Seyfarth Synopsis: A New York intermediate appellate court with jurisdiction over Manhattan weighed in on the enforceability of arbitration agreements with class and collective action waivers. Its decision, issued on July 18, 2017, holds that waivers are unenforceable as they interfere with employees’ rights under the National Labor Relations Act to engage in protected concerted activity by depriving them of the ability to bring class or collective actions.
As our loyal readers are well aware, the U.S. Supreme Court is scheduled to hear oral argument in its Fall 2017 term regarding the enforceability of arbitration agreements with class and collective action waivers. This has been a “hot button” issue ever since the NLRB’s highly controversial D.R. Horton decision in 2012, which held that these waivers violate employees’ right to engage in protected concerted activity. Three circuits—the Second, Fifth, and Eighth—have concluded that such agreements are enforceable, while three circuits—the Sixth, Seventh, and Ninth— have held that they are not.
As practitioners eagerly await the Supreme Court’s decision (oral argument is scheduled for the October 2017 term, with a decision expected in early 2018), a New York intermediate appellate court with jurisdiction over Manhattan weighed in on this divisive question. Its decision, issued on July 18, 2017, holds that waivers are unenforceable as they interfere with employees’ rights under the National Labor Relations Act to engage in protected concerted activity by depriving them of the ability to bring class or collective actions.
In reaching its decision, the court weighed “an individual’s right to resort to the courts, on the one hand, and this State’s preference for enforcing arbitration agreements.” The court found there to be “no reason that the [Federal Arbitration Act] policy favoring arbitration should trump the NLRA policy prohibiting employers from preventing collective action by employees.” Accordingly, the court came down on the side of the Sixth, Seventh, and Ninth Circuits and held “that waiver of collective claims violates the NLRA, and is void and invalid under the FAA’s saving clause.”
In a vigorous dissent, Judge Andrias noted that, “although the NLRA gives employees a right to bargain collectively, the statute does not expressly give employees the right to arbitrate or litigate disputes as a class or collective action, and the legislative history lacks any indication of a congressional command precluding courts from enforcing collective-action waivers according to their terms.”
This critically important question has significant implications for employers within Manhattan, many of whom implemented class waivers in their arbitration agreements with employees following the approval of such clauses in decisions issued by the U.S. Supreme Court and the Second Circuit. In light of this decision, those New York employers are now subject to contrary decisions issued by the state and federal courts with authority over their place of operation. Until the Supreme Court decides the issue in the coming months, or the New York Court of Appeals somehow steps in during the interim (which is unlikely), employers may face more state court filings by employees seeking to nullify their class action waivers. We will be watching these developments closely, so stay tuned!