Showdown Over Class Action Waivers to Kick Off High Court’s Term

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By Lawrence E. Dubé and Madison Alder

The U.S. Supreme Court will open its new term Oct. 2 with an unusual oral argument about whether class action waivers in arbitration agreements violate employees’ right to band together in “concerted” activity.

Where the high court comes down could have a big impact on how employers and workers settle disputes in future employment law class actions, including in the wage and hour sphere.

The court will consider three consolidated cases, NLRB v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris . The Fifth Circuit had upheld Murphy’s use of a class waiver in its arbitration agreement, while the Seventh and Ninth circuits rejected class waivers in mandatory arbitration agreements in Epic Systems and Ernst & Young, respectively.

Large and small employers have increasingly required workers to accept arbitration agreements as a condition of hire or continued employment.

A typical agreement commits an employee to pursue employment-related claims against the employer through arbitration, rather than in court. The agreements also require each employee to pursue his or her claims as an individual and not to participate in any class or collective lawsuits or legal proceedings in court or in arbitration.

Justices Will Be Under Microscope

The justices are likely to be divided on the arbitration and labor law issues, and their reaction to the oral arguments will be watched closely by both sides.

Employers will be hoping for a reduction in the number of class and collective actions in labor and employment law. And workers will be watching to see whether the court will preserve their only practical option for pooling small individual claims against an employer.

“The National Labor Relations Act very clearly protects concerted activity and this digs right into that,” Brian J. Markovitz, a principal with Joseph Greenwald & Laake, told Bloomberg BNA Sept. 26. “It’s kind of intellectually dishonest to think the other way.”

Because the NLRA was enacted long after the FAA, Markovitz said, the federal labor law should supersede federal arbitration law. “The assumption is that the National Labor Relations Act is supposed to work in conjunction with the Federal Arbitration Act.”

But that interpretation of the two federal laws “doesn’t capture the hearts and minds of certain individuals,” Michael J. Lotito, a shareholder with Littler and co-chair of its Workplace Policy Institute, told Bloomberg BNA Sept. 26.

“The Labor Board adheres to a policy of nonacquiescence,” he said. “The only group they listen to is the United States Supreme Court.”

And the Supreme Court has indicated that it favors arbitration in previous cases, Lotito said. Even if the court decided to strike down the class waivers, “I don’t think that this decision—however broad—is going to be the end of it.”

“There is no limitation to the creativity of lawyers,” he said.

Cases Revisited If Class Waivers Prevail

The impact of the court’s decision, whatever it may be, goes further than the three consolidated cases alone.

More than 55 percent of nonunion private sector employees in the U.S. have arbitration agreements in their workplaces, a report from the Economic Policy Institute said Sept. 27. That percentage is almost double what it was when the information was last collected in the early 2000s, the report said.

Celine McNicholas, EPI’s labor counsel, said the group expected an increase but “were surprised” that over half the workers in the study had arbitration agreements in their contracts. McNicholas was formerly the NLRB’s director of congressional and public affairs, and special counsel.

The report also found that large employers “are more likely to have these arbitration agreements,” McNicholas told Bloomberg BNA. About 65 percent of companies with 1,000 or more employees have arbitration agreements, whereas about 56 percent of companies with fewer than 1,000 employees use the agreements, the report said.

EPI’s report includes responses from 738 companies, collected between March and July 2017.

Markovitz echoed the report’s findings, saying large companies commonly use arbitration agreements in their contracts.

“Every major employer has them and if they don’t, they don’t have very good lawyers,” Markovitz said.

On the employee side, he said arbitration agreements are “used a lot with lower-wage workers.” An example Markovitz said he sees often is when an employee such as a construction worker leaves a position and doesn’t get the last pay check.

“They’re not going to go to arbitration over one paycheck,” he said. “That’s what class and collective actions are for.”

Multiple Cases Hinge on SCOTUS Review

Dozens of companies—from Applebee’s and Domino’s to Kmart, Bloomingdales, and SolarCity—could have their cases revisited following the Supreme Court’s ruling.

The NLRB has decided at least 75 unfair labor practice cases involving the class waiver issue. They could require some form of review and action after the Supreme Court’s decision.

Resolving cases after a Supreme Court ruling isn’t new for the NLRB.

“It’s not totally unprecedented territory to have these distinct cases that the agency has to revisit,” McNicholas said. She pointed to the Supreme Court’s June 2014 decision in NLRB v. Noel Canning as a recent example. The board had to reissue rulings for 103 cases following the high court’s judgment in that case.

The majority of the cases were decided or otherwise resolved within about a year of the high court’s ruling, then-NLRB Chairman Mark Gaston Pearce, who currently sits on the board, told a Senate Appropriations subcommittee in May 2015.

NLRB Action Triggered Showdown

The NLRB in 2012 first decided that an employer interferes with employee rights under the National Labor Relations Act when it enforces an arbitration policy that prohibits any worker from participating in class or collective legal actions.

Federal courts later split on the correctness of the board’s view. Acting for the board, the Justice Department asked the Supreme Court to review the issue, and the court agreed in January, just before President Donald Trump’s inauguration.

The court also agreed to hear cases from the Seventh and Ninth circuits—both private actions under the Fair Labor Standards Act in which employers and employees disputed the enforceability of class waivers.

The Seventh Circuit refused to enforce a class waiver in Epic Systems, and the Ninth Circuit took the same action in Ernst & Young.

The Supreme Court has said that an arbitration agreement that passes muster under the FAA can’t require the waiver of a substantive right that exists under a federal statute.

In the NLRB’s brief to the Supreme Court, the agency argued that its approach to class waivers doesn’t clash with the FAA because the board hasn’t attempted to prevent or disrupt the use of arbitration to resolve employment-related claims.

Opponents Cite Federal Arbitration Policy

Murphy Oil and Epic Systems and Ernst & Young filed briefs opposing the NLRB’s stance. Attorneys for the companies will argue that the Supreme Court shouldn’t allow the board to block the enforcement of class action waivers. But the justices will likely focus much of their attention on the Justice Department, which is taking the unusual step of opposing another federal agency’s action.

The Justice Department in June switched its position on the issue. The DOJ filed an amicus brief supporting Murphy, Epic, and Ernst & Young. The NLRB will follow through on its own case, but the Trump administration decided to oppose the NLRB because the board’s rulings on class waivers failed to give “adequate weight” to the FAA’s policy favoring the enforcement of arbitration agreements. The Supreme Court Sept. 25 approved motions requesting the divided argument between the NLRB and the DOJ.

The solicitor general, on behalf of the DOJ, likely will tell the justices that the right to participate in collective wage actions like those at issue in the Murphy, Epic, and Ernst & Young cases is a procedural right under the Fair Labor Standards Act, not a substantive right guaranteed by the NLRA.

In its brief supporting the employers, the Justice Department acknowledged that the NLRB has the authority to find that employees who participate in collective litigation against their employer are engaged in concerted activity. The board may protect such employees against retaliation or discharge, the DOJ said.

However, the DOJ said, federal labor law shouldn’t be interpreted to grant employees who validly waived their rights to proceed as a group under the FLSA an option to “escape the consequences of that choice.” To do so would place greater restrictions on the arbitration of FLSA claims than the FLSA does. “Nothing in the NLRA’s text supports that proposition,” the Justice Department said.

The NLRB is entitled to judicial deference when it interprets ambiguous provisions of the federal labor law, DOJ said, “[b]ut the Board is not entitled to deference when it determines how the NLRA should be harmonized with other federal statutes—here, the FAA.”

NLRB General Counsel Richard Griffin will argue for the NLRB. Paul D. Clement of Kirkland & Ellis LLP in Washington will argue for the employers. Principal Deputy Solicitor General Jeffrey B. Wall will argue for the Department of Justice as amicus curiae supporting the employers. Daniel Ortiz of the University of Virginia School of Law will argue for the employees.

To contact the reporters on this story: Lawrence E. Dubé in Washington at ldube@bna.com; Madison Alder in Washington at malder@bna.com

To contact the editor responsible for this story: Terence Hyland at thyland@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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