DOJ, reversing course, opposes NLRB ban on class action waivers

by Ballard Spahr LLP

In an unusual turn-about, the U.S. Justice Department has reconsidered its earlier position in a set of closely watched arbitration cases that the Supreme Court will decide next term and filed an amicus brief supporting the use of class action waivers in employment agreements.

Previously, under the Obama administration, the DOJ had sided with the National Labor Relations Board (NLRB) in arguing that federal labor statutes prohibit employers from including such waivers in their employees’ contracts.  Nevertheless, in its amicus brief filed on June 16, Acting Solicitor General Jeffery B. Wall advised the Court that the DOJ has “reconsidered the issue and has reached the opposite conclusion” that the NLRB’s ban on class action waivers failed to give “adequate weight to the congressional policy favoring enforcement of arbitration agreements that is reflected in the FAA [Federal Arbitration Act]” and also failed “to respect the FAA’s directive that arbitration agreements should be enforced unless they run afoul of arbitration-neutral rules of contract validity.”

In January, the Supreme Court granted certiorari in three circuit court cases that rendered conflicting results on the enforceability of class action waivers in employment agreements.  Opinions of the Seventh and Ninth Circuits agreed with the NLRB’s position that class action waivers in employment agreements violate Section 7 of the National Labor Relations Act, which protects an employee’s right to engage in “other protected activities.”  The Fifth Circuit, however, rejected the NLRB’s position and held that class action waivers in employment arbitration agreements are enforceable under the FAA because the use of class or collective action procedures does not constitute a substantive right protected by Section 7.

A key issue is whether the Court will apply the test set forth in its 2012 decision in CompuCredit Corp. v. Greenwood for determining the arbitrability of a federal claim.  That case held that if a federal statute does not expressly prohibit arbitration, it is trumped by the FAA and claims brought under the statute are arbitrable.  The DOJ’s amicus brief relies heavily on CompuCredit, arguing that:

CompuCredit demonstrates the formidable burden a party bears when seeking to show that “the FAA’s mandate has been ‘overridden by a contrary congressional command.’ ”  ….  One feature of CompuCredit and other decisions is especially notable for present purposes:  When examining text and legislative history, the Court has looked for evidence that Congress intended to address arbitration agreements in particular.  A statute’s general reference to litigation rights, even when combined with a provision forbidding the waiver of statutory protections, is insufficient to overcome the FAA’s presumption of enforceability.

The amicus brief, which liberally cites not only CompuCredit but also the Court’s landmark decisions in AT&T Mobility, LLC v. Concepcion and American Express Co. v. Italian Colors Restaurants upholding the use of class action waivers in consumer arbitration agreements, aligns the DOJ’s position with these recent pro-arbitration rulings and with the consumer financial services industry’s strong pro-arbitration positions.  The DOJ’s filing coincides with the CFPB’s efforts to prohibit consumer financial services companies from including class action waivers in their customer agreements.  In May 2016, the CFPB issued a proposed rule finding a ban on such waivers to be in the public interest and for the protection of consumers.  However, the rule has not yet been made final.  While the CFPB has publically attributed this to the time needed to review the thousands of comments it received on the proposed rule, many observers speculate that the change in administrations may also be delaying issuance of a final rule.  Indeed, the House of Representatives recently passed the Financial Choice Act which would repeal the Dodd-Frank Act section authorizing the CFPB to regulate consumer arbitration agreements in financial services contracts.

There have been rumors that the CFPB may attempt to finalize the arbitration rule by the end of this summer.  Importantly, however, under Dodd-Frank and the Administrative Procedures Act, even if the rule became final it would not become effective for 210 days.  During that grandfather period, one or more events could stop any final arbitration rule from taking effect.  For example, the Financial Choice Act could become law; Congress could disapprove the rule under the Congressional Review Act; and/or a ruling by the D.C. Circuit in PHH v. CFPB that the agency’s structure is unconstitutional could derail the rule.  The DOJ’s amicus brief is yet another event that should give the CFPB pause in considering whether and when to finalize the proposed rule as it demonstrates that the current administration strongly supports the use of class action waivers in arbitration agreements.

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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