In a matter of great interest to many employers, last week, the United States Supreme Court agreed to decide whether arbitration agreements that prohibit employees from pursuing class and collective remedies are enforceable. Courts are currently divided on the issue. The Supreme Court granted certiorari in three cases, Epic Sys. Corp. v. Lewis, from the Seventh Circuit, Ernst & Young LLP v. Morris, from the Ninth Circuit, and NLRB v. Murphy Oil, USA, from the Fifth Circuit, to resolve the question.
The dispute pits the savings clause of the Federal Arbitration Act (“FAA”), 9 U.S.C. §2, which allows invalidation of arbitration agreements only “upon such grounds as exist at law or in equity for the revocation of any contract” against employees’ rights to engage in protected, concerted activity under the National Labor Relations Act, 29 U.S.C. §157. The National Labor Relations Board (“NLRB”) takes the position that provisions in arbitration agreements requiring employees to waive their rights to pursue class or collective actions violate employees’ rights to engage in protected, concerted activity under the National Labor Relations Act (“NLRA”). In May 2016, the Seventh Circuit agreed and concluded in Epic Sys. Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016) that an arbitration agreement prohibiting collective action violates Section 7 of the NLRA and is unenforceable under the FAA. In August 2016, the Ninth Circuit concurred in Morris v. Ernst & Young U.S. LLP, 834 F.3d 975 (9th Cir. 2016). The Ninth Circuit concluded that employees’ substantive rights to pursue collective remedies under the NLRA cannot be waived in an arbitration agreement. In contrast, in Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), the Fifth Circuit held that the FAA’s policy favoring arbitration trumps any rights employees have to engage in concerted activity under the NLRA, including pursuing class or collective actions against employers. In the Fifth Circuit’s view, the use of class or collective action procedures is not a substantive, but a procedural right. The Second and Eighth Circuits agree with the Fifth Circuit.
President Trump’s nominee for the vacant seat on the Supreme Court could sway the outcome of the decision, assuming the nominee is seated before the cases are argued. Unless there is a 4-4 tie, the Supreme Court’s decision should provide much needed guidance, particularly to employers that have employees in multiple states.