U.S. Supreme Court Issues A Win for Employers

May 24, 2018

U.S. Supreme Court Issues A Win for Employers: Arbitration Agreements Containing Class Action Waivers are Enforceable.

In a long-awaited opinion, the United States Supreme Court resolved a dispute among U.S. Courts of Appeal in holding that waivers of class actions or collective actions in employment arbitration agreements do not run afoul of the National Labor Relations Act (NLRA).  The opinion  resolved three (3) pending cases) Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP et al. v. Morris et al., No. 16-300; National Labor Relations Board v. Murphy Oil USA, Inc., et al., No. 16-307 (May 21, 2018).

In a 5-4 opinion authored by Justice Neil Gorsuch, the Court held that employment arbitration agreements that contain class action waivers are enforceable under the Federal Arbitration Act (FAA).  Employers have long utilized clauses in employment agreements requiring employees to arbitrate any claims as opposed to seeking court action.  However, in 2013 the National Labor Relations Board (NRLB), issued a ruling that employers who include waivers of class actions or collective actions as part of an arbitration agreement violated  the NLRA.  The ruling led to an eventual conflict among various federal courts of appeal and the NLRB.

Shortly after the NLRB’s ruling, the U.S. Court of Appeals for the Fifth Circuit rejected the  NLRB’s ruling in two decisions: , D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013), and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015).  The Fifth Circuit’s decision was later echoed by the Second and Eighth Circuit Courts of Appeal, both of which also enforced arbitration agreements containing class action waivers.

However, the Seventh Circuit Court of Appeals ruled in favor of employees and held that such waivers violated the NLRA and are unenforceable. Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016.  The Ninth Circuit reached the same conclusion in Morris v. Ernst & Young, 834 F.3d 975 (9th Cir. 2016)

The Supreme Court’s decision in 584 U. S. ____ (2018) resolved the split among the federal circuit courts. In siding with the Fifth’s Circuit’s previous rationale, the Supreme Court agreed that there was no conflict between the FAA and the NLRA.  Specifically, the Court relied on the plain language of the FAA which requires courts to enforce arbitration agreements and also allows the parties to agree on the terms of the arbitration. The Court disagreed that the “savings’ clause” in the FAA—which provides courts with grounds not to enforce arbitration agreements—only recognizes traditional contract defenses such as fraud, duress or unconscionability. According to the Supreme Court, no fair reading of the FAA would allow the savings clause to include challenging the nature of the arbitration (class action v. individualized claims). 

The Supreme Court also rejected the NLRB’s arguments that class or collective action qualifies as protected “concerted activity” under the NLRA. There was nothing in the text of §7 of the NRLA that would suggest class action would qualify, nor was the class action vehicle known to Congress when it passed the NLRA in 1935.

Finally, the Supreme Court rejected any deference arguments by the NLRB regarding its position on class action waivers. Although an agency’s interpretation of a statute it administers is given deference, here the NLRB was attempting to interpret a statute that it does not administer (the FAA), therefore any of these conflicts would need to be resolved by the courts.

 

The Supreme Court’s ruling marks a significant win for employers with regard to enforcing class action waiver provisions in arbitration agreements with their employees. Class actions are exponentially more expensive and difficult to defend, and provide potentially far greater exposure than individual actions.

If you have any questions as to how this ruling may affect your business, the attorneys at Ericksen Arbuthnot’s Employment Law Practice Group are here to assist.  Our practice group co-chairs, Andrew Kozlow and Graham Cridland, can can be reached at 510.832.7770 or akozlow@ericksenarbuthnot.com, or at 916.483.5181 or gcridland@ericksenarbuthnot.com, respectively