Supreme Court Says Employers Can Force Workers Into Arbitration Instead of Class Action Suits

Editor’s note: A sharply divided U.S. Supreme Court today ruled that employers can force workers to go to arbitration over workplace grievances, rather than filing lawsuits. The 5-4 decision by the court’s more conservative members upholds arbitration clauses in employment contracts. These provisions effectively prevent workers from filing class actions, instead requiring workers to take action individually. The decision rejects the position taken by the National Labor Relations Board in 2012 that class action waivers violate workers’ rights to engage in collective action. The following is an ASAP alert posted by the Littler Mendelson law firm.

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The Supreme Court has weighed in: Class and collective action waivers in arbitration agreements are lawful and must be enforced under the Federal Arbitration Act (FAA). The Court’s decision ends a circuit split and overturns the National Labor Relations Board’s (NLRB) position that class and collective action waivers violate employees’ rights under the National Labor Relations Act (NLRA).

Ever since the NLRB’s 2012 decision in D.R. Horton, courts have wrangled with the enforceability of class action waivers and the interaction between the NLRA and the FAA.  The Supreme Court’s decision in Epic Systems Corp. v. Lewis (Epic) brings an end to the dispute. In a 5-4 opinion authored by Justice Gorsuch, the Court held the FAA requires arbitration agreements to be enforced on the same grounds as any other contract, and the NLRA, which was enacted after the FAA, contains no contrary congressional command excluding class action waivers from the FAA’s mandate.

The Seventh Circuit in Epic and the Ninth Circuit in Ernst & Young, et al. v. Morris (Ernst & Young) both held that class action waivers in mandatory, pre-dispute arbitration agreements between employers and employees violate the NLRA by restraining employees’ right to engage in concerted activity. Both of these courts held there is no conflict between the NLRA and the FAA due to the FAA’s “savings clause,” which provides arbitration agreements are “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” And since class action waivers contained in mandatory, pre-dispute arbitration agreements are unlawful, they are not enforceable under the FAA.

The Supreme Court disagreed. The FAA’s savings clause only recognizes general contract defenses such as fraud, duress, and unconscionability. It does not allow for defenses that apply specifically to arbitration agreements instead of contracts generally. The employees’ argument failed because they did not argue that the class and collective action waivers in their arbitration agreements were fraudulent or unconscionable; they simply attacked the agreements because they required individualized arbitration. This specific attack on arbitration is not a defense under the FAA’s savings clause.

The Court went on to hold that the NLRA does not grant employees the right to engage in class or collective actions as a Section 7 right. Section 7 instead guarantees employees the right to bargain collectively and organize unions. In reaching this conclusion, the Court noted that when the NLRA was adopted in 1935, the Federal Rules of Civil Procedure had not created the class action, and neither had the Fair Labor Standards Act codified its collective action provision. Thus, the NLRA does not contain a congressional command contrary to the FAA’s central purpose, which is to enforce agreements to arbitrate in accordance with their terms. As Justice Gorsuch noted, “it’s more than a little doubtful that Congress would have tucked into the mousehole of Section 7’s catchall term an elephant that tramples the work done by these other laws.”

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Finally, Justice Gorsuch also rejected the argument that the NLRB was due deference for its position on class and collective waivers. By finding class and collective action waivers unlawful, the NLRB was not just interpreting the NLRA, it was interpreting the NLRA along with the FAA, the latter being a statute it does not administer. According to the Court, this type of analysis concerning two different statutory regimes is for the courts, not an administrative agency.

The Court’s decision is a great win for employers, and it brings an end to the years of uncertainty created when the NLRB first changed course to challenge arbitration agreements.

Littler’s ADR Practice Group will hold three complimentary webinars on this decision and its implications. On Tuesday, May 22, 2018, the webinar will be held in the morning at 8:45 PT/11:45 ET, and in the afternoon at 1:00 PT/4:00 ET. On Thursday, May 24, 2018, the webinar will be held at 1:00 PT/4:00 ET. For more information on these webinars, please contact Shea Geyer at SGeyer@littler.com.

This was originally published on Littler Mendelson’s website. © 2018 Littler Mendelson. All Rights Reserved. Littler®, Employment & Labor Law Solutions Worldwide® and ASAP® are registered trademarks of Littler Mendelson, P.C.

Sean M. McCrory is an associate in the Dallas office Littler Mendelson. He represents and counsels employers in all matters of labor and employment law. He has experience litigating wage and hour disputes, non-competes, and Title VII matters in federal and state court. He regularly advises employers on Federal I-9 compliance issues, E-Verify and immigration-related employment discrimination issues.

Prior to joining Littler, Sean worked as an assistant chief counsel for U.S. Immigration and Customs Enforcement (ICE). His experience with ICE provides him with a unique insight when dealing with government agencies on compliance issues — especially in representing employers in immigration compliance matters. While attending law school, he was a senior articles editor for the SMU Science & Technology Law Review.

Rob Friedman is a shareholder and  Co-Chair, Alternative Dispute Resolution Practice Group in the Dallas office of Littler Mendelson. He is board certified in labor and employment law by the Texas Board of Legal Specialization. He advises and represents employers in virtually every aspect of the employee-employer relationship. His practice includes representing employers in litigation and administrative matters brought by employees and government agencies, as well as advising employers on employment-related issues, policies and procedures.

Rob regularly advises employers on employment arbitration issues and has successfully argued arbitration enforcement issues before state and U. S. Courts of Appeals and the U. S. Supreme Court. He also devotes a significant part of his practice to litigating complex wage and hour collective and class actions in state and federal courts across the country. 

matters, class action defense, arbitration and the WARN Act. In addition, he is a frequent presenter at legal functions sponsored by sections of the American Bar Association, business groups and Littler Mendelson.

Henry D. Lederman is a shareholder in the Wlanut Creek, California office of Littler Mendelson. He has devoted his practice almost exclusively to employment law counseling, litigation and appeals, including those related to the drafting and enforcement of arbitration agreements. He appears in California state and federal trial and appellate courts and has particular expertise with the Federal Arbitration Act and state arbitration statutes. From 1998 to 2012, Henry served as Littler Mendelson’s General Counsel and, in that role, addressed compliance issues related to state rules of professional conduct, including the California rules and American Bar Association model rules.

A skilled litigator, Henry recently appeared before the United States Supreme Court and prevailed on behalf of his client in a matter involving the enforcement of an arbitration agreement. Other notable successes include upholding the preemption under federal labor law of state tort claims, a finding that two provisions of the California Labor Code were unconstitutional, and a California Supreme Court reversal that established a new standard for “just cause” dismissal that is favorable to California employers.

Henry works with a variety of clients in many different industries, including retail, manufacturing, consumer products, service providers and more.

Henry is the Co-Chair of the firm's Alternative Dispute Resolution Practice group and a core member of the Appellate Practice Group. He has served as an instructor for the California Continuing Education of the Bar and has given lectures, training sessions and seminars on arbitration law, legal ethics, wrongful termination and employment discrimination before employer organizations, corporations and attorney groups.

Previously, Henry worked as an attorney for the National Highway Traffic Safety Administration, part of the United States Department of Transportation.

 

Edward F. Berbarie is a shareholder in the Dallas office of Littler Mendelson. He represents and advises clients in a wide range of employment and traditional labor related matters.

Edward is board certified in labor and employment law by the Texas Board of Legal Specialization, and he has significant experience in representing and advising clients in complex commercial disputes.

Edward is one of the firm’s subject matter resources in the field of employment arbitration agreements and a core member of Littler’s Alternative Dispute Resolution Practice Group. A large part of his practice is devoted to drafting and enforcing arbitration agreements and arbitrating labor and employment matters. He has argued arbitration enforcement issues in state and federal courts across the country, including appellate and state supreme courts. He was counsel for petitioner in a case involving arbitration enforcement issues that was successful before the U. S. Supreme Court. He frequently writes and speaks on arbitration topics, including the latest developments in arbitration law.

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