Justices Will Consider Class Action Waivers

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By Lawrence E. Dubé

The U.S. Supreme Court Jan. 13 agreed to consider whether arbitration agreements that prohibit employees from pursuing class or collective actions are unlawful under the National Labor Relations Act and unenforceable under the Federal Arbitration Act ( NLRB v. Murphy Oil USA, Inc. U.S., No. 16-307, cert. granted 1/13/17).

The National Labor Relations Board asked the high court to review and reverse a ruling by the U.S. Court of Appeals for the Fifth Circuit (808 F.3d 1013, 2015 BL 351672, 204 LRRM 3489 (5th Cir. 2015)), which rejected the board’s position that such agreements unlawfully interfere with employees’ NLRA rights to engage in concerted activity for their mutual aid or protection.

The Second and Eighth circuits have also rejected the board’s position, but the Seventh and Ninth circuits have weighed in with opinions that support the NLRB’s view, and the Supreme Court agreed to hear the Seventh and Ninth circuit cases along with Murphy Oil.

It's not a surprise the court agreed to review Murphy Oil Ron Chapman, a shareholder in Ogletree, Deakins, Nash, Smoak and Stewart in Dallas, told Bloomberg BNA Jan. 13.

The legality of class action waivers, which have been adopted by many employers, is “critical to the entire business community,” Chapman said. Chapman is a member of Ogletree’s board of directors and represented D.R. Horton in the NLRB and court proceedings that preceded the Murphy Oil litigation.

High Court Review on a ‘Very Hot Issue.’

The NLRB’s insistence on its view of the law and the split among federal courts has left employers and employees confused, Chapman said.

“Everybody on both sides should welcome the court’s action” in granting review and taking on a “very hot issue.”

President-elect Donald Trump will have an opportunity to nominate several new members to vacant seats on the NLRB, Chapman said. A new board could change its position on cases like Murphy Oil before the Supreme Court.

NLRB Insists Class Waivers Are Unlawful

The NLRB first held in D.R. Horton, Inc., 357 N.L.R.B. No. 184, 192 LRRM 1137 (2012), that a class action waiver illegally interferes with the right of employees under the NLRA to engage in concerted activity for their mutual aid or protection if the waiver precludes them from pursuing class or collective actions in any judicial or arbitral forum.

Maintaining and enforcing a waiver violates Section 8(a)(1) of the NLRA if the waiver precludes employees from acting in concert in any judicial forum, the board held. The Fifth Circuit declined to enforce the board ruling on the class action waiver (737 F.3d 344, 197 LRRM 2637 (5th Cir. 2013), but the NLRB reaffirmed its Horton ruling by a 3-2 vote in Murphy Oil USA, Inc., 361 N.L.R.B. No. 72, 201 LRRM 1385 (2014).

The Fifth Circuit again disagreed and denied the NLRB’s bid for court enforcement of its unfair labor practice order against Murphy Oil. The board petitioned for Supreme Court review, and the court granted the petition.

Court Will Hear Three Cases Together

The legality of class action waivers was raised In Epic Systems Corp. v. Lewis, No. 16-285, a Seventh Circuit decision that arose in a private employment dispute rather than an unfair labor practice proceeding.

Epic sought to enforce an employment arbitration agreement that required employees to waive participation in class or collective actions, but the appeals court agreed with the NLRB view that such waivers run afoul of the right of employees under the NLRA to engage in concerted activity, including participating in class or collective actions to vindicate employment rights (823 F.3d 1147, 2016 BL 167679, 206 LRRM 3293 (7th Cir. 2016)).

The NLRB appeared as an amicus curiae in Epic, supporting the employee’s argument the arbitration agreement was unenforceable.

In the third case that will be heard by the Supreme Court, Ernst & Young, LLP v. Morris, No. 16-300, the Ninth Circuit reached the same conclusion that an arbitration agreement was unenforceable because of its class action waiver violating the NLRA (834 F.3d 975, 2016 BL 276240, 26 WH Cases 2d 1460 (9th Cir. 2016)). The NLRB participated in that case as an amicus.

In granting review, the high court consolidated the three cases and allotted a total of one hour for oral argument.

Deputy Solicitor General Edwin S. Kneedler is counsel of record for the NLRB. Neal Kumar Katyal of Hogan Lovells US LLP in Washington is counsel of record for Murphy Oil USA Inc. Katyal of Hogan Lovells is also counsel of record for Epic Systems Corp., and David C. Zoeller of Hawks Quindel in Madison, Wis., is counsel of record for Jacob Lewis. Kannon K. Shanmugam of Williams & Connolly LLP in Washington is counsel of record for Ernst & Young LLP, and Max Folkenflik of Folkenflik & McGerity in New York is counsel of record for Stephen Morris.

To contact the reporter on this story: Lawrence E. Dubé in Washington at ldube@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Christopher Opfer at copfer@bna.com

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