Why it matters

The Supreme Court heard oral argument in a case that will decide the validity of class or collective action waivers in arbitration agreements and appeared—to no one’s surprise—split on the issue. The consolidated oral argument in a trio of cases from the U.S. Court of Appeals for the Fifth, Seventh and Ninth Circuits (the first of the Court’s 2017–2018 term) focused on the intersection of the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). While some members of the Court—such as Justices Stephen Breyer and Ruth Bader Ginsburg, who told counsel for the employers, “You recognize that this contract … there is no true bargaining”)—appeared to believe that such arbitration agreements are irreconcilable with the NLRA, Chief Justice John Roberts and Justice Samuel Alito seemed to adopt the opposite position. No questions were asked by Justices Clarence Thomas and Neil Gorsuch, leaving Justice Anthony Kennedy as the likely swing vote in the closely watched case. A decision is expected from the Court later this term.

Detailed discussion

The dispute first began in 2012, when a divided panel of the National Labor Relations Board (NLRB) ruled in D.R. Horton that an employment agreement waiving class or collective actions violated the National Labor Relations Act (NLRA). Although the U.S. Court of Appeals, Fifth Circuit reversed the decision in 2013, the NLRB was undeterred and maintained its position.

A split then developed among the federal appellate courts. Faced with the question for a second time in Murphy Oil, the Fifth Circuit stood fast and again rejected the NLRB’s argument. “Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here,” the panel wrote. Similar holdings followed from the Second and Eighth Circuits.

But other courts agreed with the NLRB, including the Seventh and Ninth Circuits in Epic Systems v. Lewis and Morris v. Ernst & Young, respectively. In Morris, for example, the Ninth Circuit noted that the NLRB is tasked with defining the scope of NLRA rights, attaching deference to the NLRB’s interpretation of the statute.

“Section 7 protects a range of concerted employee activity, including the right to ‘seek to improve working conditions through resort to administrative and judicial forums,” the court stated. “Concerted action is the basic tenet of federal labor policy, and has formed the core of every significant federal labor statute leading up to the NLRA.”

Given the division among the courts, both sides asked the Supreme Court to weigh in on the issue.

The justices agreed, granting certiorari and consolidating Murphy OilMorris and Lewis, and allotting one hour for oral argument on the question of “[w]hether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.”

At oral argument, the philosophically divided justices appeared just that—divided. On one end of the spectrum, Justice Stephen Breyer disagreed that the case was about arbitration, instead suggesting it was really about labor law. “I’m worried about what you are saying is overturning labor law that goes back to … the entire heart of the New Deal,” he told counsel for the employers.

Justice Ruth Bader Ginsburg seemed to be on the same page, characterizing employee agreements with class action waivers as “yellow dog contracts.” “You recognize that this contract … there is no true bargaining,” she said. “It’s the employer [that] says you want to work here, you sign this … That is, there is no true liberty to contract on the part of the employee, and that’s what Norris-LaGuardia wanted to exclude.”

Justices Elena Kagan and Sonia Sotomayor gave the impression of leaning in favor of employees in their comments and questions, while Justices Clarence Thomas and Neil Gorsuch—contrary to his prior chatty oral argument appearances—remained silent.

Sparking hope for employers, Chief Justice John Roberts and Justice Samuel Alito seemed skeptical of the NLRB’s position, with Justice Alito asking questions regarding “the scope” of the right to engage in concerted activity.

In an interesting line of questioning, likely swing vote Justice Anthony Kennedy suggested that as long as other types of concerted activity are still permitted, an arbitration agreement could lawfully ban class or collective actions.

For example, if three employees all hired the same lawyer to represent them against an employer, “they’re proceeding concertedly,” Justice Kennedy said. “They have a single attorney. They’re presenting their case. They’re going to be decided maybe in three different hearings.”

To view the transcript of the oral argument, click here.