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BREAKING:  SUPREME COURT UPHOLDS CLASS WAIVERS IN EMPLOYMENT ARBITRATION AGREEMENTS
May. 21 2018

BREAKING:  SUPREME COURT UPHOLDS CLASS WAIVERS IN EMPLOYMENT ARBITRATION AGREEMENTS

Topics: Arbitration Agreements, Class Actions, Court Decisions

This morning, the United States Supreme Court issued its long-awaited opinion in three consolidated cases pending before it (NLRB v. Murphy Oil Co.; Epic Systems Corp. v Lewis; Ernst & Young LLP v. Morris) on the issue of whether a class action waiver provision in an employment arbitration agreement violates the National Labor Relations Act (“NLRA”) and is, thereby, unenforceable.  There previously was a split of authority among the federal circuit courts on this issue, with the Fifth Circuit (along with Second and Eighth Circuits) in Murphy Oil holding that class action waivers do not violate the NLRA, and the Seventh and Ninth Circuits (in Epic Systems and Ernst & Young, respectively) holding that such provisions do violate the NLRA.  Writing for the Court in a 5-4 opinion, Justice Gorsuch resolved this split today, holding that class action waiver provisions in employment arbitration agreements do not violate an employee’s right under the NLRA to engage in collective, concerted activity for mutual aid and protection, and that these provisions remain enforceable under the Federal Arbitration Act (“FAA”).  The Court’s more specific holdings are as follows:

  1. Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise.
  2. The Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select.  The Act’s saving clause—which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract”—recognizes only generally applicable contract defenses, such as fraud, duress, or unconscionability, not defenses targeting arbitration either by name or by more subtle methods.  By challenging the agreements precisely because they require individualized arbitration instead of class or collective proceedings, the employees seek to interfere with one of these fundamental attributes.
  3. “The employees also mistakenly claim that, even if the Arbitration Act normally requires enforcement of arbitration agreements like theirs, the NLRA overrides that guidance and renders their agreements unlawful yet.  . . . The employees ask the Court to infer that class and collective actions are ‘concerted activities’ protected by §7 of the NLRA, which guarantees employees ‘the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.’  But §7 focuses on the right to organize unions and bargain collectively.  It does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Act.  It is unlikely that Congress wished to confer a right to class or collective actions in §7, since those procedures were hardly known when the NLRA was adopted in 1935.  Because the catchall term ‘other concerted activities for the purpose of . . . other mutual aid or protection” appears at the end of a detailed list of activities, it should be understood to protect the same kind of things, i.e., things employees do for themselves in the course of exercising their right to free association in the workplace.’ . . . In another contextual clue, the employees’ underlying causes of action arise not under the NLRA but under the Fair Labor Standards Act, which permits the sort of collective action the employees wish to pursue here. Yet they do not suggest that the FLSA displaces the Arbitration Act, presumably because the Court has held that an identical collective action scheme does not prohibit individualized arbitration proceedings, see Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 32.’”

 

Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented.  The majority characterized the dissenting arguments as policy arguments and reminded us all (thank you majority) that the role of courts is not to make policy, but to enforce the laws as written.  “The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written.  While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act.  Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.”  

The Supreme Court’s opinion reverses unfavorable precedent in the Ninth Circuit (Ernst & Young v. Morris) and Seventh Circuit (Epic Systems v. Lewis), and reaffirms the important principles that arbitration agreements will, and must, be enforced according to their terms, and that laws (or judicial decisions) that seek to interfere with arbitration are preempted by the Federal Arbitration Act.  Class action waiver provisions in arbitration agreements are enforceable and do not violate the NLRA.  This is a nice win for employers.   

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For over 20 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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