U.S. markets closed

'Epic Systems,' Heading Off 3rd Circuit's Ruling on Class Waivers, Seen as Curb on Wage Litigation

[caption id="attachment_11532" align="alignnone" width="620"] U.S. Supreme Court building. shutterstock.com[/caption]

Washington DC

Employment lawyers are predicting a slowing in wage-and-hour litigation, and increased use of collective action waivers in employment contracts, as likely results of the U.S. Supreme Court's decision upholding the validity of such waivers in Epic Systems v. Lewis.

The court's May 21 decision, holding that the National Labor Relations Act does not prevent employers from applying the Federal Arbitration Act to impose class waiver provisions in arbitration agreements, has been hailed by management-side employment lawyers and disparaged by those representing plaintiffs. The court split 5-4, with the majority opinion written by Justice Neil Gorsuch, President Donald Trump's first appointee to the Supreme Court.

The Epic Systems ruling "was a big decision, in that it reinforced the current state of the law," said Mitchell Boyarsky, a management-side employment lawyer at Gibbons in New York.

The Epic Systems case confirms that "arbitration class waivers are enforceable" and "clarifies that the NLRA deals with union organizing, workplace action between employees and employers, and the FAA is the one that prevails," Boyarsky added.

The state of the law locally, however, appears somewhat unsettled. The Third Circuit had not ruled on the question of law that was the focus of the Epic Systems case, thought it was slated to examine the issue in The Rose Group d/b/a Applebee's Restaurant v. National Labor Relations Board. That case, which arose from a dispute with a server over the policies of a restaurant in Rehoboth Beach, Delaware, is still pending.

The Supreme Court's decision covered three consolidated cases. In Epic Systems, from the Seventh Circuit, and Ernst & Young v. Morris, from the Ninth Circuit, courts agreed with the NLRB's argument that class action waivers in mandatory arbitration agreements between employers and employees violate the National Labor Relations Act. In the third case, NLRB v. Murphy Oil USA, the Fifth Circuit held that the FAA required arbitration agreements to be enforced according to their terms.

"What you're back to is this long and consistent direction from the U.S. Supreme Court that arbitration provides adequate alternative remedies to litigation, and if you agreed to it, we'll hold you to it," said Steven Suflas, a management-side employment lawyer practicing at Ballard Spahr in Cherry Hill and Denver.

Suflas represents the Rose Group in the Third Circuit case.

Suflas said Epic Systems restores the law on arbitration after lower courts had found "a very clever way to take a sleepy little statute, the NLRA, and use it to overturn 25 years of Supreme Court jurisprudence concerning the benefits of arbitration."

The justices' ruling in Epic Systems is expected to increase the use of class and collective action waivers among employers, said Mark Tabakman of Fox Rothschild in Princeton who focuses on wage-and-hour law.

"I think a lot of employers were waiting to see what would happen in this trio of employment cases," Tabakman said.

Boyarsky of Gibbons expects the ruling will drive a strong impetus among employers to use class action waivers, particularly companies that operate in multiple jurisdictions, depending on the employer's willingness to impose arbitration.

But Suflas warned that employers who adopt such waivers might see a "whipsaw effect," whereby a plaintiffs lawyer takes a different position. That position, according to Suflas, could be: "'OK, Mr. Employer, you don't want to litigate? I'm filing 1,000 arbitration claims.' There are some commentators who say, given the prospect of 500 arbitrations, aren't you better off litigating as a class?"

The decision prompted some plaintiffs lawyers to consider a strategy called “nonmutual offensive collateral estoppel,” or bringing claims under state and local labor laws, sibling publication the National Law Journal reported in the wake of the decision.

Epic Systems is likely to prompt wider adoption of class action waivers by employers, said Neil Mullin, a plaintiff-side employment lawyer at Smith Mullin in Montclair. Noting Justice Ruth Bader Ginsburg's dissenting opinion, which said that an estimated 53 percent of nonunionized U.S. workers are subject to mandatory arbitration agreements, Mullin said he expects the use of class action waivers to rise.

Meanwhile, plaintiff-side law firms that bring class actions are going to see their practices "disintegrate rapidly," and lawyers in those firms "are going to have to drive taxicabs or Ubers or go into individual cases," quipped Mullin, whose own firm does not bring class actions.

Now that such waivers have received the justices' imprimatur, an increasing number of workers will be pressed to consider forming unions, according to Mullin.

"Employers should watch out for the unintended consequences of these cases," he said. 

Paul Castronovo, a plaintiff-side employment lawyer at Castronovo & McKinney in Morristown, said Epic Systems will have a disparate impact on low-income workers. Clients such as the women pharmaceutical sales representatives who have brought gender discrimination class actions against several New Jersey drug companies in recent years would still have viable cases if they were brought individually, because they earn good salaries, according to Castronovo. But a store cashier who makes $10 an hour would not have a viable individual case, he said.

"The effect of Epic Systems and other class action waivers is the thousands of lawsuits that will not be filed because it's not financially viable to do so. Epic Systems is an unquestionable win for employers because of all the lawsuits that they are going to strangle in their cribs," Castronovo said.

He said the Supreme Court has been reversing "New Deal laws that were passed in the '30s to help address the imbalance of power in the workplace, and that's what this decision does. This is the latest in a line of decisions that slowly but surely is putting more power in the hands of employers," Castronovo said.

Lawyers who represent plaintiffs in discrimination, whistleblower or hostile work environment cases won't see much impact from the Epic Systems decision, but it will impact the small contingent of lawyers who focus on wage-and-hour suits, according to Castronovo.

"It's going to mean that low-wage employees are the ones that are going to be hurt," he said. "The lawyers will be fine."