Tragedy of the Commonality: a Substantive Right to Collective Action in Employment Disputes

• Publication year: 2017

Tragedy of the Commonality: A Substantive Right to Collective Action in Employment Disputes

Spencer Stephens

TRAGEDY OF THE COMMONALITY: A SUBSTANTIVE RIGHT TO COLLECTIVE ACTION IN EMPLOYMENT DISPUTES^†

Abstract

A fundamental aspect of many workers' daily lives involves joining coworkers in a common dispute to alter the circumstances of their employment. This ability to collectively overcome repressive employment practices and advocate for workplace improvements is derived from the substantive protections afforded in the National Labor Relations Act (NLRA). In recent years, employees' collective rights have come under attack from employers shielding themselves from liability by prohibiting all forms of collective action in individual arbitration. In addition, the Supreme Court has adopted a hostile position toward invalidating arbitration agreements, irrespective of the substantive rights they restrict. This combination threatens employees' fundamental rights and may radically change the foundation of employment relationships. This threat stems from the perceived tension between employment rights guaranteed by the NLRA and the enforcement of arbitration agreements under the Federal Arbitration Act (FAA). Courts across the nation have been thrust into the unenviable position of resolving this conflict by choosing one over the other.

This Comment argues that the NLRA and FAA do not inherently conflict and can be harmonized through the application of the effective vindication exception. This exception, a Supreme Court doctrine, provides the optimal solution by protecting necessary employment rights while favoring the liberal enforcement of legitimate arbitration agreements. This Comment concludes that the Supreme Court should adopt the effective vindication exception to invalidate individual arbitration agreements that prohibit employees from utilizing any form of collective action in an employment dispute.

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Introduction..............................................................................................159

I. Background of Congressional Action......................................161

A. The National Labor Relations Act............................................. 162
B. The Federal Arbitration Act ...................................................... 164

II. The History of Collective Action Waivers..............................166

A. Supreme Court Authority........................................................... 167

1. Hostility in the Foundational Era........................................ 167
2. The Creation of the Effective Vindication Exception .......... 168
3. Rigorous Enforcement by the Modern Court....................... 169

B. The Position of the National Labor Relations Board................ 173
C. Rejection by the Circuit Courts ................................................. 175

III. The Circuit Split: Lewis v. Epic Systems Corp.............................177

A. Collective Action as Concerted Activity .................................... 177
B. Reconciling the National Labor Relations Act and Federal Arbitration Act ........................................................................... 179
C. The Courts React: Acceptance and Rejection ........................... 181

IV. A Substantive Right to Collective Action and the Effective Vindication Exception................................................184

A. protection of Collective Action Under the National Labor Relations Act .............................................................................. 185
B. Harmonizing the National Labor Relations Act and Federal Arbitration Act Through the Effective Vindication Exception ... 186

1. Application of the Effective Vindication Exception to Employment Contracts ........................................................ 187
2. Distinguishing AT&T Mobility and Italian Colors ............. 189
3. The Affirmative Opt-Out Clause.......................................... 192

C. Possible Implications for Employers and Employees.................194

Conclusion..................................................................................................195

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Introduction

Labor law is in the midst of a rapid transformation.¹ Stemming from the rise of right-to-work laws and the decline in representation by formalized unions, employees are increasingly dependent on individual protections afforded by federal law.² During this shift, economic inequality has increased between employers and employees.³ Furthermore, workers continue to lose influence not only in their individual workplaces, but also at the legislative policymaking level.⁴ Employers and businesses have capitalized on this climate by expanding the use of mandatory, individual arbitration agreements to shield themselves from collective liability.⁵ The Supreme Court memorably endorsed the use of this arbitration tactic in the interstate commercial sphere by stating, "States cannot require a procedure that is inconsistent with [arbitration], even if it is desirable for unrelated reasons."⁶ Modern courts facing arbitration agreements, irrespective of conflicting statutory rights, generally feel compelled to enforce them.⁷

The Seventh Circuit in Lewis v. Epic Systems Corp. rebuffed the escalating trend of individual arbitration agreements restricting employment rights.⁸ The Court reasoned that the National Labor Relations Act (NLRA) provides an employee the substantive right to collective action if the employee is "engage[d] in concerted activities . . . intend[ing] to induce group activity" against an employer to equalize the inequality of bargaining power between the parties.⁹ This right invalidates arbitration agreements requiring the waiver of all collective representation as an unfair labor practice.¹⁰ The court, recognizing the threat to employment rights from the Supreme Court's

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expanded scope of the Federal Arbitration Act (FAA), stated the two statutes do not irreconcilably conflict.¹¹ In particular, the FAA's policy of liberally enforcing arbitration agreements could not validate an otherwise illegal arbitration agreement.¹²

The Lewis majority further noted that its decision diverted from decisions by various federal circuit courts and the Supreme Court.¹³ In the wake of Lewis, both commentators and lower courts have struggled to reconcile existing law without overturning precedent.¹⁴ This has created a vast federal circuit split, pitting the Sixth, Seventh, and Ninth Circuits against the Second, Fifth, and Eighth Circuits.¹⁵ This circuit split has produced uneven results leading to unjust infringements upon the substantive rights of employees.¹⁶ Since the Supreme Court has decided to resolve the conflict, collective action waivers in individual arbitration agreements are primed to occupy the national spotlight during the 2017-2018 term.¹⁷

The impending Supreme Court decision will have far-reaching implications on the future of labor law and may radically transform employment relations. There is an inherent imbalance of bargaining power present in every employment contract, as the employer has the power to dictate the terms and policies of employment, as well as the method to resolve disputes.¹⁸ Individual workers, regardless of their education or skill level, possess meager and insufficient power to challenge an employer and enact changes in the

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workplace.¹⁹ Left to their own devices, employees are routinely subjected to adhesion contracts, misclassification of employment duties and obligations, lost wages, and unsafe working conditions.²⁰ These examples demonstrate the importance of an employee's ability to band together with similarly situated coworkers in a collective action against an employer. This represents the only effective method to equalize the parties' bargaining powers and enact changes in the workplace.

This Comment argues that the protections afforded by Congress in Section 7 of the NLRA include the right of employees to join together in collective suits against an employer. An employer cannot force an employee to waive this substantive right by requiring individual arbitration to resolve disputes. This Comment argues that the FAA does not demand enforcement of these arbitration agreements and that the NLRA and FAA can be harmonized to guarantee the protections afforded by both statutes. To accomplish this feat, this Comment further argues that the effective vindication exception, a Supreme Court doctrine used to invalidate contracts acting as a "prospective waiver of a party's right to pursue substantive remedies," should be applied.²¹ The application of this doctrine protects the substantive rights afforded by the NLRA while ensuring valid arbitration agreements are liberally enforced by their terms.

This Comment proceeds in four parts. Part I focuses on the history of the NLRA and FAA. Part II examines class and collective action waivers, including Supreme Court decisions, the position taken by the National Labor Relations Board (NLRB or "Board"), and the deference given to the Board's position by courts. Part III explores the Seventh Circuit's decision in Lewis and the circuit split that has emerged in its wake. Part IV argues for the application of the effective vindication exception to harmonize the FAA and NLRA.

I. Background of Congressional Action

The current state of collective action waivers in individual arbitration agreements is best understood through the historical development of congressional intervention into private employment contracts. Section A discusses the history of the NLRA, including its enactment, protections, and

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judicial deference. Section B examines the FAA, including its purpose, scope, and subsequent interpretations.

A. The National Labor Relations Act

In 1935, Congress enacted the Wagner Act, styled as the National Labor Relations Act, and created a new independent agency, the National Labor Relations Board.²² The...