The Sixth Circuit just became the third federal court of appeals to hold that an arbitration provision requiring employees covered by the National Labor Relations Act (NLRA) to arbitrate individually all employment-related claims is not enforceable. Nat’l Labor Relations Bd. v. Alternative Entm’t, Inc., No. 16-1385, 2017 WL 2297620, at *9 (6th Cir. May 26, 2017). The court’s decision sides with the Seventh and Ninth Circuits, which have reached similar holdings, to create a slight majority in the circuit split on the enforceability of such provisions. See Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted (U.S. Jan. 13, 2017); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted (U.S. Jan. 13, 2017). The Fifth and Eighth Circuits have reached the opposite conclusion, holding that class and collective action waivers are indeed enforceable. See NLRB v. Murphy Oil USA, Inc., 808 F.3d 1013 (5th Cir. 2015) (upholding its earlier holding in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013)), cert. granted (U.S. Jan. 13, 2017); Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772, 776 (8th Cir. 2016) (upholding its earlier holding in Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013)).
In January, the United States Supreme Court granted certiorari review of Lewis, Morris, and Murphy Oil, which are now consolidated, to address whether class and collective action waivers in employment arbitration agreements are enforceable. See NLRB v. Murphy Oil USA, Inc., 137 S.Ct. 809 (2017).
The issue in these cases involves two seemingly conflicting federal statutes: the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., which states that arbitration agreements are valid, irrevocable and enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2, and the NLRA, 29 U.S.C. § 157 (section 7), which provides employees with the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection….” The perceived tension between the statutes arises from the apparent contradiction between the FAA, on the one hand, which “manifest[s]” a “liberal federal policy favoring arbitration agreements,” and section 7 of the NLRA, on the other hand, which prohibits contractual provisions that “illegally restrain” employees’ rights under the NLRA.” Alt. Entm’t, 2017 WL 2297620, at *4 (internal quotations and citations omitted).
Notwithstanding that the issue is pending before the Supreme Court, the Sixth Circuit noted the “robust debate” about the enforceability of class and collective action waivers and commenced its analysis by noting that the Fifth Circuit reached the “incorrect conclusion” based on two faulty principles. Id. at *5. First, the Sixth Circuit concluded that the Fifth Circuit prematurely reached the issue of whether the FAA “trumps” the NLRA (or vice versa), observing, “When addressing the interactions of federal statutes, courts are not supposed to go out looking for trouble.” Id. (citing Lewis, 823 F.3d at 1158). The court concluded that this question did not have to be addressed because no conflict existed; rather, the court interpreted the statutes to actually “work in harmony” because “[t]he NLRA prohibits the arbitration provision on grounds that would apply to any contractual provision, and thus triggers the FAA’s saving clause.” Id. That is, because the FAA’s saving clause states that an arbitration agreement is unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract,” 9 U.S.C. § 2, and section 7 of the NLRA prohibits mandatory arbitration provisions that bar collective or class action suits because they interfere with employees’ right to engage in concerted activity, the FAA does not require enforcement. Id. at *6. The court reasoned that “the saving clause provides a solution for precisely the issue before us.” Id. at *8.
Second, the Sixth Circuit concluded that the Fifth Circuit relied erroneously on the conclusion that “[t]he use of [Rule 23] class action procedures … is not a substantive right.” Id. at *6 (quoting D.R. Horton, 737 F.3d at 357). Though this conclusion is correct, the court deemed it irrelevant because the right of employees to act in concert under section 7 of the NLRA through Rule 23, arbitration or other legal procedures is a substantive right. Id.
The Sixth Circuit then relied on the “substantive right” created by section 7 of the NLRA and the FAA’s saving clause to distinguish a body of Supreme Court cases, including AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013); and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), which are cases upholding class action waivers in various consumer contexts.
Ultimately, the court adopted the Ninth Circuit’s reasoning: “The problem with the [arbitration] agreement is not that it mandates arbitration or that it prohibits collective arbitration; it is that it prohibits concerted legal action in any forum.” Alt. Entm’t, 2017 WL 2297620, at *8 (citing Morris, 834 F.3d at 989).
Though the Sixth Circuit’s holding creates a 3-2 majority in favor of the National Labor Relations Board (NLRB), the jury—or in this case, the Supreme Court—is still out on whether the scales have been tipped in the NLRB’s favor.