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Supreme Court: NLRA Does Not Override Class-Action Waivers

May 22, 2018 Posted in Legal Updates Share

It’s official – the NLRA does not prohibit employers and employees from agreeing to limit their arbitration of disputes to single-plaintiff arbitration. On Monday, May 21, 2018, the Supreme Court issued a ruling in Epic Systems Corp. v. Lewis,[1] a highly-anticipated opinion that involved whether employers can enforce agreements that mandate one-on-one arbitration or whether the National Labor Relations Act (“NLRA”) requires that employees be provided the opportunity to bring their arbitration claims on a class or collective basis.

Background – The Collective Action Wave

During the last several years, employers have been dealing with a rash of lawsuits under the Fair Labor Standards Act in which employees seek the ability to represent the interests of other employees as part of a collective action.  These claims place tremendous settlement pressure on employers because of the aggregate amount of damages at risk and the high cost of litigating such complex actions.  Many employers have tried to limit their exposure to collective and class claims by requiring employees to sign agreements to resolve their claims in private arbitration rather than in the courts.  One common feature in these arbitration agreements is a provision that any claims brought by the employee must be brought on an individual basis, rather than a class basis. 

The Lewis case involved employees who had signed arbitration agreements that contained this type of restriction.  They wanted to bring a wage-hour case against their employer on a collective basis.  To do so, they had to overcome a significant obstacle:  Over the last decade or so, the Supreme Court had issued a steady stream of opinions upholding the validity of private arbitration agreements by pointing to the liberal federal policy in favor of arbitration established by the Federal Arbitration Act (“FAA”).

The plaintiffs in Lewis attempted to overcome these decisions by asking the courts to follow the lead of the National Labor Relations Board, which had held in 2012 that employees had a right to engage in collective litigation.  They argued that their FLSA collective-action lawsuit should be treated as “concerted activity” under Section 7 of the NLRA, which protects the right of employees to, among other things, “. . . engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  The employer argued that the pro-arbitration policies of the FAA should take precedence and that the courts should not defer to the NLRB’s approach.

The Decision – The FAA Trumps the NLRA

Justice Gorsuch, writing on behalf the majority, dismissed the employees’ claims that the language of Section 7 should be read broadly to prohibit the enforcement of arbitration agreements that restrict employees’ rights to bring claims on a class or collective basis. The Court held that this language does not provide courts with a clear and manifest congressional command to displace the FAA and outlaw agreements that prohibit class or collective actions. The Court leaned on the precedent available in other similar cases, finding that when the issue arose with other statutory schemes, the Court had consistently deferred to the intent of the FAA, unless Congress provided express instructions to the contrary.

Nor was the majority persuaded by the employees’ argument that the saving clause in the FAA created a loophole by which they could escape their promise to arbitrate on a single-plaintiff basis. The saving clause found in § 2 of the FAA allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” The employees argued that the NLRA’s protection of concerted activity made their agreements illegal, which would preclude a court from enforcing them. In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the Supreme Court had previously held that the saving clause did not apply to “defenses that apply only to arbitration or derive meaning from the fact that an agreement to arbitrate is at issue.” The Court followed that precedent, holding that the concerted-activity defense was not a defense that would affect any contract, but a policy-based challenge to arbitral promises that eliminated the ability of employees to file class or collective lawsuits. This challenge interfered with the fundamental attributes of arbitration and therefore failed the Concepcion test.

The majority gave little deference to the Executive Branch, likening the competing amicus briefs filed by the NLRB and the Solicitor General to a “garble” where the “Executive speaks from both sides of its mouth, articulating no single position on which it might be held accountable.” Ultimately, the principal logic from the Court showed great concern that the employees’ argument would give the NLRB unchecked power. Justice Gorsuch summarized the employees’ arguments as follows: 

And so they have cast in this direction, suggesting that one statute (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the Arbitration Act). It’s a sort of interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow . . . . Union organization and collective bargaining in the workplace are the bread and butter of the NLRA, while the particulars of dispute resolution procedures in Article III courts or arbitration proceedings are usually left to other statutes and rules – not least the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA. It’s more than a little doubtful that Congress would have tucked into the mousehole of Section 7’s catchall term an elephant that tramples the work done by these other laws; flattens the parties’ contracted-for dispute resolution procedures; and seats the Board as the supreme superintendent of claims arising under a statute it doesn’t even administer.

Epic Systems Corp. v. Lewis, 584 U.S. ____, 2018 WL 2292444 at *15 (2018).

Consequences – Should Employers Adopt Arbitration Agreements?

Even though arbitration agreements preventing class and collective actions can be entered into legally, employers should carefully review their advisability before adopting such a policy. The benefits of arbitration have long been thought to include, among others:

1. The relative speed of the resolution;
2. The relative cost of the resolution; and
3. The finality of any decision.

Some of the negative aspects of arbitration long discussed by employers include, among others:

1. Less experienced or less knowledgeable decision makers;
2. The absence of the right to appeal arbitral decisions, even those that are egregiously wrong;
3. Inability to engage in detailed discovery; and
4. Limited ability to resolve matters with dispositive motions.

Although some motion practice or discovery may be available in arbitration, some arbitrators will restrict its availability. Arbitrators often disfavor motion practice because they prefer to write a single opinion after hearing the facts, rather than an opinion on summary judgment followed by a separate opinion on the facts. Employers who are wary of submitting all types of claims to arbitration may wish to consider arbitration agreements that prohibit engaging in class or collective actions for claims that arise under specific statutes (or specific claims), such as the FLSA, the Florida Minimum Wage Act, or other laws that the employer deems prone to litigation on a class basis.

If you would like to have a more in-depth discussion on the pros and cons of the use of mandatory arbitration agreements in your particular business, please contact us at your convenience.

[1] This action was joined with Ernst & Young LLP et al. v. Morris et al., and National Labor Relations Board v. Murphy Oil USA, Inc. et al at the certiorari stage because each involved the same substantive question of law for the Supreme Court to decide.