Court Holds That Class Action Waivers Signed by Supervisors Are Lawful

Amid uncertainty regarding the lawfulness of class-action waivers in employment arbitration agreements, a U.S. District Court has held that such waivers are not unlawful as applied to supervisory employees.[1]

Background

Employers and employment lawyers have kept a close eye on the issue of class-action waivers in employment arbitration agreements. The federal appellate courts are split as to whether class-action waivers violate Sections 7 and 8 of the National Labor Relations Act (the “NLRA”) by interfering with or restraining employees from exercising their right to engage in so-called protected concerted activities (see related article).[2]

In January 2017, the Supreme Court decided to consider the lawfulness of class-action waivers in arbitration agreements (see related article). However, the Supreme Court will not decide the issue before its term ends in June 2017, as the Supreme Court has extended the briefing schedule in this case to conclude after the close of the October 2016 term.[3]

Morgan v. Sears Holding Management Corp. Decision

In Morgan v. Sears Holdings Management Corp.—a collective action claiming age discrimination—a federal district court judge in the Northern District of Illinois held that, even though a collective action waiver would be enforceable against employees in the Seventh Circuit Court of Appeals, it was “in no way illegal as it relates to supervisory employees.”[4] This is because supervisory employees are not considered “employees” under the NLRA.[5] Accordingly, in Morgan, the district court granted the employer’s request to compel a supervisor who was a party to the arbitration agreement to arbitrate his dispute under an agreement that waived collective action claims.[6]

Practical Takeaways

Despite the uncertainty on the issue of class-action waivers, employers should be aware that Sections 7 and 8 of the NLRA (which the National Labor Relations Board and some federal courts contend prohibit such provisions) apply only to non-supervisory employees. Therefore, the waivers will not run afoul of the NLRA if they are found in agreements with clearly supervisory employees (that is, employees who do not have the authority to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, discipline other employees, or responsibility to direct them, to adjust their grievances or effectively to recommend such action).[7] The question of who is a supervisor is often a close one, and employers are encouraged to consult with a labor lawyer if there is any question as to who is a supervisor.

[1] Morgan v. Sears Holding Mgmt. Corp., No. 16 C 6871, 2017 WL 878732 (N.D. Ill. March 6, 2017).

[2] See 29 U.S.C. §§ 157 (providing employees with “the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purposes of collective bargaining or other mutual aid or protection . . . .”), 158 (making it an unlawful labor practice for an employer “to interference with, restrain, or coerce employees in the exercise of [their Section 7 rights]”).

[3] See NLRB v. Murphy Oil USA, Inc., No. 16-307 (U.S. docket entry Feb. 21, 2017).

[4] Morgan, 2017 WL 878732, at *4.

[5] 29 U.S.C. § 152 (providing that “employees” under the NLRA do not include “any individual employed as a supervisor”).

[6] Morgan, 2017 WL 878732, at *5. Two of the other supervisory employees in the Morgan case claimed they had opted out of the arbitration agreement, and the court stated that an evidentiary hearing was required to decide whether their claims should also be submitted to arbitration. Id.at *4-5.

[7] 29 U.S.C. § 152(11) (defining “supervisor”).