The employment attorneys at Nardone Limited in Columbus, Ohio, regularly assist our clients with a broad spectrum of employment law issues, including internal investigations, review and response to administrative complaints, business disputes and litigation, and consultation on numerous employment law issues. One growing legal development that Nardone Limited’s employment law attorneys are closely following is regarding whether courts will enforce mandatory arbitration agreements in employment contracts that also contain class action waivers. This issue has now made its way to the United States Supreme Court through three separate companion cases that the Supreme Court accepted for review, which will all be ruled on as part of the Supreme Court’s October 2017 term.
US Supreme Court to Rule on Whether Class Action Prohibitions are Valid
The Supreme Court has granted certiorari on three separate cases all involving whether employment contracts may force individual arbitration and waive all rights to employee class actions. Specifically, the Court accepted the following three cases for review: (i) National Labor Relations Board v. Murphy Oil, USA, Inc.; (ii) Epic Systems Corp v. Lewis; and; (iii) Ernst & Young LLP v. Morris. In hearing the above cases, the Supreme Court will resolve an ongoing split in the courts over how the National Labor Relations Act (the “NLRA”) and the Federal Arbitration Act (“FAA”) interact when it comes to employee arbitration agreements that prohibit class actions.
The Supreme Court’s decision to review the enforceability of class arbitration bans in employment agreements offers a great chance to give employers clarity on this issue. This is particularly true, because currently there is a circuit split among the federal courts of appeals regarding whether bans on employee class actions are valid. Thus, it is a promising development that the Supreme Court has agreed to weigh-in on whether it is legally valid for employment contracts to ban employee class actions.
In recent years, Employers have increasingly broadened employee arbitration provisions to include bas against employee class actions and other collective actions. These provisions have required many employees to bring any claims against their employers through individual arbitration. In recent years, however, the National Labor Relations Board (“NLRB”) has ruled that provisions requiring employees to individually arbitrate their claims violates the NLRA, and renders the provisions unenforceable. In response to the NLRB rulings, the courts across the county have been divided over whether the NLRB’s position is valid. Many courts have found that the NLRB over-stepped in its rulings because the FAA requires that the courts must give full force and effect to class action waivers.
The Fifth Circuit first ruled on the issue in Murphy Oil, USA, Inc. v. National Labor Relations Board, 808 F.3d 1013 (5th Cir. 2015). In Murphy Oil, three employees attempted to bring a collective action under the Fair Labor Standards Act (FLSA). In response, the employer moved to dismiss the claims, because the employees were subject to an employment agreement requiring individual arbitration, and barring collective action. While Murphy Oil’s motion to dismiss was pending, one of the employees filed an unfair labor charge with the NLRB in January 2011, claiming that the arbitration agreement interfered with her Section 7 rights under the NLRA. The NLRB ultimately ruled arbitration agreement at issue violated the employees Section 7 rights by inhibiting the employee’s right to join with fellow employees regarding employment grievances. But, the NLRB’s ruling made its way to the Fifth Circuit for review in the main case in Murphy Oil. Upon reviewing the NLRB’s finding, the Fifth Circuit found that the employee arbitration agreement and class action waiver did not violate employees’ rights to engage in concerted activities under the NLRA. In fact, the Fifth Circuit explicitly stated that the NLRA “does not contain a congressional command overriding the Federal Arbitration Act (FAA)” and “the use of collective actions is not a substantive right” under the NLRA.
Following the Fifth Circuit’s decision in Murphy Oil, the Eighth, Second, and Eleventh Circuits agreed and ruled in similar cases that banning collective actions in employee arbitration agreements was enforceable and did not violate the NLRA. See Cellular Sale of Mo., LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016); Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Walthour v. Chipio Windshield Repair, 745 F.3d 1326 (11th Cir. 2014).
Circuit Split Created by the Seventh Circuit Court of Appeals
The Seventh Circuit Court of Appeals, however, created the present circuit split by ruling that employee arbitration agreements that contain exclusions on collective actions are not enforceable under the NLRA. Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016). There, the Seventh Circuit found that there was no direct conflict between the NLRA and the FAA that would require the NLRA to have explicit congressional command to allow NLRA provisions to override the FAA. The Ninth Circuit then entered a ruling deepening the split in Morris v. Ernst & Young LLP, 834 F.3d 975 (9th Cir. 2016), and agreeing with the Seventh Circuit decision from Epic Systems. Most recently, the Sixth Circuit has also further added to the split among the courts, and held that class action waivers in employment-related arbitration agreements violate the NLRA. Nat’l Labor Relations Bd. v. Alternative Enterm’t, Inc., 6th Cir.No. 16-1385 (6th Cir. May 26, 2017) (find class action waiver in employment contract was unenforceable). The growing circuit split on the enforceability of class waivers in employee arbitration clauses has set the issue up for a Supreme Court showdown to resolve the split in legal authority.
Supreme Court Showdown
The Supreme Court selected the Murphy Oil, Epic Systems, and Ernst & Young cases all for review in January 2017 and consolidated the three cases. Usually these cases would have been argued and decided in the following June 2017 term. But, because the loss of Justice Scalia left only 8 Justices during the start of the January 2017 term, the Court chose to delay arguments on this contentious topic until the October 2017 term. The Court’s choice to delay review likely means that the Supreme Court would have reached a 4-4 decision on the cases, if decided before a ninth justice joined the Court. But, with Justice Neil Gorsuch now confirmed as the Supreme Court’s ninth Justice, the prevailing and reasonable belief is that the Supreme Court will side with employers and follow the Fifth Circuit’s ruling that arbitration agreements with class action waivers are enforceable.
Another sign that the Supreme Court is likely to side with employers is that—in a historic move—the Solicitor General’s Office has reversed its position and announced support for the enforceability of class waivers. The Solicitor General’s Office has now asked the Justices to affirm the decision of the Fifth Circuit, in favor of allowing the enforcement of employee arbitration agreements that prohibited class or collective actions.
The consolidated appeal of the circuit split detailed above was presented for oral argument before the Supreme Court on October 2, 2017. The Nardone Limited team will be continuing to closely follow this consolidated appeal, and we will post a blog update when the Court releases its ruling on this issue.
Contact Nardone Limited
The Nardone Limited employment attorneys handle a full spectrum of employment law issues, including business disputes and litigation, drafting of employment and restrictive covenants, and consultation on employment law issues. If you need advice or representation in an employment dispute before the EEOC, the OCRC, or regarding potential employment litigation contact one of our employment attorneys. Further, feel free to contact Nardone Limited if you would like more information or consultation about implementing employee restrictive covenants in your business.