NLRB Tells Supreme Court It Opposes Class-Action Waivers

Cases pit law’s preference for arbitration against right to protected concerted activity

Allen Smith, J.D. By Allen Smith, J.D. August 18, 2017
NLRB Tells Supreme Court It Opposes Class-Action Waivers

​Employees can bring class-action lawsuits despite having signed arbitration agreements' class-action waivers, according to a brief filed by the National Labor Relations Board (NLRB) in three consolidated cases before the Supreme Court.

Class-action waivers violate the National Labor Relations Act's (NLRA's) right to protected concerted activity, the NLRB argued in the brief written by General Counsel Richard Griffin Jr., an appointee of President Barack Obama whose term expires Oct. 31.

The NLRB's brief contradicts the Department of Justice's (DOJ's) June 16 brief in favor of class-action waivers—which was a shift from the DOJ's position under the Obama administration.

The defendant employers in the three cases have relied on Supreme Court cases that have ordered arbitration because the Federal Arbitration Act (FAA) encourages it.

"The FAA clearly applies here and should take priority in accord with Supreme Court precedent favoring arbitration," said Michael Lotito, an attorney with Littler and co-chair of its government relations branch, the Workplace Policy Institute.

But none of the high court cases involved an arbitration agreement that was blocked by another statute, such as the NLRA, the NLRB maintained in its brief.

'Core Substantive Right'

The NLRA's right to protected concerted activity "is the core substantive right protected by the NLRA and is the foundation on which the act and federal labor policy rest," the board stated. "An arbitration agreement requiring employees to resolve legal disputes solely on an individual basis is thus comparable to an unlawful contract providing that employees can be fired on the basis of age, contrary to the Age Discrimination in Employment Act, or paid less than the minimum wage, contrary to the Fair Labor Standards Act (FLSA)." Such unlawful contracts would not be permitted, so the Supreme Court similarly should not let the core purpose of the NLRA be undermined, the NLRB argued.

If the enforcement of private contracts would violate federal statutes, "courts are obliged not to enforce them," the NLRB stated.

But management attorneys argue that if arbitration agreements' class-action waivers are not enforceable, arbitration will become more costly, even though affordability is one of the main purposes for arbitration.

Appellate Court Split

The Supreme Court announced earlier this year that it will review three consolidated FLSA cases to resolve a split in the appeals courts on class-action waivers:

  • A collective action against Murphy Oil USA Inc., which operates retail gas stations in several states, alleging that the company violated the FLSA. The district court granted the company's motion to dismiss the collective action and compel arbitration. The 5th Circuit affirmed.
  • A wage and hour collective action against Epic Systems, a health care software company, maintaining that it violated the FLSA by misclassifying technical writers as exempt. The 7th Circuit ruled that the arbitration provision's bar on employees seeking any class action of wage and hour disputes violated the NLRA.
  • A collective action claiming that Ernst & Young violated the FLSA and California labor laws by misclassifying employees to deny them overtime wages. The 9th Circuit held that the employer violated the NLRA by requiring employees to sign an arbitration agreement precluding them from bringing a class action for wages.

[SHRM members-only HR Q&A: What are the California rules regarding mandatory arbitration agreements and how do they differ from federal law?]

The 6th, 7th and 9th circuits have agreed with the NLRB's stance that class-action waivers in arbitration agreements are invalid under the NLRA, noted David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis. But the 5th and 8th circuits have rejected it, finding the clauses enforceable under the FAA.

The 5th Circuit highlighted the primary weakness in the NLRB's argument, he said. There is no explicit conflict between the NLRA and FAA on the issue. Nothing in the NLRA indicates that a right to form a class action in litigation cannot be waived. "In fact, as noted by the 5th Circuit, the NLRA was passed in the 1930s and modern-day class-action rules were not implemented until 1966," he noted. "It would have been impossible for a Congress in the 1930s to have 'class actions' in mind when drafting the statute."

"The NLRA was adopted after the FAA, and if the NLRA was intended to override the FAA, [then] Congress would have provided as such," said James Plunkett, senior government relations counsel with Ogletree Deakins. "The NLRA says nothing about class actions, litigation or even arbitration. Moreover, matters like class actions and arbitrations are process matters that aren't controlled by the NLRA."

Growing Popularity

Arbitration is becoming more popular and is likely to become even more favored should the Supreme Court approve class-action waivers, management attorneys noted.

"Employers like arbitration as a means of resolving complaints since plaintiff lawyers will often use the courts as a lever to extract huge settlements regardless of the underlying merits of a claim, as it may be cheaper to pay something in settlement than litigating a class action," Lotito said.

Arbitration provides "a quick and cost-efficient way to resolve employment disputes," Plunkett said. "If class waivers are not permitted, then the arbitration process would become bogged down and costly, and avoiding such a scenario is the whole point of arbitration."

Oral arguments in the cases are slated for Oct. 2.


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