The Epic Systems Case

Its Effect on the Employee, and It’s Effect on California Law

At Yeremian Law, we pride ourselves on keeping our thumb on the pulse of all things related to Labor Law. This approach to the practice of law has enabled us to stay ahead of the curve and provide superior service to our clients. On May 21, 2018, the Supreme Court of the United States issued their opinion in Epic Systems Corp. v. Lewis. The 5-4 opinion in this case was the latest opinion in a slew of cases that have gradually eroded the employee’s rights to collective action when they sign either “class action waivers” or “arbitration agreements” as a condition of employment. The bad news is that this trend is unlikely to reverse on the federal level, the good news is that California employees still have a method of engaging in collective action.

The first section of this article will identify the issues that face employees across the nation as it relates to this case. The second section will briefly discuss the opinion itself, including Justice Ginsburg’s fiery dissent. The third, and final, section will briefly discuss the options that may remain available to the California employee seeking to pursue a “collective action.”

The Issue

Many employees across the United States are subjected violations of numerous labor laws; laws designed to protect the employee from exploitation by their employers. These employee’s claims are difficult to pursue individually for a number of reasons: (1) the amount of a single employee’s claim is typically small, and most employee’s don’t see the small harm as worth protracted litigation, (2) many skilled attorneys shy away from cases where the amount they can recover is low, and (3) the employer committing the violations generally has more money to spend on legal defense, which has the effect of reducing the number of claims that are brought against them even further.

In the early 20th century, the economic conditions of the day required employees to work pursuant to the conditions set forth by their employers. In an effort to obtain more fair working conditions, employees began banding together in an effort to make their collective voices heard.

The “collective actions” under attack in the recent series of cases were designed to give exploited employees a weapon to fight back with. Individually an employee’s claim might be small, but if 10,000 employees were able to bring their claims together they could even the odds and obtain the relief they are entitled to under the law.

In response to these “collective actions” designed to aid employees obtaining better working conditions, many employers began engaging in tactics to hinder those efforts; one of these tactics were referred to as the “yellow dog” contract – contracts requiring employees to waive key rights as a condition of employment. The modern equivalent of the “yellow dog” contract, in Justice Ginsburg’s opinion, can be found in employment agreements requiring employees to waive their right to collective action (in Court or in arbitration); thus, putting the individual employee back in their initial position of being unable to reasonably pursue their claims. The Supreme Court has consistently held that the Federal Arbitration Act’s preference for agreements dictating arbitration as the sole route for the aggrieved employee trumps other interests. In turn, the Supreme Court’s decisions have emboldened employers to inhibit the employees’ ability to act collectively – the proof of this can be found in the numbers themselves.

At the start of the 1990s, there only 2.1% of nonunionized employers required prospective employees to sign an arbitration agreement, that number exploded to 53.9% in 2017. In response to decisions like Green Tree (2003), Concepcion (2011), and American Express Co. v. Italian Colors Restaurant (2013), employers have begun including express waivers of “collective action” in their arbitration agreements. 23.1% of nonunionized employees are now subject to express class-action waivers in mandatory arbitration agreements. With the Epic Systems decision, this trend is likely to continue growing.

The Case

As mentioned above, the decision in Epic Systems Corp. v. Lewis was not unexpected, it was in line with Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, and American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. 228.

This case arose as a result of a significant split of opinion between various United States Court of Appeals. In these appellate cases, the Courts disagreed about whether a class-action waiver, which was included in an arbitration agreement, was in violation of the federal “National Labor Relations Act” (referred to as the “NLRA”) because it inhibited employees’ rights to pursue protected collective action under the NLRA. The 2nd, 5th, and 8th Circuits found that the class-action waivers did not violate the NLRA, while the 6th, 7th, and 9th Circuits found that the class-action waivers did violate the NRA. To resolve this issue, the Supreme Court of the United States decided to here three (3) consolidated cases: National Labor Relations Board v. Murphy Oil USA, Ernst & Young, LLP v. Morris, and Epic Systems Corp. v. Lewis.

The Court ruled 5-4 that the class-waiver did not violate the NLRA. The majority was written by Justice Gorsuch, and was joined by Justice Kennedy, Justice Roberts, Justice Alito, and Justice Thomas. The dissent was authored by Justice Ginsburg, and was joined by Justice Breyer, Justice Sotomayor, and Justice Kagan.

Put simply, the majority believed that the Federal Arbitration Act (“FAA”) mandates that the Courts enforce arbitration agreements, including all the terms that are included in those arbitration agreements. As it relates to the argument about the NLRA, the Court believed that the protected conduct referred to as “concerted activities” only extended to the right to enter into collective bargaining agreements (“CBAs”) and organize unions. The majority rejected the notion that “concerted activities” included engaging in class actions.

In Justice Ginsburg’s dissent, they attacked the broad impact of the Supreme Court’s previous interpretations of the Federal Arbitration Act. In Justice Ginsburg’s view, “In recent decades, this Court has veered away from Congress’ intent simply to afford merchants a speedy and economical means of resolving commercial disputes.” (emphasis added).

The Silver Lining

While it is a virtual certainty that employers will begin including class-action waivers in their mandatory arbitration agreements, putting employees in the same inferior position as they were in the early 20th century, this does not mean that all is lost for the American worker. To be sure, Epic Systems represents the continuation of a prolonged series of opinions favoring the terms arbitration agreements at the expense of the employee, it simply reaffirms the position that has been taken by the 2nd, 5th, and 8th circuits along with the majority of federal Courts that have addressed the issue (it should be noted that the National Labor Relations Board [“NLRB”] has consistently ruled the other way, that is not the law of the land at this time). 

At the same time, the attorneys at Yeremian Law are not ready to throw in the towel in their crusade to advocate for the right of the California employee; the silver lining is that we don’t think we need to.

While the practical effect of the Epic Systems case will be to force many claims into arbitration, without class claims, Epic Systems has a significantly smaller impact on employees and employers in California. California has what is known as the Private Attorney General Act (“PAGA” Labor Code §2699, et seq), which for ease of explanations, operates as a class action. The reason the PAGA claim minimizes the impact of Epic Systems is that a PAGA claim cannot be forced to be resolved through arbitration. The basis for this claim comes from a 2014 decision in the California Supreme Court, Iksanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348, which held that PAGA claims are brought on behalf of California’s Labor Workforce Development Agency (“LWDA”) and therefore cannot be governed by an agreement to which the LWDA is not a part of. Since most common Labor Code violations may be brought under PAGA in California, Epic Systems does not represent a massive step backwards like it does in other states.

The attorneys at Yeremian Law pride themselves on keeping up with current events in relation to California Labor Law and take pride in approaching modern issues in informed and innovative ways. If you are a loved one has been denied the rights afforded to you by the California Labor Code, contact Yeremian Law today!

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