Class Actions

• Publication year: 2017
• Author: By Jessica Riggin

Class Actions

By Jessica Riggin

Will the Supreme Court "Waive" Goodbye to Class Actions?

Commercial parties have long used arbitration provisions in their contracts; however, following a spate of recent Supreme Court decisions,¹ mandatory arbitration agreements-often including a class and collective action waiver-have become a commonplace experience, from the workplace to the checkout counter to the physician's office. Indeed, a recent study from the Economic Policy Institute found that 53.9% of private sector, nonunion employers have instituted mandatory arbitration procedures, and 23.1% of private sector, nonunion employees-24.7 million Americans-work for employers who ban class and collective actions.² On October 2, 2017, in its first oral argument of the new term, the United States Supreme Court heard a case that, given the ubiquity of class action waivers in arbitration, has not only been on the radar of class action attorneys across the country for months but may well affect more persons-both human and corporate-than any other case this term. This noteworthy case, National Labor Relations Board v. Murphy Oil USA, Inc. (consolidated with two other cases, Epic Systems Corp. v. Lewis and Ernst & Young LLP v. Morris) asks whether an employer-imposed arbitration agreement prohibiting employees "from pursuing work-related claims on a collective basis" violates the protection guaranteed by the National Labor Relations Act, 29 U.S.C. 157, to engage in concerted activity.

Background

The Federal Arbitration Act ("FAA")

In 1925, Congress enacted the FAA, which provides that "[a] written provision in ... a contract ... to settle by arbitration a controversy thereafter arising out of such contract . shall be valid, irrevocable, and enforceable."³ The FAA was designed "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate";⁴ however, the FAA also includes a "savings clause" providing that arbitration agreements are only enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."⁵ And "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."⁶

The Norris-LaGuardia Act ("NLGA")

In 1932, seven years after passing the FAA, Congress passed the Norris La-Guardia Act, declaring for the first time as "the public policy of the United States" that employees have the right to engage in "concerted activities for the purpose of . mutual aid or protection."⁷ Norris-La Guardia also provides that individual employees have the right to be "free from the interference, restraint, or coercion of employers" in the "designation of . representatives or in self organization or in other concerted activities for the purpose of collective bargaining or other mutual aid or protection." Section 103 of Norris La-Guardia provides that "[a]ny undertaking or promise . . . in conflict with [the policy set forth in Section 102 is] contrary to the public policy of the United States [and] shall not be enforceable in any court of the United States .... "

The National Labor Relations Act ("NLRA")

Three years after enacting Norris-La Guardia and a decade after passing the FAA, Congress passed the NLRA, Section 7 of which provides that employees have "the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection."⁸ Section 8(a)(1) makes it "an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section [7]."⁹

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The Road to the Supreme Court

The current nationwide circuit split culminating in the pending Murphy Oil case grew from a National Labor Relations Board (NLRB) decision that, for years, remained a sleeping giant. In 2012, a divided panel of the NLRB issued a decision, In Re D.R. Horton, Inc. (D.R. Horton I)¹⁰ holding, for the first time, that class action waivers in employment arbitration agreements run afoul of the NLRA. The D.R. Horton I decision held that "[f]rom its earliest days, the Board ... has found unlawful employer-imposed, individual agreements that purport to restrict Section 7 rights-including, notably, agreements that employees will pursue claims against their employer only individually."¹¹ The Board concluded that the arbitration agreement at issue infringed upon an employee's substantive right to engage in protected, concerted activity.

Although the NLRB upheld its own position in many subsequent NLRB decisions,¹² from 2012 to 2016, D.R. Horton I gained little traction elsewhere. The Fifth Circuit was the first that refused to enforce D.R. Horton I,¹³ rejecting the Board's argument that denying workers the right to engage in concerted activity violated the NLRA based on the Supreme Court's then-recent decision in Concepcion, noting that the Board's position, if adopted, would effectively prohibit class action waivers in the employment context.¹⁴ The Fifth Circuit went on to hold that the NLRA did not contain a congressional command to override the FAA, such that the arbitration agreement at issue must be enforced according to its terms. The Second¹⁵ and Eighth Circuits¹⁶ later followed suit, using similar reasoning.

The tide shifted for employees in 2016, however, with the Seventh and Ninth Circuits' respective decisions in Epic Systems¹⁷ and Morris,¹⁸ as well as the Sixth's Circuit's more recent decision in NLRB v. Alternative Entertainment.¹⁹ In Epic Systems, the first appellate decision to adopt the reasoning of the NLRB's D.R. Horton I order, the Seventh Circuit hewed closely to the Board's reasoning. Unlike the Fifth Circuit's D.R. Horton decision and its progeny, the Epic Systems court held that engaging in class, collective, or representative proceedings is "concerted activity"-a substantive right protected by the NLRA.²⁰ The Seventh Circuit further concluded that there was no conflict between the NLRA and FAA because the class action waiver contained in the agreements at issue was unlawful pursuant to Section 7 of the NLRA and thus illegal, meeting the criteria of the FAA's savings clause for nonenforcement.²¹

Following in the Seventh Circuit's footsteps, the Ninth Circuit's Morris decision held...