The Supreme Court is currently considering the intersection of two federal statutes governing workplace disputes. The first, the Federal Arbitration Act, dictates that arbitration agreements “shall be valid, irrevocable and enforceable.” The second, the National Labor Relations Act, grants workers the right to engage in “concerted activities” for “mutual aid or protection,” and makes it an unfair labor practice for employers to “interfere with, restrain, or coerce employees” in the exercise of this right. These two statutory directives have come into conflict through employers’ increasingly-common practice of requiring workers to agree to individual arbitration of all work-related claims—barring them from pursuing class or collective action. The court is tasked with reconciling the statutes in three consolidated cases: Epic System v. Lewis, Ernst & Young v. Morris, and National Relations Board v. Murphy Oil USA.
In each of the three cases, employees were required to enter into an arbitration agreement as a condition of employment. The arbitration agreements broadly required that any disputes be resolved through binding individual arbitration, rather than in court. The arbitration agreements also waived the employees’ right to participate in any class, collective, or representative proceeding.
Each of the employees nevertheless sought to pursue class or collective actions in court. In Epic System v. Lewis, a former employee filed a lawsuit on behalf of a putative class and collective of technical communications employees, alleging that Epic Systems, a health care software company, denied them overtime wages in violation of the Fair Labor Standards Act and state law. In response, Epic Systems sought to dismiss the complaint and compel arbitration. The Seventh Circuit, however, sided with the employees and held that the arbitration agreement was unenforceable because it violated their right to engage in “concerted activities.” In Ernst & Young v. Morris, two former employees filed a class and collective action against the accounting firm alleging that they were denied overtime pay. The Ninth Circuit similarly found that the arbitration agreement at issue was unenforceable.
Similarly, in National Labor Relations Board v. Murphy Oil USA, former gas station employees brought a collective action against Murphy Oil, alleging that they had been denied overtime pay and other work-related activities. In contrast to the other two cases, the district court granted the employer’s request to compel arbitration and dismissed the employees’ case. But instead of pursuing arbitration, one of the former employees, Sheila Hobson, decided to file a charge with the National Labor Relations Board. The board issued a complaint, and subsequently concluded that Murphy Oil had committed an unfair labor practice by requiring class waivers. The Fifth Circuit reversed, holding that the FAA requires that the arbitration agreement be enforced according to its terms.
The employers argue that the court must harmonize the competing provisions of the two statutes. The starting point, the employers contend, is the FAA. That statute unequivocally mandates enforcement of class waivers in arbitration agreements, and this pro-arbitration mandate may only be overridden by a “clearly expressed congressional intention” in another federal statute. The employers contend that the NLRA does not meet this standard. The NLRA makes no mention of class actions—indeed, the NLRA was enacted years before the existence of any rules governing class and collective proceedings. And although the NLRA protects employees’ right to engage in “concerted activities,” the employers argue that this term should not be construed to include engaging in class proceedings. The NLRA protects rights in the context of the employer-employee relationship, and class proceedings require the involvement of third parties such as courts or arbitrators. Therefore, the employers assert, it makes no sense to read the NLRA as imposing obligations on outside parties. In any event, they argue, even if participating collectively in litigation could be construed as “concerted activities,” the NLRA only prohibits employers from interfering with substantive rights. Channeling concerted activities into particular procedural forms, such as arbitration, does not offend the NLRA.
The employees and the National Labor Relations Board, on the other hand, contend that there is no need to reconcile the two statutes. Under the plain language of the NLRA, they argue, employees’ right to broadly engage in “concerted activities” for “mutual aid or protection” must encompass the right to jointly pursue legal claims regarding the terms and conditions of their employment. Such a reading, they argue, is consistent with the central tenant of the NLRA: to protect workers’ right to act together to better their working conditions. Because class waivers interfere with this right, the employees and the board assert that the arbitration agreements constitute an unfair labor practice and are therefore illegal. And because the FAA does not require courts to enforce illegal contracts, there is no conflict between the two statutes that needs to be harmonized. Any analysis under the FAA is simply irrelevant.
In an interesting twist, these consolidated cases feature the federal government supporting both sides of the “v.” When the board filed a petition for certiorari in September 2016, it was represented by the Office of the Solicitor General. But after President Donald Trump’s election, the Solicitor General’s Office abruptly changed course. Instead of supporting the board, the Solicitor General’s Office filed an amicus brief on behalf of the United States siding with the employers, and urged the court to rule against the board. Although the Solicitor General’s Office acknowledged that it had previously defended the board’s position, it “reconsidered the issue” and stated that it now “reached the opposite conclusion.”
At oral argument on Oct. 2, the justices pressed both sides on the practical effects of a ruling. Justice Stephen Breyer expressed concern that the employers’ position would overturn labor law that goes back to the time of FDR, and undermine “the entire heart of the New Deal.” Justice Ruth Bader Ginsburg similarly questioned whether the employers’ position ignored the reality of the employees’ circumstances. Because some of the individual claims at issue were for as little as $1,800, the cost for an employee proceeding alone in arbitration would dwarf any potential recovery. Such an employee would be unable to effectively protect his or her rights. That is why, Justice Ginsburg continued, strength in numbers “was the core idea of the NLRA.” Chief Justice John Roberts posed a hypothetical that seemed to undermine the employees’ position: What happens if the rules of an arbitration forum, rather than the arbitration agreement itself, restrict the ability to bring class and collective actions? Richard Griffin, representing the board, seemingly conceded that such a restriction would be permissible. Because the NLRA only protects against employer restraint of concerted activities, rather than restraints imposed by an arbitral forum, such a rule would not run afoul of the NLRA. Justice Samuel Alito pointed out that, if that’s the case, the board has “not achieved very much” because employers can simply adopt agreements requiring arbitration in forums that have rules restricting class arbitration.
Justice Anthony Kennedy, who may ultimately be the deciding vote, seemed to suggest that employees were free to engage in “concerted activity” notwithstanding the class waivers. He pointed out that employees could retain the same attorney and share information, even if they were required to proceed through separate individual arbitrations. Although Griffin disagreed that this was sufficient to protect the rights at issue, Justice Kennedy stated: “Well, that’s collective action.”
The court’s ruling will have important ramifications for workers and businesses alike. About 25 million workers are covered by arbitration agreements containing class waivers. If the court rules in favor of the employees and invalidates the agreements, this could lead to a surge in class actions against employers. Alternatively, if the court rules in favor of the employers, many workers’ claims against employers will never be brought for the practical reasons noted by Justice Ginsburg. The case will be decided before the end of June 2018.
Stephen A. Miller practices in the commercial litigation group at Cozen O’Connor’s Philadelphia office. Prior to joining Cozen O’Connor, he clerked for Justice Antonin Scalia of the U.S. Supreme Court and served as a federal prosecutor for nine years in the Southern District of New York and the Eastern District of Pennsylvania.
Haryle Kaldis also practices in Cozen O’Connor’s commercial litigation group. Prior to joining the firm, he clerked for Judge Michael S. Kanne of the U.S. Court of Appeals for the Seventh Circuit and Judge Gregory H. Woods of the U.S. District Court for the Southern District of New York.