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High court mulls arbitration agreements

Dora Lane
Holland & Hart LLP
Dora Lane
Eric Jamison |

Does an agreement between an employer and an employee to resolve any employment disputes through individual arbitration (as opposed to through a class or collective action) violate the employee’s right to engage in protected concerted activity under the National Labor Relations Act (NLRA)? That is the issue before the U.S. Supreme Court as it heard its first oral argument of this term on the first Monday of October.

Why Does It Matter?

Employers increasingly use arbitration agreements with their employees in order to avoid the expense and uncertainty associated with court litigation. By requiring that employees resolve employment disputes in front of a neutral arbitrator, employers hope to keep such matters out of the public eye while also (hopefully) speeding up what would otherwise be a lengthy court process.

But it is not merely arbitration that employers often seek. It also is individual arbitration, meaning that the agreement includes language that prevents the employee from pursuing any employment matters on a class or collective basis with other employees who have similar claims against the employer. By pre-emptively blocking class actions in employment disputes, companies may avoid large lawsuits involving hundreds, if not thousands, of employees that may put multimillion-dollar damages and attorneys’ fees at stake.

Class Action Waivers Versus Employee Rights

In 2012, the National Labor Relations Board, the federal agency charged with enforcing the NLRA, ruled that arbitration agreements banning employees from pursuing class actions are unenforceable. In its controversial D.R. Horton decision, a majority of the then-members of the board determined that class action waivers violate the NLRA by interfering with employees’ Section 7 rights to engage in concerted activities for their mutual aid and protection. The board concluded that an employee who files a class or collective action, whether in court or arbitration, seeking to improve wages or working conditions on behalf of a group of employees is engaged in conduct protected by Section 7 of the NLRA.

In late 2013, the Fifth Circuit Court of Appeals overturned the board’s D.R. Horton decision. It relied on the Federal Arbitration Act (FAA), which provides that arbitration agreements are valid, irrevocable and enforceable. Courts routinely uphold the validity of arbitration agreements, and the Fifth Circuit stated that the NLRA would not override the FAA unless it contained a congressional command providing for a class action right. In ruling that arbitration agreements containing class waivers are enforceable, the Fifth Circuit joined some of the other federal appellate courts that had ruled similarly in recent years. But the Ninth and Seventh Circuit Courts of Appeal had ruled in favor of the NLRB on this issue, creating a split in the federal appellate circuits. (Nevada is located in the Ninth Circuit.)

Board Petitions For Supreme Court Review, But …

In the closing days of President Obama’s administration, the federal government filed a petition with the Supreme Court asking it to decide the validity of class-action waivers in arbitration agreements. The government argued on behalf of the NLRB that such agreements were unlawful. Employers Ernst & Young and Epic Systems also petitioned the Supreme Court to review their adverse decisions from other circuits on this same issue. In January, just days before Donald Trump was sworn in as president, the nation’s highest court agreed to hear all three consolidated cases in its next term.

Because of the administration change, by the time that the government’s briefs were due to the Supreme Court this summer, the government changed its position. It no longer supported the NLRB’s view and instead argued in favor of upholding class action waivers in the employment context. The NLRB, however, was permitted to continue to argue against the waivers, setting up the unique position of the federal government attorney from the Solicitor General’s Office arguing against the NLRB General Counsel before the Supreme Court.

Justices Seem Divided On The Issue

Not surprisingly, the four more liberal justices, Justices Ginsburg, Breyer, Kagan and Sotomayor, appeared during oral arguments to support the NLRB’s position. Justice Ginsburg pointed out that the “driving force of the NLRA was the recognition that there was an imbalance” between employers and employees and that “there was no true liberty of contract” in that relationship, leading to the protection of concerted activity. Justice Breyer told the attorney arguing on the employers’ behalf that he was “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.”

But Justices Roberts, Kennedy and Alito seemed to support the position that the FAA trumps the NLRA when arbitration agreements contain class waivers. The two remaining justices, Justice Thomas and newly confirmed Justice Gorsuch, did not speak up at the oral argument. Given their conservative natures, however, both may rule against the NLRB and the employees on this issue.

The Supreme Court will issue its decision sometime before the current term ends on June 30, 2018. Although we have to wait a few months for the ruling, it will be refreshing to have the class action waiver issue resolved nationwide.

Dora Lane is an attorney with Holland & Hart LLP.