Supreme Court Gives Employers “Epic” Win: Upholding Class Action Waivers in Arbitration Agreements and Rejecting Obama NLRB
In Epic Systems Corp. v. Lewis (a companion case to NLRB v. Murphy Oil USA and Ernst & Young v. Morris), the U.S. Supreme Court finally and decisively put to rest the Obama-era NLRB’s aggressive contention that the National Labor Relations Act (NLRA) prevented class action waiver in employees arbitration agreements, finding such waivers are both protected by the Federal Arbitration Act (FAA) and not prohibited by the NLRA. In its 5-4 decision, the Court explained that the NLRB’s interpretation of the FAA was not entitled to deference because it is not the agency charged by Congress with the interpretation and enforcement of that statute.
The Supreme Court started with two questions:
Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or do employees have a right to always bring their claims in class or collective actions, no matter what they agreed with their employers?
The Court first answered these questions plainly, noting that though as a matter of policy there could be a debate as to what the answer should be, “as a matter of the law the answer is clear” that class action waivers are legal under the NLRA and enforceable under the FAA, going on to systematically dismantle the arguments made by former NLRB General Counsel Richard Griffin, Jr. and related labor union and plaintiffs’ attorneys in amici briefs filed with the Court.
The Court’s majority opinion authored by Justice Gorsuch started with some history, noting that for the first 77 years of the NLRA there had been no argument by the Board that class action waivers violated the NLRA and that the FAA and the NLRA coexisted perfectly without conflict. As recently as 2010 the NLRB’s General Counsel took the position that class action waivers did not violate the NLRA. It was not until the Obama-era NLRB’s decision in the D.R. Horton that the NLRB took the then novel position that the NLRA’s “other concerted activities” protections created a substantive right to class action procedures. The Court then recited decades of precedent rejecting the relatively newly found aggressive NLRB position.
With respect to the FAA the Court reinforced that the courts must rigorously enforce arbitration agreements by their terms. The Court soundly rejected the NLRB’s argument that the FAA’s savings clause supported the NLRB’s position, explaining that the savings clause only applies to defenses applicable to any contract disputes, such as fraud, duress and unconscionably. In what could be helpful to arguments that other attempts to limit arbitration which are found in or being proposed in various state and local laws such as prohibiting arbitration of harassment claims or wage and hour claims under California’s Private Attorney General Act (PAGA) should be found valid notwithstanding the clear language of the FAA, the Court pointed out that the purpose of the FAA was to combat historic opposition to arbitration and, citing AT&T Mobility v. Conception’s validation of class action waivers generally, warned that the courts must guard against attempts to pervert the purposes of the FAA:
Just as judicial antagonism toward arbitration before the Arbitration Act’s enactment “manifested itself in a great variety of devices and formulas declaring arbitration against public policy,” Concepcion teaches that we must be alert to new devices and formulas that would achieve much the same result today.
With respect to the NLRA the Court, in addition to noting the historic context of both enforcement of arbitration agreements and the statute’s coexistence with the FAA, the Court observed that the NLRA’s protection of “other concerted activities” applies to subjects related to the right to organize, be represented by a union and bargain collectively, as well as other similar efforts of employees to freely associate with their coworkers in the workplace. Though not directly addressed by the Court, the language of the Opinion implies a much narrower reading of Section 7 rights under the NLRA than has historically been exposed by the Board and courts.
Finally, the Court addressed the fundamental underlying reality of the issue that the Board and the plaintiff employees’ position is an attempt to squeeze an elephant through a mouse hole by trying to use a novel interpretation of the NLRA to enforce FLSA rights in a manner which circumvents decades of established precedence. Ultimately, the Court ruled that in an employee can agree to arbitrate their FLSA rights under the FLSA, certainly nothing in the NLRA operates to prohibit such agreements.