Employment Law Daily No right to class actions under NLRA; FAA means agreements enforced according to their terms
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Monday, May 21, 2018

No right to class actions under NLRA; FAA means agreements enforced according to their terms

By Ronald Miller, J.D.

Finding that it has never read a right to class actions into the NLRA, a deeply divided U.S. Supreme Court has ruled that in the Federal Arbitration Act (FAA), Congress instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings. The court ruled 5-4 in an opinion authored by Justice Gorsuch, the Court’s newest member, that neither the FAA’s savings clause nor the NLRA provided a basis to challenge the lawfulness of mandatory arbitration agreements that require employees to waive their right to class or collective actions in any forum. Justice Thomas filed a separate concurring opinion. Justice Ginsburg, joined by Justices Breyer, Sotomayer and Kagan, filed a separate dissenting opinion (Epic Systems Corp. v. Lewis, May 21, 2018, Gorsuch, N.).

Individualized arbitration proceedings. In each of three cases, an employer required, as a condition of employment, a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. However, each employee sought to litigate FLSA and related state law claims through class or collective actions in federal court. The FAA generally requires courts to enforce arbitration agreements as written, but the employees argued that its “savings clause” removes this obligation if an arbitration agreement violates some other federal law.

Although the FAA and NLRA have coexisted for over 80 years, the suggestion that they might conflict is of a more recent vintage, observed the majority. Courts more or less agreed that arbitration agreements like those here must be enforced according to their terms. Things shifted in 2012, when the NLRB for the first time asserted in D. R. Horton, Inc. that the NLRA effectively nullifies the FAA in cases like the ones at issue. That decision ultimately led to a split in the circuit courts. The Supreme Court granted certiorari to clear the confusion.

Congress adopted the FAA in 1925 in response to a perception that courts were unduly hostile to arbitration, so Congress directed courts to abandon their hostility and instead treat arbitration agreements as “valid, irrevocable, and enforceable.” Not only did Congress require courts to respect and enforce arbitration agreements, it also specifically directed them to respect and enforce the parties’ chosen arbitration procedures.

Class actions as concerted activity. In the majority’s view, the parties before the Court contracted for arbitration; they proceeded to specify the rules that would govern their arbitrations, including the intention to use individualized rather than class or collective action procedures. But the employees suggested that the FAA’s saving’s clause created an exception for cases like theirs. By its terms, the savings clause allows courts to refuse to enforce arbitration agreements “upon such grounds that as exist at law or in equity for the revocation of any contract.” According to the employees, that provision applied here because the NLRA renders their particular class and collective action waivers illegal. The employers countered that the FAA protects agreements requiring arbitration from judicial interference and that neither the savings clause nor the NLRA demands a different conclusion.

FAA savings clause. The Court concluded that the savings clause could not save the employees’ cause because the clause recognizes only defenses that apply to “any” contract, establishing a sort of “equal-treatment” rule for arbitration contracts. The clause offers no refuge for “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Under Court precedent, this means that the savings clause does not save defenses that target arbitration either by name or by more subtle methods, such as by “interfer[ing] with fundamental attributes of arbitration.”

According to the Court, the employees’ argument failed when they objected to the mandatory agreements precisely because they required individualized arbitration proceedings rather than class or collective ones. By attacking only the individualized nature of the arbitration proceedings, their arguments attempted to interfere with one of arbitration’s fundamental attributes. Examining its decision in AT&T Mobility LLC v. Conception, the Court noted that courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide procedures without the parties’ consent. The employees’ efforts to distinguish Concepcion fell short.

Statutory conflict. The Court next examined the employees’ contention that the NLRA overrides the guidance of Concepcion. For a party to suggest that two statutes cannot be harmonized, and that one displaces the other, must be shown by a “clear and manifest” intention. In approaching a claimed conflict, the Court noted a strong presumption that repeals by implication are disfavored and that “Congress will specifically address” preexisting law when it wishes to suspend its normal operations in a later statute.

Seeking to demonstrate an irreconcilable statutory conflict, the employees pointed to Section 7 of the NLRA. They asked the Court to infer that class and collective actions are “concerted activities” protected by Section 7, which guarantees employees “the right of self-organization, to form, join or assist labor organizations, to bargain collectively … and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” According to the employees, by requiring individualized proceedings, the agreements violated the NLRA.

However, the Court interpreted Section 7 to focus on the right to organize unions and bargain collectively. It does not express approval or disapproval of arbitration; nor does it mention class or collective action procedures or even hint at a clear and manifest wish to displace the FAA. The term “other concerted activities for the purpose of collective bargaining or other mutual aid or protection” appears at the end of a detailed list of activities speaking of self-organization, stressed the Court. Where a more general term follows more specific terms in a list, the general term is usually understood to “embrace only objects similar in nature to those objects enumerated by the preceding specific words.”

This suggested to the Court that the term “other concerted activities” would only protect things employees “just do” for themselves in the course of exercising their right to free association in the workplace. None of the preceding, more specific terms speaks to the procedures judges or arbitrators must apply in disputes that leave the workplace, the Court concluded.

Dissent. Justice Ginsburg’s dissent answer with a resounding “No” to the question whether the FAA permits employers to insist their employees, whenever seeking redress for commonly experienced wage loss, go it alone, despite their rights secured by the NLRA “to engage in … concerted activities” for their “mutual aid and protection.” The dissent argued that the Court subordinated employee protective labor legislation to the FAA. In so doing, Ginsburg argued that the majority opinion forgot the labor market imbalance that gave rise to the Norris-LaGuardia Act and NLRA, and ignored the destructive consequences of diminishing the right of employees “to band together in confronting an employer.”

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