Advisen

A level of certainty for many but not all employers following Epic mandatory-arbitration case

The U.S. Supreme Court upheld the use of mandatory arbitration agreements for employers in its May decision in the closely-watched case of Epic Systems v. Lewis, but the next steps for organizations may not be that simple.

For insurers and attorneys, the decision has been a hot topic. The Supreme Court’s consideration of the case combined three similar cases and put many other lawsuits on hold pending the ruling. While it now paves the way for arguments over the validity of mandatory agreements and class action waivers in many instances, Epic doesn’t apply to all employment situations. It also doesn’t necessarily indicate that every company should rush to make any changes to employment contracts, say experts.

The decision is “overall, a positive decision” for employers, according to Wayne Imrie of Beazley.  Each of the cases involved claims that employers had failed to pay adequate overtime wages to their workers. These types of cases can result in litigation and “large and potentially significant claims.”

Imrie told Advisen that wage and hour claims have been the fastest-growing area of employment litigation in recent years. The wage and hour insurance marketplace has expanded over the last three to four years, with standalone products developing out of London and Bermuda. More and more, said Imrie, the largest organizations are buying wage and hour coverage in addition to their employment practices liability insurance.

Arbitration agreements have been deemed as an effective risk management tool, one that Epic will likely help assure.

“For employers, it gave a real clear roadmap and understanding of what’s allowed,” said Melissa Siebert, partner with BakerHostetler.

The Court examined the Federal Arbitration Act and the National Labor Relations Act in deciding the case. Epic came before the Court after the National Labor Relations Board ruled in 2012 that waiving class actions violated employees’ rights to “concerted action,” thereby violating the NLRA.  Other appeals courts followed that ruling, including the Sixth, Seventh, and Ninth Circuits. The Second, Fifth, and Eighth Circuits opted not to follow the NLRB’s lead.

The immediate fallout from the decision includes resolving existing cases that had been stayed. Before Epic was decided, defendants in wage and hour lawsuits had the option of filing for dismissal or filing for a stay pending the decision. According to Siebert, some cases that had been stayed have already been dismissed and others are likely to seek to compel arbitration.

Siebert cited another potential wrinkle – should defendants have failed to assert a defense relative to Epic or moved to compel arbitration, their cases could ultimately fail.

For future wage and hour claims, Epic promises some level of certainty but not for all cases. Arbitration agreements are generally enforced under state contract law. For example, due to California’s Private Attorneys General Act (PAGA), the Epic ruling may not apply -- although some reports have questioned that.

“It’s a good idea now if you have a deemed-enforceable arbitration agreement that you make sure you understand state contract law,” said Siebert.

In addition, according to Imrie, the ruling will not apply to actions brought by government agencies.

In general, though, the decision could make class-actions less appealing. However, the option of negotiating dozens of single-plaintiff arbitration cases may not solve any problems for organizations.

There’s interest in the concept of class waivers in arbitration agreements, according to Siebert. However, a small 50-person firm might not see much benefit.

“If you’re trying to effectively address litigation and mitigate the cost of large-scale actions, it seems like it would be a prudent way to do it,” she said. It provides “a more efficient and effective way to resolve disputes.”

With a “fiery dissent” from Justice Ruth Bader Ginsburg, joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan, the Epic decision was by no means unanimous and has drawn criticism from workers’ rights advocates. The dissent called for Congress to correct the “egregiously wrong” decision from the majority and numerous articles highlighted the problems with the majority’s viewpoint, chief among them the lack of transparency about class waivers in mandatory arbitration agreements and the removal of workers’ ability to band together.

Similarly, the ruling would apply to employment litigation addressing more than wage-and-hour cases – such as sexual harassment or discrimination. From a cultural standpoint, class actions are viewed as offering more opportunity for widespread attention and change in corporate practices.

Siebert said organizations can have the conversation about implementing carve-outs from arbitration agreements and policies for more sensitive issues.

Beazley’s Imrie predicted that some organizations would move to implement class-action waivers but no universal shift.

“It’s not the right choice for all,” he said. Arbitration can be costly and less predictable, Imrie said, with fees per case ranging from $15,000 to $25,000.

“It’s not necessarily the silver bullet,” he said.

Editor Erin Ayers can be reached at eayers@advisen.com.