You, the Human Resources Director, just got called down the hallway to the President's office. You walk down the hallway. "Shut the door," he says. "We were just served with a class action complaint claiming that we have misclassified all of our mid-level plant managers across the country as exempt employees."
The Complaint was filed by a single, disgruntled employee in your Central Illinois plant, but asks for a certification of all similarly situated individuals across the nation. The President tells you to call Masuda Funai and ask them what the company's exposure is based on the filing of a class action complaint.
Luckily, the employment agreements for all mid-level plant managers contain an arbitration clause stating that any disputes must be resolved through binding arbitration in Chicago, Illinois. The arbitration clause also contains a provision whereby the employee has waived his right to bring a class action against the company, and has also waived his right to participate in any class actions against the company. You think you are safe from the worst, a national class action case under the Fair Labor Standards Act. The employee should only be able to proceed on an individual claim, in arbitration, significantly reducing the company's monetary exposure. Not so fast, the lawyers say. It is unclear whether class action waiver provisions in arbitration clauses are enforceable. Luckily, the United States Supreme Court will provide some clarity during its October, 2017 term this fall.
The dispute over the enforceability of class action waiver provisions began several years ago, when the National Labor Relations Board ("NLRB") declared such provisions unenforceable in two cases, called, D.R. Horton and Murphy Oil. The NLRB ruled that the class action waivers are unenforceable because such provisions violate an employee's right to protected, concerted activity (i.e. organizing with other employees). The Fifth Circuit Court of Appeals, based in Texas, reversed the NLRB's ruling in both cases, holding that despite the protections of the NLRB, the Federal Arbitration Act ("FAA") permits employers and employees to enter into enforceable agreements containing an arbitration provision with a class action waiver. Several other courts across the country agreed with the Fifth Circuit.
In May, 2016, the Chicago based Seventh Circuit issued its opinion in the Lewis v. Epic Systems case, where it disagreed with the D.R. Horton and Murphy Oildecisions. The Seventh Circuit sided with the NLRB, declaring that class action waiver provisions were unenforceable. Shortly thereafter, the California based Ninth Circuit agreed with the Seventh Circuit in Ernst & Young v. Morris.
Luckily for employers, the Supreme Court agreed to resolve the dispute in January, 2017. The Court declined to hear argument in the case during its Spring, 2017 term because of the potential for a 4-4 tie vote. Now, with Justice Neil Gorsuch providing the ninth vote, the Court is set to decide the case this fall. Given the makeup of the Supreme Court with Justice Gorsuch now on the bench, look for employers to score a victory with the Supreme Court rejecting the Seventh and Ninth Circuit, and accepting the Fifth Circuit's view permitting enforcement of class waiver provisions. Regardless of the outcome of the case, this important issue is one that all employers must be aware of heading into the fall of 2017.