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January 2017

Supreme Court to Resolve Circuit Dispute Regarding Validity of Class Action Waivers

The United States Supreme Court has agreed to settle a split among the Circuit Courts and determine whether arbitration agreements containing class and collective action waivers are illegal under the National Labor Relations Act (“NLRA”).  At issue are three cases from the Fifth, Seventh, and Ninth Circuits, which have taken differing views of NLRA sections 7 and 8.

Specifically, NRLA section 7 states: “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” (29 U.S.C. § 157)  Further, NRLA section 8 enforces these rights by making it “an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [§ 7].” (29 U.S.C. § 158.)  Employees contend that these provisions preclude collective action waivers in arbitration agreements, while employers have cited precedent permitting the use of such waivers.

In Morris v. Ernst & Young, LLP, the Ninth Circuit considered whether an employer violates the NLRA by requiring employees to sign an arbitration agreement which precluded them from bringing, in any forum, a concerted claim regarding wages, hours, as a term and conditions of employment.  

The Ninth Circuit held that the NLRA precludes such waivers, as they impinge upon employees’ right to “self-organize” or otherwise participate in “concerted” activity.  Further, the Ninth Circuit determined that the Federal Arbitration Act (“FAA”) did not dictate a different analysis or result, despite the Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion.  In so holding, the Ninth Circuit reasoned that the right to self-organize constituted a “substantive” rather than “procedural right.”  Because “substantive rights” cannot be waived via contract or arbitration agreement, the Ninth Circuit effectively circumvented the Concepcion ruling.   In sum, the Ninth Circuit determined that “[t]he NLRA precludes contracts that foreclose the possibility of concerted work-related legal claims.” Therefore, “an employer may not condition employment on the requirement that an employee sign such a contract.” 

In Lewis v. Epic-Systems Corp., the Seventh Circuit reached a similar conclusion holding that the NLRA’s mandate that employees be permitted to engage in collective activity did not conflict with the FAA, as the FAA proscribes enforcement of “illegal” agreements.  In making this determination, it referenced the FAA’s “savings clause,” which renders an arbitration agreement “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (emphasis added).   Thus, the court reasoned that an arbitration agreement’s requirement that employees bring claims separately contravened the NLRA’s express protections, rendering it illegal and unenforceable.

However, the Fifth Circuit reached a different and more employer-friendly result in Murphy Oil USA, Inc. v. N.L.R.B. and held that class waivers contained in arbitration agreements did not violate the NLRA.  Referencing its decisions in D.R. Horton., the Court expressly found that the NLRA does not contain a “congressional command overriding” the FAA, and that “use of class action procedures ... is not a substantive right” under Section 7 of the NLRA.

The above referenced circuit decisions have set the stage for the Supreme Court to settle this issue.  Ultimately, this will be an important issue for employers, as the Supreme Court’s decision will put to rest whether class action waivers by employees are enforceable.

Employment Law

Employment Law