Today, the U.S. Supreme Court heard what may be the most important workers’ rights cases in over 80 years. Both the Norris-La Guardia Act of 1932 and the National Labor Relations Act of 1935 give employees “the right to … engage in … concerted activities for the purpose of … mutual aid and protection.” In three consolidated cases, employers argue that the Federal Arbitration Act of 1925 allows them to deprive all employees of this right—through arbitration agreements banning joint, collective and class actions in any forum and requiring workers to pursue their claims individually in arbitration.
If the court agrees, then all workers’ rights—indeed, all of our rights—will be at stake. There may be no limit to the rights arbitration clauses can destroy.
The Cases and the Issue
In National Labor Relations Board v. Murphy Oil USA, Epic Systems v. Lewis and Morris v. Ernst & Young, employees claim their employers cheated them and their co-workers out of overtime pay. They are pursuing collective actions under the Fair Labor Standards Act and class actions under state law. The companies insist they cannot do so because their employment agreements contain arbitration clauses with collective action bans. (Ernst & Young’s is called a “concerted action waiver.”)
The employees contend—and the NLRB held—that these bans violate the federal labor laws. The employers, on the other hand, insist the FAA makes them enforceable. The issue is whether and how to reconcile the statutes.
The arguments of the NLRB and workers are straightforward.
The collective action bans are illegal under the NLGA and NLRA. NLGA Sections 2 and 3 nullify “any undertaking or promise” by employers that conflicts with workers’ right to pursue “concerted activities for the purpose of … mutual aid or protection.” Section 3 says any such undertaking or promise “shall not be enforceable.” Section 15 adds, “All acts and parts of acts in conflict with … this chapter are repealed.” NLRA Section 157 gives employees “the right to … engage in … concerted activities for the purpose of … mutual aid and protection.” Section 158(a)(1) makes it an unfair labor practice to “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 157.” The court has already held these rights extend to legal proceedings.
The NLRB says, “The right to engage in collective action—including collective legal action—is the core substantive statutory right protected by the NLRA and the foundation on which the act and federal labor policy rest.” Its view is entitled to substantial deference.
The FAA does not conflict with the NLGA or the NLRA. Section 2 of the FAA says arbitration agreements “shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.” The NLGA and NLRA exist “at law” and are grounds “for the revocation of any contract.” Under both, contracts prospectively banning concerted action are illegal. The saving clause makes them unenforceable under the FAA.
The Supreme Court’s FAA decisions upholding class action bans in AT&T Mobility v. Concepcion and American Express v. Italian Colors make no difference. Neither involved federal statutes making the bans illegal.
Since the statutes are not in conflict, there is no need to look for a “clear congressional command” to decide which to enforce. But, if there is, the NLGA and NLRA, enacted after the FAA, provide one and take priority.
If that is not enough, the FAA still must yield. As the NLRB puts it, “nothing in the FAA can sanction the enforcement of arbitration agreements that serve to eviscerate a federal statute.” An arbitration agreement negating the “core substantive right” provided by federal labor law is no more enforceable than an “unlawful contract providing that employees can be fired on the basis of age … or paid less than the minimum wage.”
The Employers’ Arguments
The employers’ arguments are, in a word, strained.
The saving clause in Section 2 of the FAA does not apply to the NLGA or NLRA because: (1) it only preserves “inferior laws,” i.e., state laws; (2) the labor laws do not reach “any contract,” just some employment contracts; (3) it does not save anything that interferes with the “fundamental attributes” of arbitration; and (4) “revocation” turns on contracts’ formation, not their legality.
Because the saving clause does not apply, Section 2 makes the arbitration agreements “valid, irrevocable, and enforceable.”
That means, if possible, the labor laws must be read not to conflict with the FAA. They can be, because (1) “concerted activities” does not clearly mean collective or class actions; (2) the labor laws do not prohibit employers from “channeling concerted activities into individual arbitration”; (3) they do not prohibit employees from voluntarily waiving collective or class proceedings; and (4) construing them to prohibit collective and class waivers would lead to absurd results—eliminating all mandatory arbitration and requiring that all motions for class certification be granted unopposed.
Since this is the only interpretation that allows the labor laws to co-exist with the FAA, the Supreme Court must adopt it. The NLRB’s interpretation is not entitled to deference. When there is “only one way of harmonizing a statute with Congress’s unambiguously expressed intent in another, the court, as well as the agency, is required to adopt that interpretation.”
The statutes, therefore, can co-exist. If a “clear congressional command” is required to choose among them, however, the FAA provides it. Concepcion and American Express show this.
If that is not enough, the FAA still prevails. The labor laws, which are general, must yield to the FAA, which is specific. And (perhaps most stunning) “the enforceability of class waivers forms the core of the FAA, while such waivers are at most a peripheral concern of the NLRA.”
The United States originally joined with the NLRB, but switched sides after President Donald Trump took office. Its amicus brief now agrees with some of the employers’ arguments.
The employers’ arguments dismiss the NLRB, gut the labor laws, and falsely make eliminating class actions the “core” of the FAA. Their implications, moreover, are staggering.
If employers can use arbitration agreements to eliminate workers’ substantive rights under the labor laws, why can’t they use arbitration agreements to eliminate workers’ rights under the age discrimination and minimum wage laws, as the NLRB suggests, or statutes prohibiting sexual harassment and race, gender, or disability discrimination?
And why stop there? If corporations can use arbitration agreements to eliminate workers’ rights, why not consumers’ rights? What’s the limit?