U.S. Supreme Court Grants Certiorari in Three Class Arbitration Waiver Cases
On January 13, 2017, the United States Supreme Court consolidated and granted petitions for writ of certiorari in Epic Systems Corp. v. Lewis, Ernst & Young v. Morris and NLRB v. Murphy Oil USA Inc. The nation's highest court will hear argument on whether arbitration provisions in employment agreements which waive class actions are a violation of the National Labor Relations Act (NLRA). Stated differently, the question is whether employers can utilize arbitration agreements within employment contracts that require their employees to resolve disputes individually instead of collectively via a class action.
The Court's decision in this case aims to resolve a significant split among federal appellate courts. The Second, Fifth and Eighth circuit courts have held that the Federal Arbitration Act (FAA) requires the enforcement of class action waivers in employment arbitration agreements. The Seventh and the Ninth circuits have reached the opposite conclusion, holding that such waivers are unenforceable.
In Epic Systems Corp. v. Lewis (USSC 16-285), the Seventh Circuit held a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived collective action was prohibited under Section 7 of the NLRA. Epic Systems, a Wisconsin-based health-care software company, required certain groups of employees to agree to bring any wage-and-hour claims against the company only through individual arbitration. The agreement did not permit collective arbitration or collective action in any other forum.
In Ernst & Young, et al. v. Morris, et al. (USSC 16-300), the Ninth Circuit similarly held that the waiver in the Ernst & Young employment agreement violated Sections 7 and 8 of the NLRA. The employees, Stephen Morris and Kelly McDaniel, alleged Ernst & Young, one of the “Big Four” audit firms, misclassified employees to deny overtime wages in violation of the Fair Labor Standards Act and California labor laws.
In NLRB v. Murphy Oil USA, Inc., et al. (USSC 16-307), the Fifth Circuit overturned the NLRB's order invalidating the arbitration agreement at issue and noted that the NLRB had “disregarded” the Fifth Circuit's contrary ruling in D.R. Horton that arbitration agreements with class action waivers are enforceable and not unlawful. The particular arbitration agreement at issue in Murphy Oil, however, underwent a revision in 2012 to account for the NLRB's D.R. Horton order. The Fifth Circuit held that the prior version of the arbitration agreement violated the NLRA, but upheld the revised agreement because it added the following clause: “[N]othing in this Agreement precludes [employees] . . . from participating in proceedings to adjudicate unfair labor practice  charges before the [NLRB].”
Changes in the Supreme Court and National Labor Relations Board
The Court now must consider whether the National Labor Relations Act bars enforcement under the FAA, of class action waiver provisions in an arbitration clause in an employment contract. The appointment of ninth justice looms large as the Court's resolution of this contentious issue would be a welcome development. Further, the NLRB's membership is set to change with the Trump Administration, which may impact the NLRB's position on this issue. There are currently two vacancies on the five-member board, and General Counsel Richard F. Griffin, Jr.'s term expires in November 2017. The exact date for oral argument has yet to be determined, and it remains uncertain whether a ninth justice will be in place by the time the cases are heard.
Kingsley & Kingsley – Experienced California Employment Lawyers
California employers and employees alike should consult with legal counsel to ensure their respective arbitration agreements conform to legal requirements. Should you have questions about class actions or California labor laws, don't hesitate to contact leading California employment lawyers at Kingsley & Kingsley. Call and speak to an experienced California lawyer toll-free at (888) 500-8469 or click here to contact us via email.