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Supreme Court Hands Employers "Epic" Win in Class Action Waivers Dispute

The U.S. Supreme Court on Monday ruled that employers can lawfully require employees to resolve employment disputes through individual arbitration rather than by joining other employees in class or collective actions.

Although it arose in the employment law context, the Court's ruling will likely have significant implications for consumer financial services class actions, which frequently assert alleged violations of one or more federal consumer protection statutes, such as the Truth in Lending Act, the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act.

In a 5-4 decision written by Justice Neil M. Gorsuch and joined by a conservative majority, the Court found that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act (FAA). Furthermore, according to the Court, class and collective actions do not constitute "protected concerted activities" under the National Labor Relations Act (NLRA), because the NLRA at its core is intended to address organizational and collective bargaining rights and "does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Act."

The decision resolved a split among the circuit courts arising from three cases pending before the Court—Epic Systems Corp. v. Lewis, NLRB v. Murphy Oil USA, and Ernst & Young, et al. v. Morris. In Epic Systems Corp. and Ernst & Young, the U.S. Courts of Appeals for the Seventh and Ninth Circuits upheld decisions by the National Labor Relations Board (NLRB) that class action waivers in mandatory arbitration agreements violate the NLRA by restraining employees' rights to engage in "protected concerted activity."

On the other hand, in NLRB v. Murphy Oil USA, the U.S. Court of Appeals for the Fifth Circuit rejected the NLRB's position, finding instead that class action waivers are enforceable under the FAA.

The cases originated with a group of employees who sued their employers, alleging they had been underpaid in violation of the Fair Labor Standards Act and analogous state laws.

However, each of the employees had signed employment agreements that contained arbitration clauses requiring them to resolve their employment disputes via individual arbitration, rather than through collective action. The employees, along with the NLRB, argued that the NLRA "effectively nullifies" the FAA with respect to class action waivers in employment contracts. The employees and the NLRB claimed that an exception existed in this instance, based on language in the FAA that declares arbitration agreements "valid, irrevocable, and enforceable," except where rendered otherwise illegal—here by the NLRA.

Acknowledging the conflict between the FAA and the NLRA, Justice Gorsuch nevertheless explained that the "policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the 'National Labor Relations Act,' much less that it manifested a clear intention to displace the Arbitration Act."

Reading a spirited dissent from the bench, Justice Ruth Bader Ginsburg expressed a belief that the majority's decision will result in a "huge under-enforcement of federal and state statutes designed to advance the well-being of vulnerable workers." Justice Ginsburg noted that for employees in these cases, the claims often involve relatively small amounts that are impractical to pursue individually. As such, the majority's "egregiously wrong" decision means that without the option to pursue claims collectively, employees with class action waivers in their employment agreements have no viable remedy for minor wage violations, and thus, presumably, they have no recourse for all but the most serious claims of wage underpayment. Justice Ginsburg pulled no punches in dissent, scolding the conservative majority for "substitut[ing] its preferred economic policies for those chosen by the people’s representatives."

In a harbinger of the Epic decision, the Court held in CompuCredit Corp. v. Greenwood that claims under the Credit Repair Organizations Act are subject to arbitration because the statute does not expressly state otherwise. The Epic ruling reinforces the principle that when Congress intends to carve out an exception to the FAA, it knows how to do so and does so expressly.

In reaching its decision, the Epic court reaffirmed the many benefits that arbitration affords individuals—"speed and simplicity and inexpensiveness." The ruling broadly supports Congress' October 2017 repeal of the Consumer Financial Protection Bureau's (CFPB) final arbitration rule that would have prohibited the use of arbitration agreements with class action waivers in consumer contracts—even though the CFPB's own data demonstrated that individual arbitration is far more beneficial to consumers than class action litigation. The ruling also reinforces the recent proposals of the Department of Education and the Centers for Medicare and Medicaid Services to jettison earlier rulemaking, which would have similarly banned the use of arbitration agreements in student loan and nursing home contracts.

Despite this victory, employers still should carefully draft or review and revise any employment arbitration agreements to ensure they will achieve the legal objectives intended.

Copyright © by Ballard Spahr LLP

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Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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Culhane, Ballard, Partner
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John L. Culhane, Jr., is known for his work advising on interstate direct and indirect consumer and residential mortgage loan and leasing programs, through both traditional brick-and-mortar facilities and e-commerce. Before joining Ballard Spahr, Mr. Culhane was associate counsel with Mellon Bank, N.A.; associate counsel with Bank of America NT&SA; and senior attorney (section chief) with the National Credit Union Administration, the federal agency regulating federal credit unions.

Mr. Culhane addresses issues involving licensing, advertising and marketing, application processing, privacy, disclosure, pricing, substantive terms, servicing, collection, portfolio sales, and securitization. His regulatory practice includes preparing clients for banking agency and CFPB compliance examinations and assisting in the defense of attorney general investigations and banking agency and CFPB enforcement actions. His clients have ranged from a multibillion-dollar bank holding company, to one of the nation's largest residential mortgage lenders, to a leading provider of financial institution forms and documentation. Mr. Culhane is a member of the firm's Fair Lending Task Force.

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Meredith Dante, labor and employment lawyer, Ballard Spahr
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Meredith S. Dante represents employers across industries including retail, consumer products, hospitality, financial services, technology, life sciences, health care, manufacturing, and higher education in a broad range of labor and employment disputes. She partners with clients to proactively identify issues and devise legal solutions that are specifically tailored to the client's workforce and business needs. She regularly advises clients in matters involving discrimination, whistleblower complaints and retaliation, wage and hour issues, reductions in force, compliance...

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Mark Levin, Ballard Spahr Law Firm, Litigation Attorney
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Mark J. Levin is known for his work in complex commercial, insurance, and class-action litigation, with particular experience in consumer finance litigation, the structuring and enforcement of consumer arbitration clauses, and the defense of insurance companies in class actions. He testified in 2007 for the lending industry before a subcommittee of the U.S. House Judiciary Committee at an oversight hearing on whether mandatory arbitration in consumer contracts is fair to consumers.

Mr. Levin has represented banks in defending against the first...

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Steve Suflas, Ballard Spahr Law Firm, Denver, Labor and Employment Litigation Attorney
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Steven W. Suflas is Managing Partner of the Denver and Boulder offices and a nationally recognized thought leader on labor and employment issues. He represents management in all phases of labor and employment matters — from preventative counseling and strategic guidance to collective bargaining, appearances before regulatory agencies, and litigation before courts and administrative agencies. He works closely with employers — both large and small, national, regional, and local — in responding to the daily challenges of the workplace.

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