SCOTUS asked three times to settle NLRA class action waiver battle
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Thursday, September 15, 2016

SCOTUS asked three times to settle NLRA class action waiver battle

By Pamela Wolf, J.D. The Supreme Court has been offered the opportunity to resolve contrary conclusions drawn by the National Labor Relations Board and several circuit courts about 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. 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. The fact that three petitions for certiorari have been filed with the Court this month increases the likelihood that the Justices will choose to determine the scope of employees’ right 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 ruling rejects NLRB position. In NLRB v. Murphy Oil, No. 16-307, the Board is asking the Justices to review a Fifth Circuit ruling, consistent with the 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. The Fifth Circuit held in D.R. Horton 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." But with respect 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 determination that that provision could be reasonably interpreted as prohibiting employees from filing Board charges. Thus, the appeals court declined to enforce the Board’s order as to the revised arbitration agreement. Notably, in D.R. Horton, Inc. the Fifth Circuit rejected the NLRB’s analysis of arbitration agreements. The appeals court 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. Ninth and Seventh Circuits side with the Board. The petition for cert. in Ernst & Young, LLP v. Morris, No. 16-300, asks the Court to review a Ninth Circuit holding that came down in favor of the NLRB’s position in D.R. Horton, holding 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. Nor did the FAA mandate a contrary result because it recognizes a general contract defense of illegality. That is, the FAA’s "saving clause" prevented a conflict between the statutes by causing the FAA’s enforcement mandate to yield. The petition for cert. in Epic Systems Corporation v. Lewis, No. 16-285, asks the Justices to 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. The Seventh Circuit also said that 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.

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