The U.S. Supreme Court Considers Class Action Waivers in Employment Arbitration Agreements

Written by Lois Ahn

U.S. Supreme Court. (CC BY-SA 2.0 Matt Wade)

On Monday, October 2, 2017, the U.S. Supreme Court heard consolidated oral argument in Epic Systems Corp. v. Lewis, No. 16-285, Morris v. Ernst & Young, LLP, No. 16-300, and Murphy Oil USA, Inc. v. NLRB, No. 16-307, considering the validity of class action waivers in employment arbitration agreements.

This issue concerns the interaction of two federal statutes—the Federal Arbitration Act (FAA) and the National Labor Relations Act (NLRA). The FAA provides that an agreement to submit any dispute to arbitration “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Section 8(a)(1) of the NLRA states, “[i]t shall be an unfair labor practice to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.” 29 U.S.C. § 158(a)(1). The rights guaranteed by Section 7 include the right to engage in concerted activities for mutual aid or protection. 29 U.S.C. § 157.

The Fifth, the Second, and the Eighth Circuits have held that class action waivers are enforceable. For example, in Murphy Oil USA, Inc. v. NLRB (5th Cir. 2015), the Fifth Circuit held that such waivers do not violate the NLRA because the use of class action procedures “is not a substantive right under Section 7 of the NLRA.”

On the other hand, the Seventh and Ninth Circuits have held that class action waivers in employment arbitration agreements violate the NLRA because forming a class or collective to contest employment issues is a substantive right protected by Section 7. For example, in Morris v. Ernst & Young, LLP, (9th Cir. 2016), the Ninth Circuit stated, “Section 7’s ‘mutual aid or protection clause’ includes the substantive right to collectively seek to improve working conditions through resort to administrative and judicial forums.”

At the oral argument, the Department of Justice and the NLRB joined the argument, with the DOJ arguing in support of the employers and the NLRB in support of the employees. Chief Justice Roberts and Justices Kennedy and Alito appeared to side with the employers’ position that class waivers in employment arbitration agreements do not violate the NLRA, with Chief Justice Roberts expressing concern that a Supreme Court ruling finding such waivers unlawful would render approximately 25 million employment agreements invalid.

Justices Ginsburg, Breyer, Sotomayor, and Kagan appeared to support the employees’ position saying otherwise. Justice Ginsburg stated, “To proceed alone in the arbitral forum will cost much more than any potential recovery for one. That’s why this is truly a situation where there is strength in numbers, and that was the core idea of the NLRA. There is strength in numbers. We have to protect the individual worker from being in a situation where he can’t protect his rights.” Justice Kagan stated that, under the NLRA, “employers can’t demand as conditions of employment the waivers of concerted rights.”

Interestingly, Justices Thomas and Gorsuch, the two most conservative Justices on the bench, did not ask any questions. The Supreme Court is expected to issue a decision by June 2018. The transcript of the oral argument can be found here.