As a condition of employment, employers often require their employees to sign arbitration agreements requiring that all employment related disputes be resolved by means of individual, rather than collective, arbitration. Employers that include class and collective action waivers in their arbitration agreements will soon learn, definitively, whether such provisions are lawful.
On January 13, 2017, the United States Supreme Court granted certiorari in three cases to decide whether an agreement to submit workplace disputes to individual arbitration and waive class and collective proceedings is enforceable under the Federal Arbitration Act (FAA), despite the National Labor Relations Act (NLRA). The cases are Ernst & Young LLP v. Morris Case No. 16-300; NLRB v. Murphy Oil USA, Inc., Case No. 16-307; and Epic Sys. Corp. v. Lewis, Case No. 16-285. Oral argument is scheduled during the October 2017 term.
Section 7 of the NLRA provides that employees “shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection ….” 29 U.S.C. § 157. Section 8 enforces Section 7 by providing that it shall be an unfair labor practice for an employer to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in [Section 7].” 29 U.S.C. § 158(a). The National Labor Relations Board (the NLRB) is empowered to prevent any person from engaging in any unfair labor practice affecting commerce.
In 2012, the NLRB determined that agreements between employers and employees to arbitrate disputes on an individual basis constitute an unfair labor practice because, by precluding class actions, they interfere with “concerted activities” protected under Section 7 of the NLRA. On appeal, the Fifth Circuit overruled the decision finding that that the NLRB did not give proper weight to the FAA and the existing body of jurisprudence applying this law, which establish a liberal federal policy favoring arbitration agreements.
By rejecting the NLRB’s decision, the Fifth Circuit joined the Second and Eighth Circuits in holding that arbitration agreements containing class action waivers are enforceable. The Seventh and Ninth Circuits, on the other hand, have held that Sections 7 and 8 of the NLRA render waivers of class or collective arbitration unenforceable under the FAA, thus creating a circuit split.
The circuit split has created uncertainty for employers operating across multiple jurisdictions, as such multi-state employers are currently subject to disparate laws varying in applicability as a function of where a particular employee resides. Employees within the purview of the Seventh and Ninth Circuits are subject to a different legal regime than those in the Second, Fifth, and Eight Circuits. The split, however, should soon be resolved, bringing uniformity to this area of employment law.