United States: U.S. Supreme Court To Resolve Split Over Enforceability Of Class Arbitration Waivers In Employment Agreements

On Friday, January 13, 2017, the U.S. Supreme Court agreed to hear the appeal of three cases addressing the enforceability of mandatory arbitration agreements with class action waivers in the employment setting. These agreements require employees to bring any claim in arbitration, rather than court, and preclude class, collective or other group actions in any forum.

What Are Employers Supposed to Do Now?

Employers should not throw out any arbitration programs they currently may utilize while they await the Supreme Court's ruling. There is no one right answer for all employers as to whether to implement arbitration agreements, jury waivers or some other alternative dispute resolution program.  That said, class action protection has been a key benefit for employers, and so employers may wish to reconsider whether to implement an arbitration program, or whether to revise or even discontinue an existing program, depending on how the Court rules.

Lower Court Decisions

The three cases on appeal include the decision of the Ninth Circuit (covering California and eight other western states) in Morris v. Ernst & Young, LLP, the decision of the Seventh Circuit (covering Illinois, Indiana, and Wisconsin) in Lewis v. Epic Systems Corp., and the decision of the Fifth Circuit (covering Texas, Louisiana, and Mississippi) in Murphy Oil USA, Inc. v. NLRB.  Each decision considered the position of the National Labor Relations Board ("NLRB") that class arbitration waivers violate employees' right to engaged in "concerted activity," as protected by the National Labor Relations Act ("NLRA").  The Fifth Circuit rejected the NLRB's analysis in ruling that a class arbitration waiver was enforceable.  By contrast, the Seventh and Ninth Circuits sided with the NLRB, although a prior Ninth Circuit ruling did enforce a class arbitration waiver that included an opt-out provision. The NLRB has ruled that even class arbitration waivers with opt-out provisions violate the NLRA.

Anticipated Timing of Decision

The Supreme Court has indicated that it will wait until the 2017 term, which begins in October, to hear the appeal. Presumably, this delay will allow time for Congress to confirm President's Trump Supreme Court nominee so that the Court has a full complement of nine Justices and can avoid a 4-4 vote.

Reading the Tea Leaves

In recent years, the Supreme Court, citing the strong national policy favoring arbitration under the Federal Arbitration Act, has repeatedly enforced mandatory arbitration agreements. None of these cases, however, has addressed the NLRB's position that class arbitration waivers violate the countervailing strong federal policy under the NLRA.  Focusing on President Trump's nominee, Judge Neil Gorsuch, as the potential tie-breaking vote, Judge Gorsuch has written opinions generally favouring arbitration and limiting deference to government agencies like the NLRB, but also has not directly addressed the issue of enforceability of class arbitration waivers in employment agreements.

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