SCOTUS agrees to sort out class action waiver conflicts between NLRA, FAA

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By Joy Waltemath

By Pamela Wolf, J.D.

The Supreme Court agreed January 13 to take up the question of whether class and collective action waivers in employment arbitration agreements violate the National Labor Relations Act and whether the Federal Arbitration Act nonetheless trumps the NLRA. In doing so, the Justices will resolve the split caused by contrary answers to those questions declared by the Board and federal courts of appeals. Consolidating three cases in its order granting certiorari, the Court implicitly honored the NLRB’s bid, in NLRB v. 24 Hour Fitness USA, Inc., for a ruling on the three petitions in NLRB v. Murphy Oil (No. 16-307), Ernst & Young, LLP v. Morris (No. 16-300), and Epic Systems Corporation v. Lewis (No. 16-285) before the Justices would consider the 24 Hour Fitness case. One hour is allotted for oral argument in the three consolidated cases.

The FAA establishes a presumption in favor of enforcing arbitration agreements as written that can be overcome by another statute, but only if that statute is a “congressional command” that is contrary to the FAA’s enforcement mandate. Resolving the questions presented in the three petitions, the Justices will determine the scope of employees’ rights under the NLRA as applied to arbitration agreements that would cut off their rights to engage in a collective action in any forum, arbitral or judicial.

Fifth Circuit vs. Board. In NLRB v. Murphy Oil, the Justices will review a Fifth Circuit ruling, consistent with that appeals court’s own precedent in D.R. Horton, that an arbitration agreement was enforceable and not unlawful to the extent it required employees to resolve employment-related claims through individual arbitration, not through class or collective actions.

In D.R. Horton, the appeals court held that an arbitration agreement violates the NLRA if employees would reasonably construe it as prohibiting filing unfair labor practice charges with the Board. The test for determining whether an employer had committed an unfair labor practice is whether the employer action is “likely to have a chilling effect” on employees’ exercise of their rights. Here, the court determined that the broad “any claims” language of Murphy Oil’s arbitration agreement can create “[t]he reasonable impression . . . that an employee is waiving not just [her] trial rights, but [her] administrative rights as well.”

As to Murphy Oil’s revised arbitration agreement, which added a clause specifically stating that nothing in the agreement precluded employees from participating in proceedings before the Board, the Fifth Circuit disagreed with the Board’s finding that the provision could be reasonably interpreted as prohibiting employees from filing NLRB charges. Accordingly, the appeals court declined to enforce the Board’s order as to the revised arbitration agreement.

The earlier D.R. Horton decision itself rejected the Board’s analysis of arbitration agreements. The Fifth Circuit held: (1) the NLRA does not contain a “congressional command overriding” the FAA; and (2) “use of class action procedures . . . is not a substantive right” under Section 7 of the NLRA. This holding meant that an employer does not engage in unfair labor practices by maintaining and enforcing an arbitration agreement prohibiting employee class or collective actions and requiring employment-related claims to be resolved through individual arbitration.

Two circuits agree with the Board. In Ernst & Young, LLP v. Morris, the Court will scrutinize a Ninth Circuit holding that agreed with the rationale of the NLRB’s position in D.R. Horton and held that under the unambiguous language of the NLRA, it is unlawful to require employees to sign agreements precluding them from bringing, in any forum, concerted legal claims regarding wages, hours, or other terms and conditions of employment.

The FAA did not mandate a contrary result because it recognizes a general contract defense of illegality, according to the Ninth Circuit. That is, the FAA’s “saving clause” prevented a conflict between the statutes by causing the FAA’s enforcement mandate to yield.

In Epic Systems Corporation v. Lewis, the Justices will review the Seventh Circuit’s similar conclusion ruling that a software company violated the NLRA by imposing a mandatory arbitration agreement that barred employees from seeking class, collective, or representative remedies to wage-and-hour disputes. The class waiver interfered with employees’ protected Section 7 rights to engage in concerted activity, and nothing in the FAA justified enforcing the arbitration agreement in the face of its illegality.

Moreover, under a well-accepted rule of statutory construction, courts should attempt to harmonize federal statutes to prevent conflicts rather than “go out looking for trouble,” and the NLRA and FAA could be harmonized through the FAA’s savings clause, according to the Seventh Circuit.

24 Hour Fitness petition. In its separate 24 Hour Fitness petition, the NLRB asked the Court to review the Fifth Circuit’s summary rejection of the Board’s finding that the fitness chain’s mandatory arbitration policy ran afoul of the NLRA. The Board’s request for enforcement of its order had flown in the face of the circuit’s prior holdings on the matter (24 Hour Fitness v. NLRB, June 27, 2016, per curiam).

Source:: Employment Law Daily Newsfeed


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