Much has been written about why the U.S. Supreme Court’s recent 5-4 decision in Epic Systems Corp. v. Lewis, __ S. Ct. __, 2018 U.S. LEXIS 3086, was a victory for arbitration in yet another battle in the war between management and labor. Given the court’s recent pro-arbitration jurisprudence, the decision might be seen as inevitable—at least until Congress steps in to provide greater regulation of consumer or employee arbitrations as it did in Dodd-Frank for a limited number of financial transactions. We suggest a different take on the case, one that does not bode well for even-handed decision making by an aggressive Supreme Court conservative majority.
First, though, some background. In 2012, the National Labor Relations Board ruled that the 1935 National Labor Relations Act protected employees generally—not only those subject to collective bargaining agreements negotiated between a union and management—from being required to agree to waivers of the right to pursue federal statutory and other claims in a class action. Typically, these waivers were contained within a clause also mandating that all disputes be resolved through arbitration and not through the courts. The board held that the right of “concerted activities for the purpose of … mutual aid or protection” under section 7 of the NLRA overrode the mandates of the 1925 Federal Arbitration Act, section 2 of which declared arbitration agreements “valid, irrevocable, and enforceable, save on such grounds as exist at law or equity for the revocation of any contract.” According to the NLRB, this “savings clause” meant that an employee could bring a class action to prosecute alleged violations of overtime, minimum wage and other federal labor laws despite a class-action waiver in an arbitration clause in their employment contract, pointing to the right of concerted action in section 7 of the NLRA as a defense to enforcement of the class-action waiver.
In three cases consolidated before the Supreme Court, employees had sued for improper classification and violation of the Fair Labor Standards Act (FLSA), asserting in each case that they were pursuing these claims for themselves and others similarly situated. The individual plaintiff-employees may have had small-dollar wage claims, not financially worth pursing individually, but by joining together the potential claims of other employees against the same company in a class action, the employees would be able (it is said) to retain experienced counsel and bear the costs of discovery and vigorous litigation. In that way, a class action is said to further the goals of the federal labor laws and prevent employers from taking advantage of employees. In the Epic Systems case, the Seventh Circuit permitted the plaintiff to pursue the claims as a class action, separate from arbitration. In the other consolidated cases, Morris v. Ernst & Young LLP (finding section 7 violation), and Murphy Oil, Inc v. NLRB (permitting waivers), the Ninth and Fifth Circuits took different paths.
In the Supreme Court, the majority (in an opinion by Justice Gorsuch) held that because section 7 of the NLRA was focussed on union and collective bargaining-related claims, rather than these non-union, albeit statutory cases, the FAA savings clause did not apply, and Chevron U.S.A. Inc. v. NRDC did not warrant court deference to the NLRB’s interpretation of its authorizing statute. A vigorous dissent, read in part from the bench by Justice Ginsburg, called the majority “egregiously wrong.”
One difference between the majority and the dissent was the extent to which the former repeatedly characterized the NLRB’s finding as a recent about-face. The majority focused on a nonbinding opinion of its general counsel rather than on the board’s actual decision. More important, the majority seemed to ignore cases cited by the dissent to show a long history of non-union “concerted activities” suits. For example, in cases starting in 1942, the board had held that FLSA claims could be brought jointly by several employees or as a class action. We therefore think it is incorrect for the majority to say that the board’s current position regarding class action waivers is a startling development (as it says “for the first time in 77 years”) without acknowledging the dramatic shift in the Supreme Court’s arbitration jurisprudence in the last decade.
We are particularly concerned that statutes intended to protect labor were read narrowly. For example, a discussion of the broad coverage of the NLRA beyond typical union and collective bargaining in Eastex, Inc. v. NLRB, 437 U.S. 556 (1978), 437 U.S. at 565, was said to be dictum, even though circuit courts had understood it as otherwise—even in non-union cases.
The majority opinion also raises problems regarding the proper protocol for statutory interpretation. It is nonsensical to say, as did the majority, that Congress in 1935 should have anticipated that arbitration contracts would become commonplace in non-union employment contracts or that class litigation was not intended because section 7 did not include specific class procedures. Cases before Gilmer had held that arbitration was not appropriate for statutory claims if arbitration was contrary to the statutory scheme. It was not until much later that the court found new vigor in the FAA outside of the commercial arena. As the dissent in Epic pointed out, those few cases that touched on non-labor union issues under section 7 of the NLRA had read it broadly. Saying that Congress “knew how” to include language forbidding class action waivers does not take this history into account. Nor does that “rule” consider that Congress had no reason to amend the NLRA when the concerted activity language had been read broadly until recently.
This misunderstanding of the legislative process may be a function of the absence of legislators and governors—such as Justice O’Connor and Chief Justice Warren—on the court. A court composed entirely of former appellate judges may lack the practical experience to reject unrealistic statutory interpretation guidelines.
We are familiar with the now-trite phrase that one can have his or her own opinion, but one cannot lay claim to different facts. The epitome of ideological decision-making is the lens through which one reads precedent. Merely saying that you are not making policy decisions does not mean that you are approaching the problem using neutral principles. We fear that Epic Systems opens the way to just that.