NLRB, Employers Urge Justices to Rule on Class Waivers

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Lawrence E. Dubé

Sept. 12 — The National Labor Relations Board has asked the U.S. Supreme Court to decide 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. petition 9/9/16 ).

The board Sept. 9 asked the high court to review and reverse a ruling by the U.S. Court of Appeals for the Fifth Circuit, which rejected the board’s decision that such agreements unlawfully interfere with employees’ NLRA rights to engage in concerted activity. The Second and Eighth circuits have also rejected the board’s position, but the Seventh and Ninth Circuits recently weighed in with opinions that support the NLRB’s view.

Employers have already filed Supreme Court petitions that seek reversal of the Seventh and Ninth Circuit rulings, so the court has several cases presenting the class and collective waiver issue, and advocates on both sides of the question are urging the justices to resolve the important issue.

Several labor law specialists agreed on the importance of the class action waiver issue and told Bloomberg BNA they think it’s likely the Supreme Court will agree to hear one or more of the cases.

Court Has Opportunities for Major Ruling

The petitions filed by the NLRB, Epic, and Ernst & Young address an “extremely critical issue” for employers all over the country, Robert F. Friedman, a shareholder in Littler Mendelson P.C.'s Dallas office and co-chair of the firm’s Alternative Dispute Resolution Practice Group, told Bloomberg BNA Sept. 12.

The fact that the board and employers are both asking the court to consider class and collective action waivers shows they agree on the importance of obtaining a ruling from the justices, the lawyer said.

Employment arbitration agreements now “typically” contain class action waivers, and employers want the benefit of those agreements, Friedman said. Currently, the circuit split on the waivers leaves businesses, especially national companies, in an “unworkable” situation where they are not sure about the enforceability of the waivers, he said.

If the high court were to support the NLRB’s position, it would be a “very significant” loss for employers, preventing the enforcement of class action waivers against the nonsupervisory employees they covered, Friedman said.

He said he would also expect such a ruling to spark an increase in class or collective actions in employment cases, although he believes such litigation will continue to be a significant concern for employers with or without an adverse ruling by the Supreme Court.

Friedman said employers should not panic just because several petitions have reached the high court. He suggested that employers remember the value of arbitration and “stay the course” while they watch the Supreme Court and “see where the law goes.”

Serious Issue

Christine O’Brien, an attorney who teaches labor and employment law at Boston College’s Carroll School of Management, agreed on the importance of the Supreme Court petitions.

O’Brien, who has written about the NLRA and class action waivers, told Bloomberg BNA Sept. 12 “the board has taken these cases so seriously because they should.”

The NLRA, which gives employees the right to engage in union and protected concerted activity, is a “substantive rights bundle” that allows employees to engage in collective action to improve wages, hours and working conditions, O’Brien said.

If employers can require employees to sign away their rights to engage in concerted activity, then those statutory rights “don’t mean very much,” she said.

However, O’Brien said recent appellate decisions favoring the NLRB’s position may indicate “the worm has turned on this issue.”

Both Friedman and O’Brien said that if the high court grants one or more of the petitions, the outcome of any or all of the cases may well turn on the composition of the court, which presently has only eight justices following the death of Justice Antonin Scalia. A deadlock could lead to leaving inconsistent lower court decisions in effect.

The lawyers also noted that none of the three cases up for review involves an opt-out provision allowing employees to avoid being covered by a class action waiver. The Ninth Circuit has lent some support to an argument that an otherwise unenforceable class action waiver might be saved by such a provision, but the issue would not be resolved by a decision in any of the three cases that have been filed.

NLRB Fighting Fifth Circuit Ruling

In D.R. Horton Inc., 357 N.L.R.B. No. 184, 192 LRRM 1137 (2012), the NLRB found that an employer violated Section 8(a)(1) of the NLRA by enforcing an arbitration policy that prohibited any participation in class, collective or similar action by employees.

The NLRA protects the right of employees to engage in concerted activity for their mutual protection, and Section 8(a)(1) forbids employer interference with that right. The act generally excludes supervisors from statutory protections.

The Fifth Circuit denied enforcement of the Horton ruling (737 F.3d 344, 197 LRRM 2637 (5th Cir. 2013)), but the board reaffirmed its position in Murphy Oil with a 3-2 decision (361 N.L.R.B. No. 72, 201 LRRM 1385 (2014)).

The appeals court again refused to uphold the board’s view (808 F.3d 1013, 204 LRRM 3489 (5th Cir. 2015)). The Fifth Circuit said the NLRB’s insistence on making a “a class mechanism” available to employees would be an “actual impediment to arbitration” and would be inconsistent with the FAA.

Noting the NLRA does not explicitly provide for employee collective actions or procedures for collective claims, the court said “there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.”

The NLRB asked for an en banc rehearing of the Murphy Oil ruling, but the Fifth Circuit denied the request.

Board Sees Class Waivers as Unlawful

NLRB General Counsel Richard F. Griffin told Bloomberg BNA on Dec. 16, 2015, he anticipated it would take a Supreme Court decision to resolve the board’s standoff with the Fifth Circuit.

The board’s petition in Murphy Oil echoes Griffin’s argument that the board’s case against Murphy Oil is a “straightforward” one that the NLRA protects, and the FAA preserves, a “core” right of employees to engage in concerted activities.

The board said in its petition, “the ability to engage in concerted activities under the NLRA is not a mere procedural means for vindicating some other statutory right” but is a fundamental right at the center of the NLRA and its labor policy.

The NLRB acknowledged that the Federal Arbitration Act expresses a policy in favor of enforcing arbitration agreements, but it stressed the saving clause in the FAA, 9 U.S.C. § 2, doesn’t require enforcement of an arbitration agreement that is illegal under other law.

Nothing in the FAA or the Supreme Court’s jurisprudence suggests “that the FAA mandates enforcement of a contract that directly violates the NLRA,” the NLRB argued.

Appellate Court Split Has Deepened

There’s a definite split in the federal circuits that may support the NLRB’s request for Supreme Court review.

In the Eighth Circuit, the board’s position on class and collective action waivers has been rejected twice, in Owens v. Bristol Care, Inc., 702 F.3d 1050, 20 WH Cases2d 24 (8th Cir. 2013), and Cellular Sales of Missouri, LLC v. NLRB, 824 F.3d 772, 206 LRRM 3362 (8th Cir. 2016).

The Second Circuit in Sutherland v. Ernst & Young LLP, 726 F.3d 290, 20 WH Cases 2d 1866 (2d Cir. 2013), disagreed with the board’s theory, and in Patterson v. Raymours Furniture Co., 2016 BL 287695 (2d Cir. 2016), a Second Circuit panel followed Sutherland, although the panel commented it might have decided the case differently “[i]f we were writing on a clean slate.”

The Eleventh Circuit upheld a class action waiver in Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 22 WH Cases 310 (11th Cir. 2014), but did it without discussing the NLRA.

The NLRB told the Supreme Court in its petition that the existing split among federal circuits “may continue to grow in the near future.” Cases raising the issue are now pending in the Third, Fourth, Sixth, Eleventh, and District of Columbia circuits.

Employers Seek Reversal of Adverse Rulings

Cases from the Seventh and Ninth circuits reached the Supreme Court shortly before the NLRB’s petition.

In Lewis v. Epic Systems Corp., 823 F.3d 1147, 206 LRRM 3293 (7th Cir. 2016), the Seventh Circuit affirmed the lower court’s refusal to dismiss a Fair Labor Standards Act lawsuit based on a class action waiver. Although the case was a private action brought by an employee rather than an unfair labor practice proceeding initiated by the NLRB’s general counsel, the NLRB participated as an amicus and argued that the waiver was unlawful and unenforceable.

Epic filed a petition for review in the Supreme Court (No. 16-285) on Sept. 2. Stating “[t]he split of authority in this case is clear, acknowledged, and undisputed,” the company urged the Supreme Court to review and reverse the Seventh Circuit decision.

Similarly, Morris v. Ernst & Young, LLP , 2016 BL 276240, 26 WH Cases 2d 1460 (9th Cir. 2016), was a private FLSA dispute in which the NLRB appeared as an amicus. The Ninth Circuit held the arbitration agreement was unenforceable because it violated the NLRA.

Ernst and Young said the ruling “will determine whether an enormous number of employment disputes are litigated in the federal and state courts.” The employer filed its Supreme Court petition (No. 16-300) on Sept. 8.

Ernst & Young said it has “tens of thousands” of employees nationwide covered by its disputed arbitration policy, and the split among the federal appellate courts leaves the company and its employees subject to different legal rules depending on where an employee works or where the employee files a lawsuit.

Arguing the Ninth Circuit ruling “deepens a widely recognized conflict,” Ernst and Young urged the court to grant its petition.

Deputy Attorney General Edwin S. Kneedler is counsel of record for the board in NLRB v. Murphy Oil. Neal Kumar Katyal of Hogan Lovells US LLP in Washington is counsel of record for Epic Systems Corp. Kannon K. Shanmugam of Williams & Connolly LLP in Washington is counsel of record for Ernst & Young LLP.

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

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

For More Information

The NLRB petition is available at http://src.bna.com/is, the Epic Systems Corp. petition at http://src.bna.com/isM and the Ernst & Young LLP petition at http://src.bna.com/isN.

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.