MVA Litigation

This year important questions regarding the viability of class action waivers in arbitration agreements have moved close to resolution. In July, the Consumer Financial Protection Bureau (CFPB) issued a long-awaited final rule that prohibited class waivers in arbitration agreements related to a broad range of financial products. And employees and the National Labor Relations Board (NLRB) have continued to push against the enforceability of class waivers in the context of individual employment agreements, driving the issue to the U.S. Supreme Court for review. On November 1, 2017, President Trump signed into law the Congressional Joint Resolution (H.J. Res. 111) that struck down the CFPB final rule. The next question soon to be answered is whether the U.S. Supreme Court similarly will thwart the NLRB’s efforts to prohibit employers from requiring employees to sign class action waivers in individual employment agreements.

To kick off the new term, the U.S. Supreme Court took on the fight the NLRB started when the NLRB ruled in D. R. Horton, Inc. and Michael Cuda, Case 12–CA–25764, 357 NLRB No. 184 (2012) that class waivers in individual employment agreements violate the National Labor Relations Act (NLRA) by preventing employees from engaging in concerted action related to their employment.  On October 2, 2017, the Court heard consolidated arguments in Epic Systems Corp. v. Lewis (No. 16-285), NLRB v. Murphy Oil (No. 16-307) and Ernst & Young LLP, et al.v. Morris (No. 16-300), three cases representing a circuit split that developed on this issue. D.R. Horton has marked the employment/labor context as a tough and legally significant battleground for companies seeking to use the class waiver; the Federal Arbitration Act (FAA) is pitted against federal labor statutes that arguably speak to the issue, unlike in Concepcion where a commercial contract and state law were at issue. The Fifth Circuit Court of Appeals struck down the NLRB’s decision in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013), and while this was a significant victory for employers, the NLRB asserted that it was not bound by Circuit Court of Appeals opinions and it would continue to strike down class waivers unless and until the U.S. Supreme Court rules against it on the issue. The agency reiterated its firm position several times, and explicitly reaffirmed its D.R. Horton ruling in Murphy Oil (2014). The Fifth Circuit struck down the NLRB’s Murphy Oil decision, as well, while the Seventh and Ninth Circuits subsequently sided with the NLRB and held that the class waivers at issue in Epic Systems and Morris violated the NLRA. We hit the highlights of the Supreme Court arguments in these cases, which suggest some of the hurdles employers may need to overcome to prevail.  

Keep it Simple: In the Workplace vs. the Courthouse

The company employers presented the issue as straight forward: because the FAA is clear on enforcing arbitration agreements as written, it “will only yield in the face of a contrary congressional command and a tie goes to arbitration.” They argued that there is a distinction between concerted action in the workplace, which the NLRA and the Norris-LaGuardia Act (NLGA) protect, and action in the courthouse which they argue is beyond the reach of the statutes’ protections. Epic Systems’ counsel presented:

I don't think the way to see a traditional bilateral arbitration agreement is as a waiver of a Section 7 right or an NLGA right. It is just an effort by the employer and the employee to agree to set the rules for the forum of arbitration when you get there. And there's nothing sinister about leaving it to bilateral arbitration….You didn't have a freestanding right to proceed with class arbitration in an arbitral forum. You had a right to go to whatever forum and abide by those rules, and one of the rules in the arbitral forum is no class action.”

Justice Kagan and Justice Breyer, however, pushed back against this interpretation of the NLRA and NLGA. Justice Kagan noted that the Supreme Court in another case “said it was very clear that the mutual aid and protection clause swept further than the workplace itself, as long as the ultimate goals were workplace-related, whether you took those goals to the -- in the -- you know, activity in the workplace or in the agencies or in the courts, it didn't matter at all, it was all covered by Section 7.” Justice Breyer echoed her sentiment and validated her statement of the law, telling the companies that he is “worried about what you are saying is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal. What we have here is a statute, two of them, Norris-LaGuardia, the NLRA, which for years have been interpreted the way Justice Kagan said.”

The Context: Distinctions Without a Difference?

Questions raised by the Justices during argument probed how much weight distinctions between Concepcion and the FAA will carry in determining whether class waivers can stand in the employment/labor context. Justice Breyer suggested that Concepcion may not carry the day: “Concepcion, I've read it too, we all have, but I haven't seen a way that you can, in fact, win the case, which you certainly want to do, without undermining and changing radically what has gone back to the New Deal, that is, the interpretation of Norris-LaGuardia and the NLRA.” And Justice Ginsburg suggested some relevance to the fact that the FAA was born outside of the employment context as well: “isn't it so that the -- the FAA, in its inception, was meant to deal with bargains between merchants, bargains between merchants who said the arbitration forum is much less expensive, so we want to go there, rather than the court, but it was commercial contracts that -- that triggered the FAA?”

About Face: The U.S. Solicitor General Supports Employers

The United States Solicitor General’s Office argued before the Supreme Court as amicus curie on behalf of the companies, taking the position that the class waivers were indeed valid and enforceable – a 180^o turn from its original position on the issue. The Solicitor General’s Office originally filed a petition for review on behalf of the NLRB in Murphy Oil, arguing that the class waiver rendered the employment agreement invalid. But, in an uncommon turn of events, the government reconsidered its position with the change of administration and allowed the NLRB to represent itself in front of the U.S. Supreme Court. The Solicitor General’s Office argued that, like under the Fair Labor Standards Act (FLSA), employees can decide to bypass collective procedures and arbitrate their claims:

No one questions that the FLSA permits the employees here to forgo collective actions and arbitrate their FLSA claims. In giving employees the right to act in concert, the NLRA does not then extend to concerted activities that they have validly agreed to waive under other federal statutes like the FLSA and the FAA. And for decades, through the 2010 general counsel memo and until D.R. Horton five years ago, the Board recognized as much.

The Solicitor General’s Office proffered that the proper interpretation of the NLRA is that it protects employees from retaliation, but it does not create a right to participate in class proceedings: “And if you understand Section 7 to protect you from retaliation when you seek class treatment but not to give you an entitlement to proceed as a class in the forum, then you're right, everything fits together perfectly fine, and these arbitration agreements are enforced.”

In the End?

Whether the Supreme Court ultimately will understand the NLRA and NGLA’s protections to be limited in the manner urged by the companies and Solicitor General’s Office remains to be seen. What will the impact be when the Court does decide? It was estimated that the Court’s ruling in these cases will affect the contracts of nearly 25 million employees who are employed under individual employment agreements that contain class wavers in arbitration clauses. The employers could garner a majority vote in their favor without the support of Justices Breyer, Ginsburg, Kagan, and Sotomayor, whose positions during arguments seemed clearly opposed to the use of class waivers in these employment agreements. Nonetheless, the questions raised by these Justices stand as critical points that would seem to require reconciliation in a contrary ruling. We will keep you posted on where the Court lands on this issue.