Supreme Court Likely to Decide Whether Employers May Use Class Action Waivers in Employment Arbitration Agreements

The United States Supreme Court may finally determine whether employment arbitration agreements that contain class action waiver clauses are enforceable.  There is a deep split in the federal appellate courts on this issue, as the Seventh Circuit Court of Appeals (“Seventh Circuit”)[1] and the Ninth Circuit Court of Appeals (“Ninth Circuit”)[2] have agreed with the National Labor Relations Board (“NLRB”) that such waivers violate employees’ rights under the National Labor Relations Act (“NLRA”), while the Second Circuit Court of Appeals (“Second Circuit”),[3] Fifth Circuit Court of Appeals (“Fifth Circuit”),[4] Eighth Circuit Court of Appeals (“Eighth Circuit”),[5] and Eleventh Circuit Court of Appeals (“Eleventh Circuit”)[6] have held that class action waivers are enforceable under the Federal Arbitration Act (“FAA”).[7]  The Supreme Court has received petitions for writ of certiorari from both employers and the NLRB asking the Court to decide whether class action waivers in employment arbitration agreements are enforceable.[8]  This article analyzes the NLRB’s position and circuit split, the likelihood that the Supreme Court will decide the issue, and practical implications for employers.

The NLRB’s Position and the Circuit Split

In 2012, the NLRB held in D.R. Horton, Inc. that arbitration agreements that require employees to waive the right to pursue employment and labor related class and collective actions violate employees’ rights under Section 7 of the NLRA to engage in protected concerted activity.[9]  The relevant portion of Section 7 of the NLRA provides that “[e]mployees shall have the right . . . to engage in other concerted activity for the purpose of collective bargaining or other mutual aid or protection[.][10]  The Fifth Circuit overturned the NLRB’s D.R. Horton decision on appeal,[11] and subsequently rejected the D.R. Horton decision in Murphy Oil USA v. NLRB.[12]  The Fifth Circuit found that the NRLB’s D.R. Horton decision conflicts with the explicit pronouncements of the Supreme Court concerning the policies underlying the FAA.[13]  The Eighth Circuit has also overturned the NLRB in Cellular Sales of Missouri, LLC v. NLRB, holding that an employer does not violate Section 7 of the NLRA when it requires its employees to sign arbitration agreements that contain class action waiver clauses.[14] Further, the Second and Eleventh Circuits have rejected the NLRB’s D.R. Horton approach and held that class action waivers in employment arbitration agreements are enforceable.[15]

Two recent federal appeals court decision, however, have created a deep circuit split regarding whether employment arbitration agreements that contain class action waiver clauses are enforceable.  The Seventh Circuit held in Lewis v. Epic Sys. Corp. that an arbitration clause prohibiting employees’ ability to bring and recover from wage-and-hour collective actions violated Section 7 of the NLRA.[16]  Further, the Ninth Circuit, in Morris v. Ernst & Young, LLP, held that mandatory class action waivers violate the NLRA because such waivers prohibit employees from pursuing concerted work-related claims in violation of Section 7 of the NLRA. 

Supreme Court Likely to Decide Issue

Since September 2, 2016, both employers and the NLRB have petitioned the Supreme Court to determine whether class action waiver clauses in arbitration agreements are enforceable, including employer challenges to the Seventh Circuit’s Epic Sys. Corp. decision[17] and the Ninth Circuit’s Morris opinion,[18] and an NLRB challenge to the Fifth Circuit’s Murphy Oil ruling.[19]  Further, cases presenting this same question are currently before the Third Circuit Court of Appeals (“Third Circuit”),[20] the Fourth Circuit Court of Appeals (“Fourth Circuit”),[21] the Sixth Circuit Court of Appeals (“Sixth Circuit”),[22] the Eleventh Circuit,[23] and the D.C. Circuit Court of Appeals (“D.C. Circuit”).[24]  Commentators note that the issue is critically important to both employers and the NLRB because of the widespread use of class action waivers in employment arbitration agreements.[25]  Given the issue’s importance and the requests from both employers and the NLRB, the Supreme Court is likely to grant one or more of the petitions for certiorari, hear argument, and decide whether class action waiver clauses in employment arbitration agreements are enforceable.[26]

Employer Takeaways

While it appears the Supreme Court will consider the enforceability of class action waivers in employment arbitration agreements in the near future, until the Court does so, employers with such waivers face an uncertain landscape.  The NLRB views itself as bound only by Supreme Court decisions, and it will likely continue to pursue its challenges to arbitration agreements with class-action waivers across the country until the Court rules on the issue.  While the Second, Fifth, Eighth, or Eleventh Circuits would likely overturn NLRB decisions that such a waiver is unenforceable in cases arising in those circuits, employers wishing to enforce such waivers would likely incur significant costs in litigation.  The Seventh and Ninth Circuit, however, would likely agree with the NLRB that the waiver is unenforceable.  Employers across the country may continue enforcing class action waivers in arbitration agreements with supervisors, as the NLRB only has jurisdiction over non-supervisory employees.[27]  Campbell Litigation will continue to track this issue and report back when further updates are available.

[1] The Seventh Circuit hears appeals from federal district courts in Illinois, Indiana, and Wisconsin.

[2] The Ninth Circuit hears appeals from federal district courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, and Washington.

[3] The Second Circuit hears appeals from federal district courts in Connecticut, Massachusetts, New Hampshire, Rhode Island, and Vermont.

[4] The Fifth Circuit hears appeals from federal district courts in Louisiana, Mississippi, and Texas.

[5] The Eighth Circuit hears appeals from federal district courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.

[6] The Eleventh Circuit hears appeals from federal district courts in Alabama, Florida, and Georgia.

[7] See Sutherland v. Ernst & Young, LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013); Murphy Oil USA v. NLRB, 808 F.3d 1013 (5th Cir. 2015); Cellular Sales of Missouri, LLC v. NLRB, 824 F.3d 772, 776 (8th Cir. 2016); Wlathour v. Chipio Windsheld Repair, LLC, 745 F.3d 1326, 1332 (11th Cir. 2014).  The state courts of last resort in California and Nevada have also found that class action waivers do not violate the NLRA.  See Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129, 137-143 (Cal. 2014); Tallman v. Eighth Jud. Dist. Ct., 359 P.3d 113, 122-23 (Nev. 2015).

[8] See Epic Systems Corp. v. Lewis, U.S., No. 16-285 (cert petition filed Sept. 2, 2016); Ernst & Young, LLP v. Morris, U.S., No. 16-300 (cert petition filed Sept. 8, 2016); NLRB v. Murphy Oil USA, Inc., No. 16-307 (cert petition filed Sept. 9, 2016).

[9] D.R. Horton, Inc., 357 NLRB 184 (2012). 

[10] 29 U.S.C. § 157 (emphasis added).

[11] D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013).

[12] Murphy Oil USA v. NLRB, 808 F.3d 1013 (5th Cir. 2015).

[13] Id; see also DirecTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015) (reaffirming the strong policy of enforcing arbitration agreements). 

[14] Cellular Sales of Missouri, LLC v. NLRB, 824 F.3d 772, 776 (8th Cir. 2016) (citing Owen v. Bristol Care, Inc., 702 F.3d 1050, 1053-55 (8th Cir. 2013).

[15] See Sutherland v. Ernst & Young, LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013); Wlathour v. Chipio Windsheld Repair, LLC, 745 F.3d 1326, 1332 (11th Cir. 2014).

[16] Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1153 (7th Cir. 2016).

[17] Epic Systems Corp. v. Lewis, U.S., No. 16-285 (cert petition filed Sept. 2, 2016).

[18] Ernst & Young, LLP v. Morris, U.S., No. 16-300 (cert petition filed Sept. 8, 2016).

[19] NLRB v. Murphy Oil USA, Inc., No. 16-307 (cert petition filed Sept. 9, 2016).

[20] The Rose Group v. NLRB, Nos. 15-4092 and 16-1212 (3d Cir.).  The Third Circuit hears appeals from federal district courts in Delaware, New Jersey, Pennsylvania, and the Virgin Islands.

[21] AT&T Mobility Servs., LLC v. NLRB, Nos. 16-1099 and 16-1159 (4th Cir.).  The Fourth Circuit hears appeals from federal district courts in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.

[22] NLRB v. Alternative Entm’t, Inc., No. 16-1385 (6th Cir.).  The Sixth Circuit hears appeals from federal district courts in Kentucky, Michigan, Ohio, and Tennessee.

[23] Everglades Coll., Inc. v. NLRB, Nos. 16-10341 and 16-10625 (11th Cir.).

[24] Price-Simms, Inc. v. NLRB, Nos. 15-1457 and 16-1010 (D.C. Cir.).  The D.C. Circuit hears appeals from federal district courts in the District of Columbia.

[25] Lawrence E. Dubé, NLRB, Employers Urge Justices to Rule on Class Waivers, Bloomberg BNA Daily Labor Report (Sept. 12, 2016).

[26] The Supreme Court is currently on summer recess, but will begin reviewing petitions for certiorari September 26, 2016. 

[27] 29 U.S.C. § 152(3).