playing field for arbitration agreements; it prohibits invalidating an arbitration agreement based on a defense related to the arbitration itself. In this case, the court of appeals erred by declining to enforce the arbitration agreement. Plaintiff’s defense in seeking to invalidate his arbitration clause is not a generally applicable contract defense. Rather, Plaintiff’s defense is related to the arbitration itself—his claim is that individualized arbitration is not permissible under the NLRA. This defense to the arbitration clause does not fall within the FAA‘s saving clause, which includes only generally applicable contract defenses. Consequently, the arbitration clause must be enforced. Notably, the NLRA‘s allowance of collective bargaining does not change this analysis. The NLRA applies to collective bargaining before the employer. Once a dispute moves beyond negotiation at the place of employment and becomes litigation, the FAA applies. Therefore, the judgment of the court of appeals is reversed, and the case is remanded.