Class Action Waiver Cases Moved to the Top of Supreme Court's October Term

by Clark Hill PLC

The U.S. Supreme Court recently announced that on the first day of its upcoming October term it would hear oral argument on three consolidated cases addressing whether employers' arbitration agreements that require employees to resolve employment-related disputes through individual arbitration proceedings rather than in class and collective actions ("class action waivers") violate the National Labor Relations Act (NLRA) provision that non-supervisory employees have a right to engage in "concerted activities" for mutual aid and protection.

It is hard to overstate the potential impact of the Supreme Court's ruling on these class action waiver cases. In the meantime, federal and state lower courts continue to churn out conflicting decisions on the validity of class action waivers.

Because so many employment claims are currently brought as class actions or collective actions (over 50% of US companies faced employment class actions in 2016), if the Supreme Court decides that employers can prevent employment class actions by having employees sign class action waivers (either as part of arbitration agreements or as stand-alone documents), it could effectively end employment class action litigation in the United States. However, if the Supreme Court goes the other way and decides that the NLRA invalidates employment class action waivers, it will effectively change class actions from being procedural vehicles for resolving disputes created by court rules, into a substantive right that will not be waivable by employees and may not be easily altered through future rule changes.

Because the NLRA protects employees' "concerted activities" regardless of whether they are represented by a union, the Supreme Court's decision will affect union and non-union employees in all kinds of workplaces and industries across the country. The Court's decision could significantly expand or contract the scope of employee litigation tactics that are protected by this nation's primary labor law. In addition, one of the cases before the Supreme Court involves the National Labor Relations Board (NLRB) and its determination that employment class action waivers violate the NLRA. In NLRB v. Murphy Oil USA, Inc., the Supreme Court may have to decide how much deference courts must give to the NLRB's interpretations of the law that it was created to enforce. The other two cases before the Supreme Court are decisions by the Seventh Circuit in Epic Systems Corp. v. Lewis and the Ninth Circuit in Ernst & Young LLP v. Morris, both of which adopted the NLRB's view that the NLRA invalidates employment class action waivers in employment arbitration agreements. Since the Supreme Court agreed to hear these cases, the Sixth Circuit and the D.C. Circuit have followed the Seventh and Ninth Circuit. In the opposite camp is a new decision by the Fifth Circuit in Convergys Corporation v. NLRB, (decided August 7, 2017) holding that the NLRA did not invalidate a class action waiver that prevented class action litigation and did not involve arbitration. In accord with the Fifth Circuit are the Second Circuit and Eighth Circuit in Sutherland v. Ernest & Young LLP and Owen v. Bristol Care, Inc., respectively. Both cases rejected the argument that class action waivers are prohibited by the NLRA. However, both cases were decided before the Ninth Circuit's decision in Morris and the Seventh Circuit's decision in Lewis and before the Supreme Court agreed to review the issue. 

State courts have also joined the fray, most recently when a divided New York state appellate court ruled in Gold v. New York Life Ins. Co. that class action waivers violate the NLRA. This puts state and federal courts in New York on opposite sides of this issue. The Supreme Court's vote is expected to be a close one. The most recent Supreme Court appointee, Neil Gorsuch, formerly a judge on the Tenth Circuit, may well cast the deciding vote. Commentators have tried to read the tea leaves in his opinions and dissents while on the Tenth Circuit in an effort to predict how he will vote as a Supreme Court Justice in this case. However, while he was an appellate court judge, the Tenth Circuit did not decide whether employment class action waivers violate the NLRA.

What Should Employers Do Now?

Employers that are currently litigating the validity of their existing class action waivers have sometimes sought stays of judicial proceedings until the Supreme Court decides the issue. However, because the Supreme Court's decision is not expected until early 2018, requests for such lengthy stays have not always been successful. For employers that do not presently ask employees to sign class action waivers, many are taking a wait-and-see attitude. Only one thing is clear: employers across the country should be following the upcoming argument very closely because the Supreme Court's decision in this case will significantly impact the future of employment class action litigation, the scope of labor law protections, and how courts will view the determinations of federal administrative agencies like the NLRB going forward. Stay tuned for further developments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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