Epic Systems Corp. v. Lewis

LII note: The U.S. Supreme Court has now decided Epic Systems Corp. v. Lewis .


Does the National Labor Relations Act prohibit the enforcement of agreements between employers and employees requiring individual employees to waive the right to participate in collective litigation, collective actions, and collective arbitration under the Federal Arbitration Act?

Oral argument: 
October 2, 2017

At issue in this case is whether employment contracts barring employees from collectively arbitrating disputes with employers are illegal under the National Labor Relations Act (“NLRA”). Employees argue that preventing collective arbitration interferes with the NLRA’s Section 7 protections of “concerted activity” for “mutual aid and protection”. Employers counter that the Federal Arbitration Act governs the arbitration agreements, under which they are enforceable. Employers also contend that enforcing the agreements protects freedom of contract, thus promoting efficiency and protecting judicial resources. Employees respond that collective arbitration allows them to share the costs and risks of litigation, thereby allowing them to pursue claims that, in the aggregate, may reveal abusive practices by employers. One on hand, freedom of contract in the interest of judicial economy may be harmed if the Court does not uphold the validity of the waivers. On the other hand, if the Court does uphold the validity of the waivers, it will may become more difficult for employees to challenge abusive work practices in their workplaces.

Questions as Framed for the Court by the Parties 

Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective, basis.


The Court here considers three consolidated cases: Epic Systems Corp. v. Lewis, Ernst & Young, LLP v. Morris, et al., and National Labor Relations Board (“NLRB”) v. Murphy Oil USA, Inc. Epic Systems, Ernst & Young, and Murphy Oil (“Employers”) urge the Court to uphold class action and collective arbitration waivers between employers and employees. Lewis, Morris, et al., and the NLRB (“Employees”) contend that such waivers infringe on employee rights and should not be upheld. The Second, Fifth, and Eighth circuits have held that class action and collective arbitration waivers for employees do not violate the National Labor Relations Act (“NLRA”); however, the Seventh and Ninth circuits have ruled that such waivers do violate the NLRA.

Note: the facts below represent those of Epic Systems Corp. v. Lewis. The Court’s decision to consolidate the three cases usually means that the unique facts of each individual case are unlikely to affect the outcome.

On April 2, 2014, Epic Systems Corporation (“Epic”), a healthcare software company, sent an email to a number of employees that included an arbitration agreement requiring employees to settle any “covered claims,” including violations of wage-and-hour practices, in a binding arbitration. Jacob Lewis, then a technical writer for Epic, acknowledged and agreed to this policy as the email required. Lewis continued working for the company, and in February 2015, filed a claim in federal court against the company on behalf of the technical communications employees at Epic. The claim alleged that Epic violated the Fair Labor Standards Act of 1938 (“FLSA”) and Wisconsin law, by not compensating the employees for overtime.

Epic moved to dismiss the employee’s claims, alleging that the employees waived their right to bring the wage dispute into court by agreeing to the arbitration agreement policy contained in the April 2, 2014, email. However, the district court declined to dismiss the claims, ruling that because class actions are a “concerted activity,” the waiver agreements violated Section 7 of the National Labor Relations Act (“NLRA”). Epic appealed, arguing that the district court erred in not upholding the arbitration agreement under the Federal Arbitration Act (“FAA”). The Seventh Circuit rejected Epic’s argument and affirmed the district court’s ruling.



Epic Systems Corp, Ernst & Young LLP, and Murphy Oil (“Employers”) argue against applying the NLRA in this case, because it fails to mention both class actions and arbitrations. Moreover, Section 7 lacks a single reference to adjudication or arbitration. Additionally, Employers argue that the NLRA was enacted before the FLSA and Rule 23 of the Federal Rules of Civil Procedure, which adopted class actions, and before the advent of class arbitrations. Therefore, Employers argue that Congress could not have intended for the NLRA to protect the agreements at issue. Further, Employers contend that Congress’s intention in passing the NLRA was to encourage friendly resolution of labor disputes—a goal individual arbitration furthers. Moreover, Employers distinguish the enumerated “concerted activities” in Section 7 from class proceedings because the “concerted activities” impose no obligations on third parties, such as courts or arbitrators, whereas class proceedings do. Employers also argue that Section 8’s prohibition on interference in “concerted activities” would not be violated because employees may still cooperate with each other at all stages of the proceedings in any capacity they wish. Finally, Employers contend that an employer’s channeling of disputes into individual arbitration is merely a procedural restriction, not a substantive encroachment on Section 7 rights.

Lewis, Morris, et al., and the NLRB (“Employees”) reply that the plain meaning of “other concerted activity” for “mutual aid and protection” in Section 7 includes the right of employees to seek joint legal action against their employer. Employees argue that the fact that the NLRA predates Rule 23 and the FLSA is not dispositive because other collective litigation procedures, such as representative suits and joinder, long predate the NLRA. Employees further contend that the Court, citing Congressional intent, has repeatedly defined “concerted activities” broadly in the labor context.In fact, Employees note that the NLRA’s statement of policy proclaims its intent is to protect employees’ full freedom of association, including the right to joint legal action. Employees further argue that protecting their ability to jointly resolve workplace disputes will lead to less industrial strife—a goal of the NLRA’s passing. . Additionally, Employees contend that forming a union, an uncontested protected activity under Section 7, requires the participation of the NLRB and potentially the courts, thus rendering Employers’ argument regarding third party obligations null. . Employees also maintain that Section 8 of the NLRA makes it unlawful to interfere with a concerted activity. Requiring a class action waiver, Employees assert, interferes with the concerted activity of seeking joint legal action, and thus such an agreement is unlawful. Employees argue that Section 7 grants them a substantive right to pursue joint claims against an employer free of interference, and therefore the argument presented by Employers distinguishing between substantive and procedural rights under Section 7 is irrelevant. Similarly, Employees also argue that the protected activity here is the concerted use of procedures to improve their lot, thus class proceedings are a “concerted activity” regardless of third party obligations, such as class certification by an arbitrator.


Employers argue that, consistent with Court precedent, the Federal Arbitration Act (“FAA”) applies due to the absence of a clearly expressed Congressional intent to the contrary in the NLRA. Further, Employers contend that the FAA governs employment contracts and, thus, the arbitration provisions at issue are “valid, irrevocable, and enforceable”. . Employers also argue that the saving clause of the FAA, limiting the extent to which the statute overrides previous statutes or general contract principles, does not apply here. . Employers maintain that saving clauses in federal statutes apply to state or federal common law but not to other federal statutes such as the NLRA.Additionally, Employers contend that the saving clause applies only with generally applicable contract defenses, and not with contractual subsets such as the employment agreements at issue here. Under the equal-treatment principle of the FAA, Employers argue, the saving clause does not apply if it disrupts fundamental attributes of arbitration. Employers contend that class arbitrations lose the timesaving and cost benefit—defining characteristics of arbitration—and, therefore, the saving clause does not apply.Moreover, Employers assert that the saving clause can be exercised only on grounds for “revocation” of a contract, that is, those defenses against enforcement specific to the contract’s formation. Employers maintain that because the NLRA does not relate to the formation of the contracts at issue, the saving clause does not apply and, thus, the FAA mandates enforcement of the arbitration provisions.

Employees counter that the ban on joint action is illegal under the NLRA, and thus, applying the FAA is superfluous. Further, Employees contend that the agreements are illegal under the FAA as well. The Employees argue that because the arbitration agreements at issue are in conflict with the NLRA, a federal statute, the FAA’s “saving clause” and principles of contract law mandate that the contract be void. Employees also assert that, contrary to what Employer’s argue, the Court has previously enforced saving clauses with respect to other federal statutes, such as in TC Heartland, LLC v. Kraft Foods Group Brands, LLC. Employees also maintain that saving clauses have never been applied to defenses targeting arbitration specifically. Employees contend that any contract defense invalidating an arbitration agreement interferes with the agreement’s existence, a “fundamental attribute”. Therefore, Employees argue that a rule preventing the exercise of the saving clause if it interferes with a “fundamental attribute of arbitration” would nullify the clause. Employees further assert that Employers’ argument restricting the saving clause to defenses relating to the formation of a contract could lead to FAA enforcement of otherwise illegal contracts. Additionally, Employees state that the joint-action ban is illegal because the prospective-waiver doctrine forbids enforcement of an agreement that suspends a party’s right to pursue statutory remedies. Further, Employees contend that the NLRA, having been substantively amended multiple times, supports an implied repeal of contrary provisions under the FAA and supersedes its mandates.



The Pacific Legal Foundation and the Equal Employment Advisory Council, in support of Employers, argue that waivers should be upheld as exercises of freedom of contract that allow parties to set clear and transparent standards of conduct. The Business Roundtable, Equal Employment Advisory Council, and The Employers Group contend that class and collective arbitration eliminate all the aspects of arbitration that both parties desire, such as reduced costs, increased efficiency, minimized workplace disruption, and the opportunity to work with expert adjudicators. The Equal Employment Advisory Council warns that the Supreme Court should not undermine the ability of employers and employees to reach the mutually beneficial agreement to settle disputes through arbitration.

An amicus brief from sixteen States and the District of Columbia (“Sixteen States”), in support of Employees, argues that adherence to freedom of contract in the employment context is an outdated principle that Congress sought to correct in the NLRA because employees, when negotiating with employers, do not have “actual liberty of contract.” According to an amicus brief from a group of labor law professors, waivers are, instead, “yellow-dog contracts” that prevent employees from exercising all of their rights. Additionally, the National Academy of Arbitrators and the Main Street Alliance argue that class action employment arbitration can be done as flexibly, informally, efficiently, and simply as individual arbitration. Further, the National Academy of Arbitrators maintains that class action employment arbitration does not cause more workplace interruption than individual arbitration and prevents, rather than exacerbates “procedural morass.”


The Equal Employment Advisory Council, in support of Employers, argues that individual arbitration, not class action arbitration, allows employees to maintain good relationships with employers which is beneficial for employees looking to continue working for the employer. Additionally, NAACP Legal Defense contends that individual arbitration preserves employees’ confidentiality which is in the interest of employees looking for new employment in the future. The Chamber of Commerce adds that employment claims are typically too small to bring through individual litigation, so arbitration provides a real opportunity to resolve the dispute. The Council on Labor Law Equality warns that class actions facilitate “judicial blackmail” as companies are pressured to settle because there is no guarantee of appellate review and outcomes can be very expensive, bet-the-company outcomes. The Employers Group also notes that class actions can create undue pressure for individual employees to settle claims rather than potentially jeopardizing the claims of other employees by going to trial.

The National Academy of Arbitrators, in support of Employees, argues that individual arbitration, rather than class action, makes finding representation difficult, as the possible profit is insignificant. The Sixteen States add that because employees do not always know what their rights are and when their rights are being violated, individual arbitration robs employees of the notice that class actions affords. An amici brief from ten international labor unions (“Ten Labor Unions”) notes that the benefits of class action arbitration include allowing employees to share resources, information, and the burden of litigation. The Ten Labor Unions add that class actions reduce the risk of retaliation and other, more subtle forms of employer disapproval. This reduced risk, according to the NAACP Legal Defense, encourages employees to challenge employment policies and serves a broader public interest by exposing harmful practices in the workplace. Susan Fowler notes that class action claims, when successful, can prompt employers to improve working conditions and provide a remedy for the employees negatively affected in the past.

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