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Seventh Circuit Holds Unenforceable Class Action Waivers in Employment Agreements, in Conflict with Horton. Eighth Circuit Goes the Other Way – But Not Entirely. SCOTUS Showdown Next?
Posted on Categories Arbitration Agreements, Business & Employment, Class Action/Collective Waivers, Court Decisions, Federal, Non-FINRA ADRTags , , ,

In a unanimous decision, the Seventh Circuit holds that an arbitration clause in an employment agreement containing a class action waiver violated the National Labor Relations Act (“NLRA”) and was unenforceable. Just a week later, a unanimous Eighth Circuit says enforcing the PDAA is permitted by the NLRA, but the PDAA’s chilling effect on filing unfair labor charges is not.

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 (“PDAA”) violated Section 8(a)(1) of the National Labor Relations Act (the “NLRA”) because they interfered with the employees’ statutory right to “concerted activities” protected by section 7 (see SAA 2012-07). Later, the Fifth Circuit reversed the Board’s policy in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013) (see SAA 2013-45). Said the Court: “[W]e disagree and conclude that the Board’s decision did not give proper weight to the Federal Arbitration Act…The NLRA should not be understood to contain a congressional command overriding application of the FAA. The burden is with the party opposing arbitration, Gilmer, 500 U.S. at 26, and here the Board has not shown that the NLRA’s language, legislative history, or purpose support finding the necessary congressional command. Because the Board’s interpretation does not fall within the FAA’s 'saving clause,' and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Mutual Arbitration Agreement must be enforced according to its terms.” The Fifth Circuit later took up a similar case and in Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015) (see SAA 2015-40), ruling that “Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here.” (citations omitted).

Seventh Circuit: We Beg to Differ

A unanimous Seventh Circuit goes the other way in Lewis v. Epic Systems, Inc., No. 15-cv-82-bbc (7th Cir. May 26, 2016), a case involving a Fair Labor Standards Act (“FLSA”) claim. Says the Court: “We conclude that, insofar as it prohibits collective action, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA.” The Court acknowledges the split, but says the other Circuits got it wrong. In this Court’s view, there is no conflict between the NLRA and the Federal Arbitration Act. Why? Because FAA section 2 allows the arbitration agreement to be resisted. This section says that PDAAs are enforceable, “save upon such grounds as exist at law or in equity for the revocation of any contract.” Because the arbitration clause with the CAW is violative of the NLRA, the Court reasoned, “[n]othing in the FAA saves the ban on collective action” and not enforcing it was consistent with the FAA. In short, the Court rules, there is no conflict between the NLRA and the FAA; in fact, the statutes are harmonized in this instance.

Eight Circuit: A Split Decision on PDAAs with CAWs and the NLRA

Cellular Sales of Missouri LLC v.  NLRB, Nos. 15-1620 & 15-1860 (8th Cir. June 2, 2016), offers yet another view in a case also involving a FLSA claim. Like the Fifth Circuit, this Court was not troubled by the employer’s attempt to enforce the PDAA. Citing Horton, Murphy Oil and its own holding in Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013), the Court concludes that “Cellular Sales did not violate section 8(a)(1) by requiring its employees to enter into an arbitration agreement that included a waiver of class or collective actions in all forums to resolve employment-related disputes. Accordingly, we grant the petition for review and decline to enforce the Board’s order with respect to this issue.” But, alas, the PDAA was not out of the woods. Why? Although the PDAA and CAW did not violate the part of NLRA that bars interference with employees’ ability to engage in “concerted activities,” it did run afoul of the prohibition on barring or restricting the employees’ right to seek relief from the NLRB. A review of the statute’s language is helpful at this juncture. Section 8(a)(1) reads in pertinent part: “It shall be an unfair labor practice for an employer … to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 157 [section 7] of this title. That section states: “Employees shall have the right to … engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection….” (emphasis added). The Court upheld the NLRB’s ruling that Cellular Sales violated NLRA section 8(a)(1) by use of the PDAA and CAW, “because its employees would reasonably interpret the arbitration agreement to limit or preclude their rights to file unfair labor practice charges with the Board.”

(ed: *We have previously predicted that, sooner or later, the right cases would come along to get this issue before SCOTUS. These two might be the ones. If ever an issue cried out to be harmonized, this one in our view is one. **Speaking of other circuits, a similar case, Morris v. Ernst & Young, No. 13-16599 was argued in the Ninth Circuit in November. There, the Trial Court enforced the PDAA. The oral argument can be viewed here. ***We assume the CAWs would not be enforceable for employees covered by FINRA’s regulatory regime. As described in Regulatory Notice 12-28 (June 2012), FINRA’s Industry Code Rule 13204(b) since July 2012 specifically makes non-arbitrable “[c]ollective action claims under the Fair Labor Standards Act, the Age Discrimination in Employment Act, or the Equal Pay Act of 1963.”) (SAC Ref. No. 2016-22-03)

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