Collective Arbitration to Go Before the Supreme Court

By: Andrew Federico

Back in September I wrote about how the Ninth Circuit declared, in Morris v. Ernst & Young, LLP, that contracts that waive an employee’s right to bring collective actions interfere with employees’ substantive rights guaranteed by the National Labor Relations Act (“NLRA”). To recap, the Ninth Circuit explained that contracts that force employees to bring “separate proceedings” deny employees their right to participate in concerted activity aimed at mutual aid or protection.[1] The Ninth Circuit’s conclusion paralleled a similar conclusion made by the Seventh Circuit, but disagreed with a decision from the Fifth Circuit regarding the same issue.[2]  Thus, due to the differing opinions, the Supreme Court has accepted the three cases on the subject and will decide “whether companies can use employment contracts to prohibit workers from banding together to take legal action over workplace issues.”[3]

The Seventh Circuit in Lewis v. Epic Sys. Corp. held through the history of the NLRA that “concerted activity” under section 7 should be read broadly.[4]  The court highlighted Congress’ recognition that before the NLRA was enacted, individual employees were severely less powerful when dealing with an employer.[5]  Thus, Congress intended the NLRA to “equalize” employees’ power by permitting collective action when terms and conditions of employment are involved.[6]  Most importantly the Seventh Circuit’s decision included a discussion about whether the Federal Arbitration Act (“FAA”) overrides the NLRA.  The employer suggested that the NLRA’s right to collective action is a procedural right and not a substantive right.[7]  The Seventh Circuit expressly rejected such an argument and concluded that “[s]ection 7 is the NLRA’s only substantive provision.  Every other provision of the statute serves to enforce the rights Section 7 protects.”[8]  Furthermore, when arbitration agreements act as “‘prospective waiver[s] of a party’s right to pursue statutory remedies’—that is, of a substantive right—[they] are not enforceable.”[9]

Put succinctly, the Fifth Circuit reads the legislative history of the NLRA completely differently that the Seventh and Ninth circuits.[10]  The Fifth Circuit determined the “NLRA’s language, legislative history, or purpose” does not support a necessary congressional command that would exempt the statute from application of the FAA.[11]  Thus, such a principle was reaffirmed in Murphy Oil USA, Inc. v. NLRB,[12] which will be heard during the Supreme Court hearing.

The controversy is reaching the Supreme Court because “[e]mployers need to know whether class waivers in arbitration provisions will actually be enforced, [and] [e]mployees need to know whether they are actually bound by these provisions.”[13]  The three cases have been combined into a one-hour hearing scheduled to be before the Court in April.[14]  Whether or not President Trump fills the Court’s vacancy, will play as a crucial variable into how the Court is expected to decide.  In only a few short months, the nation will affirmatively know whether employees may collectively arbitrate or be barred from such a forum.

[1] See Andrew Federico, Employee’s Substantive Rights Trump Contract Agreements, The LEJER Blog (Sept. 11, 2016), https://thelejer.wordpress.com/?S=Andrew&submit=search; Morris v. Ernst & Young, LLP, 834 F.3d 975, 990 (9th Cir. 2016).

[2] See Adam Liptak, Justices Will Hear Challenges to Mandatory Employee Arbitration, N.Y. Times (Jan. 13, 2017), https://www.nytimes.com/2017/01/13/us/politics/scotus-mandatory-employee-arbitration.html?rref=collection%2Ftimestopic%2FNational%20Labor%20Relations%20Board&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=collection.

[3] Id.

[4] Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1153 (2016).

[5] Id. (citing NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33 (1937)).

[6] Id.

[7] Id. at 1160.

[8] Id.

[9] Id. (citing Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304, 2310 (2013).

[10] See D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 362 (5th Cir. 2013).

[11] Id.

[12] Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013, 1021 (5th Cir. 2015).

[13] Liptak, supra note 2.

[14] Liptak, supra note 2.

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