The Supreme Court first approved the use of mandatory arbitration provisions in employment contracts in 1991 in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991), which held that a securities broker could be compelled to arbitrate a federal age discrimination claim against his employer under the Federal Arbitration Act (“FAA”). In the years since, arbitration agreements have proliferated in employment and consumer contracts, and legal challenges to the validity of these agreements have been largely unsuccessful. While the general policy in favor of arbitration remains strong, it comes into potential conflict with the National Labor Relations Act (“NLRA”) in the case of Epic Systems Corp. v. Lewis, which the Supreme Court will decide this term.
The case presents the question of whether mandatory individual (i.e., non-class) arbitration agreements in employment contracts violate the NLRA, which protects the right of workers to bargain collectively. Three circuit courts have weighed in, with the Seventh and Ninth Circuits holding in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2015) and Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), respectively, that a ban on litigating or arbitrating on a class basis violates the NLRA’s collective bargaining guarantee, and the Fifth Circuit coming to the opposite conclusion in Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015). Each of these cases arose when employees filed class action lawsuits against their employers based on labor law violations and the employers moved to compel arbitration.
This past October, the Supreme Court heard a 1-hour argument in Epic Systems, which consolidates these three cases. On one side are the employers and the current Administration (although the United States originally filed a brief siding with the National Labor Relations Board (“NLRB”), it switched sides when the Trump Administration took office). They argue for a narrow interpretation of the NLRA’s collective action right and emphasize that the scenario presented falls squarely within the bounds of the FAA. Jenner & Block also filed an amicus brief on behalf of The Retail Litigation Center in support of the employers and the current Administration, arguing that even setting aside the FAA, the NLRB’s position that individual arbitration agreements with employees constitute unfair labor practices reflects an impermissible interpretation of the NLRA. On the other side, the employees and the NLRB emphasize the importance of the NLRA and the requirement that there be some forum available to act collectively.
Were the Court to side with the Seventh and Ninth Circuits and rule that mandatory individual arbitration agreements violate the NLRA, this would mark a departure from the arbitration-centric position the Court has embraced in such cases as AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), where the Court ruled that a California rule barring class action waivers conflicted with the FAA, and American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), where the Court held that class action waivers are enforceable even where the cost of individually arbitrating a claim exceeds the potential recovery.
Past rulings on the subject of arbitration have generally been split down familiar lines, with the Court’s liberal bloc ruling for narrow readings of the FAA in favor of consumers and employees, and the more conservative contingent upholding private contracts as written. However, there remains a possibility that the novelty of squaring the FAA with another federal statute will produce an unexpected outcome.