A Blockbuster Term for Business: Highlights from the U.S. Supreme Court’s October 2017 Term

Each year, the U.S. Supreme Court usually hands down at least one decision of interest to the business community. And this term was no exception. In fact, the Court’s docket had several important cases for businesses across the country. From arbitration agreements to sales tax, the High Court kept busy deciding disputes with far-reaching effects. In no particular order, here are some highlights of the top cases that will impact business and industry for years to come.

1. Arbitration Agreements in Employment Contracts: Epic Systems Corp. v. Lewis

Epic Systems upholds arbitration agreements in the employment context. Employees brought class action lawsuits against their employers claiming violations of the Fair Labor Standards Act, the main federal wage and hour law. The employers, however, pointed to these employees’ employment contracts, which required them to submit all employment disputes to arbitration under the Federal Arbitration Act. The employees came back and argued that the Arbitration Act should not apply because preventing the employees from forming a class for litigation would violate their rights under another federal law, the National Labor Relations Act (NLRA). Generally, the NLRA protects employees’ rights to engage in “concerted activities” such as collective bargaining. Under the employees’ theory, preventing them from forming classes for lawsuits by enforcing an arbitration agreement would undercut their right to collectively associate. 

Writing for a narrow majority, Justice Gorsuch issued the opinion of the Court holding that the NLRA did not preclude enforcement of the Arbitration Act in this instance. Central to the Court’s holding was the idea that Congress likely did not intend the phrase “concerted activities” to include the ability to organize for class action lawsuits. 

After Epic Systems, employers remain free to include mandatory arbitration agreements in employment contracts without running afoul of the NLRA. This is a big win for employers in avoiding litigation from former employees, particularly class actions. 

2. Sales Tax in the “Cyber Age”: South Dakota v. Wayfair, Inc.

If your business sells goods over the internet, South Dakota v. Wayfair, Inc., may become important in a practical way in the near future. South Dakota passed a law that required retailers doing a certain level of business in the state—but who did not actually have a physical presence in the state—to collect and remit sales tax to the state. These retailers sued, claiming the law was unconstitutional under a case called Quill. Quill held that unless a business has a physical presence in the state, the state may not require the business to collect sales tax for it. The Wayfair case squarely presented whether the physical presence requirement of Quill should be overruled. In a 5:4 decision, the Court decided it should, opening the door for states to require retailers without a physical presence in the state to start collecting sales tax, unless Congress steps in and creates a national rule.

This result is a big change for online retailers, who could now potentially be required to comply with multiple states’ tax laws, rather than relying on consumers to pay use tax when they buy goods online in the state. If you sell goods across state lines or over the internet, but don’t currently collect sales tax for those states, it may be important to review your business practices in light of this case. 

3. Whistleblowers and the Dodd-Frank Act: Digital Realty Trust, Inc. v. Somers

The Dodd-Frank Act, like some other federal laws, provides for anti-retaliation protection for whistleblowers who report violations of securities laws to the Securities and Exchange Commission (SEC). When it applies, the anti-retaliation provision protects whistleblowers by giving them a cause of action if they face negative job consequences as a result of their report. In Digital Realty Trust, Inc. v. Somers, the Court considered whether someone is considered a whistleblower under Dodd-Frank if he reports internally, but not to the SEC. Considering the specific statutory definitions in the Act, the Court held that “[t]o sue under Dodd-Frank’s anti-retaliation provision, a person must first ‘provid[e] . . . information relating to a violation of the securities laws to the Commission.’” 

While this case ultimately came out in favor of the employer, it is important to remember that it was specific to the Dodd-Frank Act. Other federal laws, like Sarbanes-Oxley, protect whistleblowers as well, and to a broader degree. There can also be state law or even common law claims. So, employers should always be cautious of taking what may be viewed as retaliatory action against whistleblowers, even those who report only internally.