Second Circuit Reaffirms That Individual Arbitration Clauses Do Not Violate Federal Labor Law

SUMMARY

In Patterson v. Raymours Furniture Co., Inc., No. 15-2820-cv, the Second Circuit held that employment arbitration agreements containing a waiver of the right to bring class-action or collective-action claims are enforceable and do not violate federal labor law. In a summary order, the court of appeals held that it was bound by a 2013 Second Circuit decision rendered by a different panel that found such waivers can be enforced. The Second Circuit’s reaffirmation of that decision aligns it with decisions of the Fifth and Eighth Circuits, whereas recent decisions of the Seventh and Ninth Circuits have adopted the position of the National Labor Relations Board (“Board”) that such waivers are unenforceable. This decision means that employers in the Second Circuit likely need not be concerned that the Board will charge them with unfair labor practices for maintaining employment arbitration agreements containing class or collective waivers; however, the Board has continued to press its attacks on such agreements in circuits in which its theories have not been rejected, and the Second Circuit’s decision may make it even more likely that the United States Supreme Court will review the question at some point.

BACKGROUND

Section 7 of the National Labor Relations Act (“NLRA”) provides that “[e]mployees shall have the right to . . . engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.”1  Employers may not “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [Section 7].”2 Section 2 of the Norris-LaGuardia Act (“NLGA”) similarly provides that employees “shall be free from the interference, restraint, or coercion of employers” in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”3

Since 2012, the Board has taken the position that the collective pursuit of workplace grievances through litigation or arbitration is conduct protected by Section 7, and thus an employer violates the NLRA and NLGA “when it requires employees covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours or other working conditions against the employer in any forum, arbitral or judicial.”4   The Board thus has concluded that employers may not condition employment on “a mandatory arbitration agreement provision that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.”5

Many federal district courts have considered the Board’s theories and overwhelmingly have rejected them. The courts of appeals recently became divided over the question. The Fifth Circuit has twice rejected the Board’s reasoning, ruling that the NLRB has failed to give “proper weight to the Federal Arbitration Act” (“FAA”).6    Under the FAA, “arbitration agreements must be enforced according to their terms,” and “[t]he NLRA should not be understood to contain a congressional command overriding application of the FAA.”7 The Eighth Circuit has similarly concluded that “arbitration agreements containing class waivers [are] enforceable.”8 In its earlier decision in Sutherland v. Ernst & Young LLP, the Second Circuit joined the Fifth and Eighth Circuits in declining to adopt the Board’s reasoning.9 The Board nonetheless continued to press its position in circuits that had not ruled on the question,10 and the Seventh and Ninth Circuits earlier this year adopted the Board’s position.11

The dispute in Patterson arose when Raymours Furniture Co., Inc., a furniture retailer, added class-action and collective-action waivers to its employment agreement.12 Plaintiff Connie Patterson brought a putative collective action and class action alleging that Raymours had violated the Fair Labor Standards Act and New York Labor Law, and Raymours moved to compel arbitration. The district court granted Raymours’ motion pursuant to the provisions of Patterson’s employment agreement.13 Relying in part on the Second Circuit’s decision in Sutherland, the district court rejected Patterson’s argument that the class-action waiver was unenforceable under the NLRA.14

THE SECOND CIRCUIT’S DECISION

In Friday’s decision, the Second Circuit summarily affirmed the district court’s holding that Raymours’ “class action waiver was enforceable.”15 The court of appeals noted that “[t]he only question presented on appeal is whether the [arbitration provision’s] prohibition of class or collective adjudication of work- related claims illegally restricts employees’ substantive rights under the NLRA and the [NLGA], and is unenforceable under the FAA.”16   It concluded that “[i]f we were writing on a clean slate, we might well be persuaded . . . to join the Seventh and Ninth Circuits and hold that the [arbitration provision’s] waiver of collective action is unenforceable[, b]ut we are bound by our Court’s decision in Sutherland v. Ernst & Young LLP[,] which aligns our Circuit on the other side of the split.”17

IMPLICATIONS

The Second Circuit’s decision reaffirms that employment arbitration agreements containing class-action and collective-action waivers remain enforceable within that Circuit. But as the Second Circuit recognized, the federal courts of appeals are “irreconcilably split on the question.”18  Litigants have begun to  seek  Supreme  Court  review.19      Employers  therefore  should  be  aware  of  the  legal  uncertainty surrounding the enforceability of class-action and collective-action waivers in creating their employment policies, and continue to monitor litigation in the Supreme Court and courts of appeals that have not yet addressed the question.