The Supreme Court on January 13th granted certiorari in three cases involving the issue of whether the Federal Arbitration Act prevails over the National Labor Relations Act when it comes to enforcing class action waivers in employment arbitration agreements. Resident futurist, Fordham Law prof, and SAC Contributing Legal Editor and Board Member George H. Friedman blogged last December and September on this very topic, correctly predicting that SCOTUS would take up one or more of the cases. We asked him to prepare this analysis, which updates his past blog posts. He apologizes that it’s a bit longer than the Alert’s typical writeup, but as he says “It’s not every day the Supreme Court takes up three arbitration-related cases.” The words that follow are Professor Friedman’s.
What’s the Issue?
Back in 2014 I wrote a blog post, NLRB is Cruisin’ for a Bruisin’ on its Anti-Arbitration Policy, that captured the essence of the issue. Section 2 of the Federal Arbitration Act (“FAA”) states that arbitration agreements are enforceable “… save upon such grounds as exist at law or in equity for the revocation of any contract.” This is known as the “savings clause” because it creates a window whereby some predispute arbitration agreements (“PDAA”) may not be enforced under the FAA. The Supreme Court held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that PDAAs containing class action waivers (“CAWs”) were enforceable under section 2 of the FAA, and that a state rule of law prohibiting such waivers was preempted by the FAA. Two years later, the Court in American Express Co. v. Italian Colors Restaurant, 570 U.S. ___, 133 S. Ct. 2304 (2013), addressed the validity of a PDAA that required an individual to waive the right to participate in class action litigation and to individually arbitrate a claim arising out of a federal statute. The Court enforced the PDAA even though proving the claim in an individual arbitration might be costly compared to class action litigation.
Major Split in the Circuits
In 2012, the National Labor Relations Board ruled in D.R. Horton Inc., 357 NLRB No. 184 (2012), that class action waivers in predispute arbitration agreements violated Section 8(a)(1) of the National Labor Relations Act (NLRA”) because they interfered with the employees’ statutory right to “concerted activities” protected by section 7. Later, the Fifth Circuit reversed the Board’s policy in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). Decisions last year have resulted in a major split on this issue between the federal circuits:
- First came Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th 2015), reh. den. (May. 13, 2016) [see pages 213a–214a of certiorari petition], which held that “an employer does not engage in unfair labor practices by maintaining and enforcing an arbitration agreement prohibiting employee class or collective actions and requiring employment-related claims to be resolved through individual arbitration.”
- Next came Lewis v. Epic Systems, Inc., 823 F.3d 1147 (7th May 26, 2016), where a unanimous Seventh Circuit held that a class action waiver in an employment arbitration agreement violated the NLRA. The Epic Systems Court said: “In short, Sections 7 and 8 of the NLRA render Epic’s arbitration provision unenforceable.... We conclude that, insofar as it prohibits collective action, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA.”
- Just a week after Epic was decided, a unanimous Eighth Circuit in Cellular Sales of Missouri LLC v. NLRB, 824 F.3d 772 (8th June 2, 2016), held that enforcing the PDAA is permitted by the NLRA, but the PDAA’s chilling effect on filing unfair labor charges is not.
- In mid-August, the Fifth Circuit, in a tidy, two-page, unpublished per curiam ruling in Citi Trends, Inc. v. NLRB, 15-60913 (5th Cir. Aug. 10, 2016), found that it must follow the precedent it established in Horton and Murphy Oil.
- Then came Morris v. Ernst & Young, 13-16599 (9th Cir. Aug. 22, 2016), where the Ninth Circuit, in a 2-1 decision, also moved into the “no class action waivers” camp.
- As September dawned, the Second Circuit in Patterson v. Raymours Furniture Co., 15-2820 (2nd Cir. Sept. 2, 2016), reaffirmed that it was in the “enforce the PDAA” column. The Court there stated that it must follow the precedent it established in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2nd Cir. 2013), but noted that it might have joined the Seventh and Ninth Circuits if it were not bound by Sutherland.
Petitions for Certiorari
Last September, Epic Systems, E&Y, NLRB (in Murphy Oil), and Patterson all sought SCOTUS review. Epic Systems on September 2nd petitioned the Supreme Court for certiorari. Less than a week later, E&Y followed suit with its own petition, and on September 9th, the National Labor Relations Board sought certiorari in Murphy Oil. Patterson filed a petition for certiorari on September 22nd. The issues in each petition are similarly framed. The language in the Murphy Oil petition is a good example:
Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in ‘concerted activities’ in pursuit of their ‘mutual aid or protection,’ 29 U.S.C. § 157, and are therefore unenforceable under the saving clause of the Federal Arbitration Act, 9 U.S.C. § 2.
Old Prediction and the Outcome
My blog posts had this prediction: “It’s a sure bet SCOTUS will grant certiorari in at least one of the four cases involving whether the Federal Arbitration Act trumps (sorry) the National Labor Relations Act when it comes to enforcing arbitration agreements, most likely NLRB v. Murphy Oil because it involves NLRB as a party.” The Court’s Order granting certiorari consolidates Murphy Oil (No. 16-307), Ernst & Young (No. 16-300), and Epic (No. 16-285), and adds that “a total of one hour is allotted for oral argument.” The jury is still out on Patterson’s petition.
A New Prediction but So Many Variables!
My view is that the Supreme Court will hold that its ruling in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), requires the NLRA to expressly ban arbitration if that was the intent of Congress. As SCOTUS later said in CompuCredit Corp. v. Greenwood, 565 U.S. 7 (2012): Had Congress meant to prohibit these very common provisions in the [statute], it would have done so in a manner less obtuse than what respondents suggest.” But, there are many, many variables. Will President Trump’s Supreme Court nominee be seated by the time the cases are heard (yes, I predict)? Will he or she be pro-arbitration (yes, I predict)? Will the NLRB change its policy based on new leadership (there are two vacancies he gets to fill, which will result in a majority-Republican Board)? Will the agency drop its appeal? Will SCOTUS decide the issue anyway, given the split in the circuits? Time will tell, but the ride promises to be interesting. Fasten your seatbelts.
(ed: Thanks, prof! We’ll circle back later to see how these predictions panned out.) (SAC Ref. No. 2017-03-01)
Like what you see here?
Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alert and the Securities Litigation Alert.