In our September 23rd post,
we reported that the National Labor Relations Board (NLRB) and the U.S.
Department of Justice filed a petition for certiorari in NLRB v. Murphy Oil decided by the 5th Circuit Court of Appeals,
asking the U.S. Supreme Court to determine whether arbitration clauses
requiring workers to arbitrate disputes individually—and not on the basis of
collective or class actions (class-action waivers)—are invalid under federal
labor law. As we reported in September, the petition was filed in the face of a
clear split among the federal Circuit Courts of Appeals. The U.S. Courts of
Appeals for the 2nd, 5th, and 8th Circuits have held that class-action waivers are
enforceable in arbitration agreements. The 7th and 9th Circuits have held that class-action
waivers in arbitration agreements are unenforceable under the National Labor
Relations Act (NLRA), reasoning that the NLRA protects “concerted activity,” which
is the right of non-management employees to act together in relation to
work-related claims, and that class actions are a form of concerted activity.
October was a busy month for amicus curiae filings in these pending
petitions—in total, 17 amicus curiae briefs have been filed, including briefs
filed on behalf of, among others, The Chamber of Commerce of the United States,
The Retail Litigation Center, Inc., New England Legal Foundation, The Business
Roundtable, Equal Employment Advisory Council, and Public Citizen, Inc.
Taken collectively, the issues presented by the four certiorari petitions
generally include:
- analyzing the NLRA, as the basis for holding class-action waivers unenforceable, in concert with the Federal Arbitration Act (FAA), which establishes a liberal federal policy favoring arbitration and generally mandates enforcement of arbitration clauses;
- determining whether an arbitration agreement precluding class-action proceedings is invalid under Supreme Court precedent because it operates as a prospective waiver of a party’s right to pursue a statutory remedy; and
- determining whether the FAA’s saving clause allows arbitration agreements to be denied effect when grounds at law or in equity support revocation of a contract.
At the heart of the controversy is whether the use of Federal Rule of Civil Procedure 23 (which governs class
actions), or its counterpart, Section 16(b) of the FLSA (which governs
collective actions)(collectively “Rule 23”), is a substantive or procedural
right. Generally, courts upholding class-action waivers in arbitration
agreements have held that Rule 23 is a procedural device which is used to bring
substantive claims, but the use of Rule 23 is not a substantive right in and of
itself. On the other hand, courts invalidating class-action waivers in
arbitration agreements interpret the NLRA as having one substantive provision (Section 7) which extends protection to
concerted activity thereby making the use of Rule 23 a substantive right. The
distinction is critical because substantive rights cannot be waived in an
arbitration agreement under Supreme Court precedent.
A number of federal District Courts that reside in federal Circuits
that have not yet ruled on the issue of
class-action waivers have recently rendered decisions both validating and
invalidating such waivers in employment agreements. For example, the District
Court for the Eastern District of Michigan (August 2016) and the District Court
for the District of Maine (September 2016) have invalidated these class-action
waivers; the District Court for the District of Colorado has upheld such
class-action waivers (May 2016); and the District Court for the District of Massachusetts
has issued two conflicting rulings within
its district only weeks apart (July 2016; August 2016).
Recently, on December 9, 2016, the District Court for the Southern
District of California granted an employee’s motion for reconsideration and
reversed its prior holding dismissing employment claims in favor of
arbitration. The 9th Circuit’s Morris
decision was issued subsequent to the district court’s dismissal order, and based
on the new 9th Circuit precedent, the district court reinstated the previously
dismissed action.
Here in the 8th Circuit, which governs Minnesota, the state of the law
is unchanged—class-action waiver provisions in employment contracts are
generally enforced. But, litigation has been proceeding and conflicting rulings
have been and will continue to be issued until the Supreme Court decides this significant
issue, the resolution of which will impact thousands of employers and
potentially millions of American workers. Given the split in the Circuit Courts
and among and within the District Courts, the Supreme Court is expected to
grant certiorari on some of or all pending petitions in a manner that will
allow it to address all issues raised by them. That decision is expected in
early 2017.
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