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Momentum Continues Against Validity of Class and Collection Action Waivers – Delaware District Court Judge Refuses to Enforce Class Action Waiver

We have been closely monitoring the battle over the legality of class and collective action waivers under the National Labor Relations Act (NLRA). The National Labor Relations Board (NLRB) has been steadfast in its position that such waivers run afoul of the NLRA.  The Fifth Circuit was the first Circuit Court to weigh in, consistently holding in a pair of decisions in 2012 and 2014, and again in 2016 that class and collective action waivers are permissible and enforceable.  The Fifth Circuit rule presented a significant problem for the NLRB’s position as employers with sufficient contacts in Fifth Circuit states could appeal an NLRB decision invalidating their arbitration agreements to the Fifth Circuit.

However, earlier this year, the Seventh Circuit became the first Circuit Court to agree with the NLRB’s stance against class and collective action waivers.  Soon thereafter, the Ninth Circuit also joined the Seventh Circuit and the NLRB, thereby widening the split on the enforceability of the waivers.

Although the issue has yet to be decided by the Third Circuit, the momentum from the recent Seventh and Ninth Circuit decisions may have trickled eastward to the Third Circuit. Earlier this week, a Delaware bankruptcy judge refused to enforce a class action waiver in an employee arbitration agreement because the Court determined the waiver violated the NLRA.  Noting the issue was an issue of first impression in the Third Circuit, Judge Brendan L. Shannon determined “that a class-action waiver provision violates substantive rights at the heart of the NLRA.”  Notably, the Court separately determined that the entire arbitration agreement was unenforceable as a result of the invalid class action waiver even though it contained an opt-out provision for employees.

The Delaware decision is a District Court decision and is not the binding law of the Third Circuit.  However, it does serve as a reminder of the deepening split away from the previously unchallenged Fifth Circuit rule.  Employers are advised to review the law of the Circuit(s) in which their employees and operations are based.  Employers should also be aware that the decision making split between the Circuit Courts will likely lead to review by the U.S. Supreme Court in the near future.

The Delaware bankruptcy case is In re: Fresh & Easy, LLC Case No. 1:15-bk-12220 in the U.S. Bankruptcy Court for the District of Delaware.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Associate

Shar Bahmani focuses his practice on labor and employment matters, ERISA litigation and general civil litigation. Shar’s experience includes defending employers in a wide variety of employment disputes arising under federal and state employment laws, including wrongful termination, discrimination, harassment, retaliation, leave entitlements, hostile work environment, non-competition, non-solicitation, and wage and hour cases. He has experience representing clients before federal and state courts, administrative agencies and in arbitration proceedings. Shar works with...

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