Eighth Circuit Weighs in On Legality of Class Action Waivers

by FordHarrison

Executive Summary: On June 2, 2016, a three-judge panel of the U.S. Court of Appeals for the Eighth Circuit held that an arbitration agreement containing a class action waiver was lawful under the National Labor Relations Act (NLRA). Cellular Sales of Missouri, LLC v. NLRB, Nos. 15-1620 and 15-1860. The Eighth Circuit covers Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota. Only a week earlier, on May 26, a panel of the Seventh Circuit Court of Appeals held that class action waivers are unlawful under the NLRA. Lewis v. Epic Systems Corporation, No. 15-2997. The Fifth Circuit has previously held that class action waivers are lawful, rendering such agreements enforceable in Louisiana, Mississippi, and Texas. For more information on these decisions, please see our June 1, 2016 Alert, Seventh Circuit Decision Rejecting Class Action Waiver Sets Stage for Supreme Court Review and our December 4, 2013 Alert, Fifth Circuit Further Strengthens Class Action Waivers with Latest DR Horton Decision. The split in the circuit courts increases the probability that the U.S. Supreme Court will eventually decide this issue.

Facts of Cellular Sales of Missouri, LLC

Cellular Sales hired John Bauer and asked him to sign an agreement in which he agreed to individually arbitrate any claims related to his employment and to waive the right to any class or collective proceeding as a condition of his employment.

After Bauer's employment ended, he filed a class-action lawsuit alleging violations of the Fair Labor Standards Act (FLSA). Cellular Sales moved to dismiss the lawsuit and compel arbitration consistent with the arbitration agreement Bauer signed. The district court granted Cellular Sales' motion. Bauer filed an arbitration claim, which was ultimately settled. He also filed an unfair labor practice charge with the National Labor Relations Board (NLRB) alleging that Cellular Sales' class action waiver interfered with his right to engage in protected concerted activity in violation of Section 8(a)(1) of the NLRA.

An NLRB Administrative Law Judge (ALJ) concluded that Cellular Sales' arbitration agreement violated the NLRA. In addition, the ALJ found that Cellular Sales had violated the NLRA by moving to dismiss Bauer's class-action lawsuit, i.e. seeking to enforce the unlawful agreement. The NLRB affirmed the ALJ's decision, and Cellular Sales petitioned the U.S. Court of Appeals for the Eighth Circuit for review while the NLRB filed a cross-application for enforcement.

The Eighth Circuit's Opinion

The Eighth Circuit held that Cellular Sales did not violate Section 8(a)(1) of the NLRA by requiring its employees to enter into an arbitration agreement waiving class or collective actions in all forums. The NLRB conceded that the Eighth Circuit was bound by its decision in Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013), wherein the Eighth Circuit joined "fellow circuits that have held that arbitration agreements containing class waivers are enforceable in claims brought under the FLSA," albeit without addressing the NLRB's reasoning articulated in its decision Murphy Oil U.S.A, Inc. Accordingly, the Court refused to enforce the Board's order on this issue.  

Employers' Bottom Line

Given the existing split among the federal circuit courts of appeal, and the NLRB's zealous pursuit of this issue, the legality of class and/or collective action waivers will likely remain unresolved until the United States Supreme Court weighs in. For now, the enforceability of class and collective action waivers will be determined on a circuit-by-circuit basis.

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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