Supreme Court Opens Term by Hearing Arguments in Class-Action Waiver Case

Supreme Court Opens Term by Hearing Arguments in Class-Action Waiver Case

Many more employers would require waivers if high court gave the green light

Allen Smith, J.D. By Allen Smith, J.D. October 3, 2017
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The number of class-action lawsuits against employers could be dramatically reduced, should the Supreme Court let companies require workers to arbitrate their problems instead of joining together to sue their employer.

The Supreme Court heard oral arguments in three class-action waiver cases on Oct. 2. Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan seemed to clearly oppose letting employers use class-action waivers, according to Edward Berbarie, an attorney with Littler in Dallas. Justices Clarence Thomas and Neil Gorsuch were silent during arguments. Chief Justice John Roberts Jr. and Justice Samuel Alito Jr. seemed to be squarely in employers' camp, Berbarie noted, saying that Justice Anthony Kennedy may have the deciding vote.

The cases are the most critical ones for the employer community to reach the Supreme Court in several years, said Ron Chapman Jr., an attorney with Ogletree Deakins in Dallas, who co-authored a friend-of-the-court brief on behalf of the Society for Human Resource Management. Presently, some employers use class action waivers but many more would require them if the Supreme Court clarified that they were lawful, he said.

"It would be foolish not to have" such waivers because of the benefits of arbitration, he added. Individual arbitration is a streamlined process that allows parties to resolve disputes more quickly at less cost, so "there are benefits to arbitration on both sides."

Three Wage and Hour Cases

Wage and hour cases are the most frequent ones brought as class actions, Chapman said, as was the case in the three cases before the high court:

  • A collective action against Murphy Oil USA Inc., which operates retail gas stations, alleging that the company violated the Fair Labor Standards Act (FLSA). The 5th Circuit granted the company's motion to dismiss the collective action and compel arbitration, rejecting the National Labor Relations Board's (NLRB's) argument that the National Labor Relations Act (NLRA) bans class-action waivers in arbitration agreements (NLRB v. Murphy Oil USA Inc.).
  • A wage and hour collective action against Epic Systems, a health care software company, alleging that it violated the FLSA by misclassifying technical writers as exempt. The 7th Circuit denied Epic's motion to compel arbitration (Epic Systems Corp. v. Lewis).
  • 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 wage and hour class action (Ernst & Young LLP v. Morris).

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

The Supreme Court previously has favored arbitration between employers and employees, Chapman said.

"The Supreme Court has ruled that the Federal Arbitration Act (FAA) favors arbitration unless another law provides express congressional intent that cases should not be arbitrated," said Harry Johnson III, an attorney with Morgan Lewis and former member of the NLRB. The NLRA provides no such express congressional intent, he noted, as he did in a dissent to the board's D.R. Horton case, where the NLRB ruled that mandatory class action waivers violated the NLRA. The 5th Circuit reversed that decision but the NLRB has continued to reach this holding in other cases.

Worker Rights' Group Opposes Waivers

While the employer community supports the class action waivers, employee rights groups oppose them.

"Workers have a fundamental right to band together to pursue legal action against their employers and hold them accountable if they violate their employees' rights and break the law," Christine Owens, executive director of the National Employment Law Project in New York City, said in a news statement.

Chapman disagreed, saying that the "so-called right to file a class action is a procedural right, not a substantive right."

But Owens said employers "are trying to take away that right by simply inserting forced arbitration clauses into the fine print of employment contracts that employees must sign when starting a job. Not only do these forced arbitration clauses deny workers their day in a public court of law should a dispute arise, they often require workers to give up their right to pursue collective or group action—so that their private arbitrations are handled individually."

She added, "Companies that use these forced arbitration and class waiver clauses know that individual workers face enormous barriers if they have to bring their claims alone. Very few workers are willing to take on their employer by themselves and put a target on their backs for termination, abuse or worse. And few workers can afford to spend thousands of dollars to pursue an individual case."

Kennedy May Be Deciding Justice

A significant part of the oral argument was devoted to discussing whether class actions are protected concerted activity under the NLRA, Berbarie said. While he thought Ginsburg, Breyer, Sotomayor and Kagan would have no trouble finding class actions neatly fit within protected concerted activity, Berbarie said that Kennedy was "the most difficult justice to read."

Whether class actions are protected concerted activity is "a threshold question that the NLRB has to overcome just to start the analysis of interpreting the NLRA along with the FAA," Berbarie noted. But Ginsburg, Breyer, Sotomayor and Kagan will take the next step and find that the NLRA is grounds for revocation of a contract, including an arbitration agreement, he predicted.

Roberts and Alito asked how the NLRB's position that class action waivers are unlawful could be reconciled with the rules of civil procedure, which allow for defendants to defeat class actions.

Kennedy suggested that even if class action waivers were enforceable, employees could still act concertedly by using the same lawyer to file similar types of action against an employer without proceeding as a class.

"It's pretty clear that the liberal justices are going to side with the NLRB on this issue," Berbarie said. "The big question is which way Kennedy will go." 

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