On May 21, 2018, the United States Supreme Court resolved the split amongst several Federal Circuit Courts by finding the Federal Arbitration Act (FAA) enables employers enforce class action waivers in arbitration agreements with their employees notwithstanding employees’ rights under the National Labor Relations Act (NLRA) to engage in “concerted activity.” The Court’s 5-4 decision, with the majority opinion authored by Justice Gorsuch, was rendered in In Epic Systems Corp. v. Lewis and companion cases Ernst & Young LLP et al. v. Stephen Morris et al. and National Labor Relations Board v. Murphy Oil, Inc. (all decided simultaneously). The Court ruled that Congress did not intend the NLRA to provide for class and collective actions, and although the NLRA provides employees the right to organize and bargain collectively, the statute does not dictate how claims must be adjudicated. Accordingly, the Court determined that the NLRA cannot be interpreted to provide employees with an implicit right to class and collective actions in contravention of the FAA, which explicitly confers upon employers and employees the ability to arbitrate and determine their chosen arbitration procedure. Instead, these laws must be interpreted consistently.
The three companion cases involve employees challenging arbitration agreements containing class and collective action waivers entered into with their employers. As an example, in the Ernst & Young case, the plaintiff, who had executed an arbitration agreement containing a class action waiver nevertheless instituted a court case asserting class and collective claims against his employer for misclassification and for overtime compensation under the Fair Labor Standards Act and state wage hour law. In its decision, the Supreme Court noted that the National Labor Relations Board (NLRB or “the Board”) had long recognized the sanctity of individual arbitration agreements, and that its position had not changed until 2012 more than 70 years since the NLRA’s adoption, when the Board rendered its decision, D.R. Horton, Inc., 357 N.L.R.B. 2277 (2012). In D.R. Horton, the Board concluded that the NLRA supersedes the FAA to prevent class action waivers proceedings for employment claims. This decision and subsequent Board law set in motion various appeals resulting in a split amongst the Circuit Courts regarding the enforceability of arbitration agreements and class action waivers.
In Epic, the Supreme Court analyzed Section 2 of the FAA, referred to as the FAA’s savings clause that allows courts to refuse to enforce agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” The Court found the clause related to specific contracts (e.g., if an employee’s particular arbitration agreement was entered into by “fraud or duress”) rather than to the requirement that an arbitration agreement required individualized proceedings. Applying its rational from AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (involving consumer class action waivers), the Court further reasoned that the savings clause cannot be used to challenge the “fundamental attributes” of arbitration – permitted by federal statute. The Court then considered and rejected the employees’ argument that the agreements were in conflict with their rights under Section 7 of the NLRA to engage in concerted activity. The Court, although recognizing that the NLRA concerns rights to organize and bargain collectively, noted that the statute is silent on class and collective action procedure. Thus, the Court held no conflict exists between the FAA and the NLRA, and the NLRA does not displace the FAA. The Court also refused to defer to the Board on its interpretation of the NLRA where the Board ventured into the interpretation of other federal law, i.e., the FAA – which Board does not administer.
The majority also took issue with the dissent’s position — arguing, in part, that it ignores precedent and employs a tortured reading of legislative commentary about the NLRA addressing unrelated questions to find support for an overly broad definition of “Section 7’s right for employees to organize and bargain collectively to include the bring class and collective actions to enforce the wage and hour laws.
The Court’s decision in Epic is a big victory for employers to continue using arbitration agreements and class action waivers. (State and local laws prohibiting the arbitration of sexual harassment claims should be taken into account, but these laws themselves may themselves be preempted by the FAA). The outcome may not be much of a surprise given that NLRB case law in the last decade has ventured beyond the traditional confines of federal labor law, which the Court in Epic noted and refused to support. The law regarding the enforceability of arbitration agreements and procedures is now settled. The holding of Epic may only be reversed by legislative action.
Employers who put consideration of arbitration agreements and class action waivers on hold might contemplate revisiting such initiatives. Gibbons Employment & Labor Law Department attorneys previously blogged on this development and regularly advise employers on arbitration agreements and class action waivers.
For questions regarding this blog, or arbitration issues generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.