United States: Supreme Court Upholds Legality Of Class Action Waivers In Arbitration Agreements In The Employment Context

The controversy surrounding the validity of employment arbitration agreements with class action waivers has been simmering at least since 2012. Now, with the Supreme Court's decision in Epic Systems Corp. v. Lewis, we have an answer: They "must be enforced as written" despite any debatable policy within the National Labor Relations Act that suggests otherwise. Before we analyze the majority and dissenting opinions, let's take a quick look backward.

The Long Ramp-up

Since 2012, the National Labor Relations Board (NLRB) has taken the position that arbitration agreements with class or collective action waivers deprive employees of their rights to proceed collectively under Section 7 of the National Labor Relations Act (NLRA). That NLRB position ultimately provoked a federal circuit split that posed serious challenges for national and multistate employers.

In May 2016, the Seventh Circuit initially created the split with its decision in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), which held that an arbitration agreement precluding collective arbitration or collective actions violates Section 7 of the NLRA, 29 U.S.C. § 157, and is unenforceable under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq. That put the Seventh Circuit squarely at odds with the Fifth, Second, Eighth and Eleventh circuits, which had previously held that the FAA's policy of favoring arbitration overrides any concerted activity rights employees have to class or collective remedies.

In August 2016, however, the Ninth Circuit joined the Seventh Circuit and held in Morris v. Ernst & Young U.S. LLP, 834 F.3d 975 (9th Cir. 2016), that, despite the FAA, under Section 7 employees have substantive rights to pursue collective relief that cannot be waived in an arbitration agreement.

During September and October 2016, certiorari petitions were filed in Epic Systems and Morris, as well as in NLRB v. Murphy Oil, in which the NLRB sought review for the Fifth Circuit's holding that Section 7 rights did not override the FAA's arbitration enforcement command. See 361 NLRB No. 72 (2014), rev'd in part, 808 F.3d 1013 (5th Cir. 2015).

Then, on Jan. 13, 2017, the U.S. Supreme Court granted certiorari in three cases that provided the means for the Court to decide whether arbitration agreements with class and collective action waivers are enforceable under the FAA, irrespective of the NLRA. See 137 S. Ct. 809 (2017). Oral argument took place on Oct. 2, 2017. The decision, issued Monday, May 21, was issued under the Epic Systems Corp. case number, together with Morris and Murphy Oil.

The New Decision

In a 5-4 majority opinion authored by Justice Gorsuch, the Court delivered an unmistakable conclusion that the NLRA does not contain a class action right that trumps the FAA:

The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum. This Court has never read a right to class actions into the NLRA—and for three quarters of a century neither did the National Labor Relations Board. Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties' agreements unlawful. (Slip op. at 2.)

Justice Gorsuch first relied on the specific language of the savings clause of the FAA, which states that arbitration agreements are enforceable except "upon grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. In doing so, he rejected the employees' argument that Section 7 of the NLRA fits into the savings clause by noting that "the saving clause recognizes only defenses that apply to 'any' contract." (Slip op. at 7.) And according to Supreme Court precedent, "this means the savings clause does not save defenses that target arbitration either by name or by more subtle methods, such as by 'interfer[ing] with the fundamental attributes of arbitration.'" Id. (quoting Kindred Nursing Centers L.P. v. Clark, 581 U.S. ___ (2017).)

Additionally, Justice Gorsuch rejected the employees' argument that the NLRA contains a congressional command to displace the FAA insofar as individual employment arbitration agreements are concerned. Section 7, however, "does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand." (Slip op. at 11.) The majority further cast doubt on the employees' attempt to use the NLRA to create an arbitration escape route within the Fair Labor Standards Act: "[T]hey have cast in this direction, suggesting that one statute (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the Arbitration Act). It's a sort of interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow." (Slip op. at 15.)

Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, wrote a dissenting opinion that focused on the premise that the Norris-LaGuardia Act and the NLRA provide "that employees must have the capacity to act collectively in order to match their employers' clout in setting terms and conditions of employment." (Slip op., dissent at 3.) Congress understood, she argued, and the Supreme Court "recognized that employees have a 'fundamental right' to join together to advance their common interests and that Congress, in lieu of 'ignor[ing]' that right, had elected to 'safeguard' it." (Id. at 6 (quoting NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33–34 (1937))).

But those were policy arguments, Justice Gorsuch countered, and flawed ones at that: "[I]t's altogether unclear why the dissent expects to find such a right in the NLRA rather than in statutes like the FLSA that actually regulate wages and hours. Or why we should read the NLRA as mandating the availability of class or collective actions when the FLSA expressly authorizes them yet allow parties to contract for bilateral arbitration instead." (Slip op. at 24.)

Ultimately, even accepting that "[t]he policy may be debatable," the majority held firm that "the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written." (Slip op. at 25.)

The Next Chapter – The 'Futility Doctrine'

After the Supreme Court's ruling, the next big issue the courts in the Sixth, Seventh and Ninth Circuits will likely face is whether employers waived their ability to compel arbitration when they did not move to do so originally.

Normally, courts recognize that a party obtains a renewed right to compel arbitration when a change in relevant law converts a previously futile motion to compel arbitration into a legally cognizable one. Ackerberg v. Johnson, 892 F.2d 1328 (8th Cir. 1989).

The Ninth Circuit addressed the futility issue in Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691 (9th Cir. 1986), which aptly illustrates the change-in-law futility concept.

In Fisher, the Ninth Circuit held that a securities defendant did not waive the right to arbitration by failing to move to compel arbitration. Id. at 693. When the defendant first had the opportunity to compel arbitration, courts declined to enforce arbitration provisions if securities claims were intertwined with state common-law allegations. Id. During the pendency of the Fisher case, the Supreme Court rejected this bar to arbitration. See, e.g., Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985).

Given the Supreme Court's intervening decision, the Ninth Circuit held that "an earlier motion to compel arbitration would have been futile under these circumstances." Fisher, 791 F.2d at 697. Thus, the Court held that the defendant in Fisher did not waive its right to compel arbitration in the first instance because to do so prior to the intervening change in law would have been futile. Id.

Fisher provides the framework for current futility cases holding that defendants do not waive their rights to compel arbitration when existing law provides no justifiable grounds to compel.

Key Takeaways

Employers may continue to rely on − or resume relying on − the enforceability of class and collective action waivers within employment arbitration agreements. The Epic Systems Corp. decision clarified that NLRA Section 7 rights do not supplant FAA mandates to enforce such agreements as written. Further, the Court's broad language suggests that other common obstacles argued by some courts and attorneys may lack validity and must yield to the FAA's arbitration mandate. For more information, please also visit and subscribe to receive alerts from our Employment Class Action blog.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions