U.S. Supreme Court to Consider Propriety of Class Action Waivers in Mandatory Arbitration Agreements

Over the last several years, federal courts have relied on the Federal Arbitration Act (“FAA”) in enforcing predispute mandatory arbitration agreements between employers and employees, which require an individual employee to waive his or her rights to assert employment related claims in court, in favor of arbitration.  Such agreements, however, do not by themselves mandate that class or collective actions be submitted in court or arbitration.  Consequently, employers have included class and collective action waiver provisions in such agreements; these waivers serve to  prevent employees from bringing class and collective claims in any forum.

The National Labor Relations Board (“NLRB”) has opposed class and collection action waivers, and has held that requiring employees to agree to such waivers as a condition of employment violates the National Labor Relations Act (“NLRA”).  Not surprisingly, there has been a split among the U.S. Circuit Courts of Appeal, with some disagreeing with the NLRB and others agreeing that class and collective action waivers violate the NLRA.

U.S. Circuit Courts Finding No Violation of the NLRA

The U.S. Circuit Courts that have found no violation of the NLRA through the waiver of class and collective actions are the Fifth Circuit (which covers Louisiana, Mississippi, and Texas); the Second Circuit (which covers New York, Connecticut and Vermont); and the Eighth Circuit (which covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.)

U.S. Circuit Courts Finding a Violation of the NLRA 

The Circuit Courts finding that mandatory class and collective action waivers violate the NLRA are the Seventh Circuit (which covers Illinois, Indiana and Wisconsin)l and the Ninth Circuit (which covers Alaska, Arizona, California, Idaho, Washington, Hawaii, Nevada, Montana and Oregon).

U.S. Supreme Court Decides to Resolve the Split

On January 13, 2017, the Supreme Court agreed to hear cases  on this issue from the Fifth (National Labor Relations Board v. Murphy Oil USA, Case No. 16-307),  Seventh (Epic Systems Corp. v. Lewis, Case No. 16-285) and Ninth (Ernst & Young LLP v. Morris, Case No. 16-300) Circuits.  The Supreme Court’s decision will have a profound impact on employment cases, particularly those alleging wage and hour violations under the Fair Labor Standards Act (FLSA).  If the Court upholds the Seventh and Ninth Circuits’ approach, then employers will have to agree to allow class and collective actions  to either proceed in arbitration or court.  It is more likely that in such a scenario, employers would exclude class and collective actions from arbitration and simply permit employees to file them in court.  The next Justice appointment may make a significant impact on the direction the Court will go, because currently there are only 8 Supreme Court Justices, which raises the possibility of a 4-4 decision that would simply preserve the split.

We will keep you posted on these and other developments.