Friday, December 16, 2016

Class Action Update: U.S. Supreme Court is Expected to Grant Certiorari to Resolve the Circuit Split Over Whether Class-Action Waivers in Employment Arbitration Agreements are Enforceable

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.

In addition to the certiorari petition filed in Murphy Oil, petitions for certiorari have also been filed in the decisions rendered by the Courts of Appeals for the 2nd, 7th, and 9th Circuits. Consequently, petitioners in four of the five Circuit decisions involving class-action waivers are seeking Supreme Court review, although the 2nd Circuit petitioner does not seek plenary review and instead requests that the Murphy Oil petition be granted. The Supreme Court set conference on all four of these petitions for January 6, 2017, and we should expect a ruling from the court as to whether it will grant certiorari on any of the petitions shortly thereafter.

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:
  1. 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;
  2. 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
  3. 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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