Only three years ago, the Supreme Court reversed the holdings of a large number of lower courts and held that class action waivers in arbitration agreements were enforceable. Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). We blogged about that decision here. With the Supreme Court’s ruling, many employers either adopted such agreements or began to enforce their preexisting agreements more effectively. Particularly in the realm of Fair Labor Standards Act litigation, these agreements became an important part of the defense, providing a counterbalance to courts’ frequent application of the reduced standards for “conditional certification” and the resulting undue economic pressure placed on defendants to settle.
The plaintiffs’ bar reacted immediately, and numerous efforts were made at the state and federal levels to limit Epic Systems’ reach. We have blogged about many of those efforts here: August 11, 2021, February 11, 2020, October 11, 2019, March 28, 2019, and November 16, 2018. Employment arbitration again became an issue following the 2020 elections. With the change in control of Congress, various bills were introduced that would effectively make Epic Systems a nullity.
Those efforts may be coming to fruition. The House Education and Labor Committee just released the text of labor legislation that will become part of the $3.5 trillion spending package now being prepared in Congress. A copy can be found here, with the labor provisions beginning on page 114. This 296-page set of amendments will become part of the even-larger spending bill that is still under development and is expected to be enacted through the budget reconciliation process for political reasons.
The language of the proposed legislation contains much to disfavor employers, including adding penalties of $50,000 to $100,000 for employer (not union) unfair labor practices and personal liability for officers and directors who are found to have participated in or failed to prevent unlawful conduct, prohibiting the hiring of strike replacements and making the misclassification of a worker as an independent contractor (at least in some cases) an unfair labor practice. It will also mandate employer-funded IRAs or 401(k) plans in addition to existing Social Security obligations.
With respect to the subject matter of this blog, the proposed language prohibits the enforcement of arbitration agreements in connection with class or collective actions.
“No employer shall . . . enter into or attempt to enforce any agreement, express or implied, whereby prior to a dispute to which the agreement applies, an employee undertakes or promises not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee in any forum that, but for such agreement, is of competent jurisdiction.”
The bill would make the prohibition effective Jan. 1, 2022. According to media sources, the bill is being fast-tracked, with a goal of passage by Sept. 27, 2021. If this provision becomes effective, employers using arbitration agreements will need to consider necessary revisions and whether they continue to be worthwhile given arbitration’s costs. The so-called Byrd rule prohibits the use of the budget reconciliation process in the Senate for “extraneous measures,” where there is no budgetary effect or where there is one that is merely incidental to the budget change. Given that the measures are expected to be placed in effect through that mechanism, serious questions may arise as to whether it is available for measures with so little budget impact.
The bottom line: The $3.5 trillion spending package targeted for passage this month now also includes a provision that would effectively bar the use of arbitration agreements in class or collective actions.