By David S. Baffa, Noah A. Finkel, and Joseph S. Turner

Seyfarth Synopsis: Congress has once again proposed legislation that would seek to ban mandatory workplace arbitration of employment claims, despite a string of United States Supreme Court decisions upholding arbitration and class/collective action waivers as a lawful and appropriate mechanism to resolve workplace disputes. 

H.R. 7109, the Restoring Justice for Workers Act, was introduced by Representative Jerrold Nadler, D-N.Y., and Representative Bobby Scott, D-Va., with 58 Democratic co-sponsors.  Similar legislation is expected to be introduced in the Senate by Senator Patty Murray, D-Wash, with eight Democratic co-sponsors.  The proposed legislation would  overturn the U.S. Supreme Court’s decision in Epic Systems, and would amend the National Labor Relations Act to specifically prohibit class and collective action waivers under a new “Section 8(a)(6).”

As proposed, the new law would prohibit any pre-dispute agreement requiring arbitration of employment disputes.  The law also would prohibit post-dispute agreements to arbitrate, unless the agreement is obtained without coercion or condition of employment-related privilege or benefit.  Employees entering into voluntary post-dispute agreements also must be made aware of their rights under what would be a new section of the National Labor Relations Act.  That new section would make it an unfair labor practice to “enter into or attempt to enforce any [pre-dispute] agreement” that would bar or prohibit class or collective actions relating to employment, or to retaliate against any employee for refusing to promise not to pursue a class claim.

While there is no chance that this bill will move in the House of Representatives as currently comprised, it previews the legislation Democrats are likely to pursue if the House changes control next week.  A bill like this could even put a narrowly-controlled Republican Senate to the test, as the perceived unfairness of pre-dispute mandatory arbitration has been the target of considerable media attention, social media campaigns, and as recently as yesterday — large-scale employee activism.  As such, protecting mandatory arbitration of workplace disputes may be an issue on which even conservative legislators might waver.

Indeed, this is not Congress’ first attempt to ban workplace arbitration.  Before the Supreme Court’s decision in Epic Systems, and as part of the #metoo movement, Congress introduced in December 2017, bi-partisan legislation ostensibly aimed at preventing employers from enforcing arbitration agreements of sexual harassment claims.  That bill, “Ending Forced Arbitration of  Sexual Harassment Act,” was introduced by Senator Kristen Gillibrand, D-NY (and attracted some Republic support), but was penned in a way that would actually ban workplace arbitration in its entirety.  We figured it was an oversight at the time, as written in our blog, “Slow Down Congress: You Are About to Render the FAA Inapplicable to Employment Disputes (and Class Waivers), and You Probably Don’t Realize It.”  Clearly, this week’s Halloween bill was no accident.

Most legislative action against workplace arbitration has centered on the idea of prohibiting arbitration of sexual harassment claims, and by extension all other Title VII claims.  Among the earliest efforts begun in 2009, when — perhaps ironically — then-Senator Al Franken pursued the Arbitration Fairness Act, which sought to prohibit the mandatory arbitration of sexual harassment claims.  While that legislation was not successful, Senator Franken’s efforts led to provisions in the Department of Defense Appropriations Act of 2010, which to this day prohibits contractors to the U.S. DoD, with limited exceptions, from requiring arbitration of Title VII claims (including sexual harassment claims).  Under President Obama, the DoD prohibition was expanded by his Fair Pay and Safe Workplaces Executive Order on July 31, 2014, effective January 2016, to all federal contractors.  President Trump, however, rescinded this EO shortly after taking office in late 2016.

Several state legislatures have sought to ban mandatory arbitration of sexual harassment claims.  Washington, Maryland, and New York each passed laws that would prohibit mandatory arbitration of sexual harassment claims, but those laws are either explicitly or presumptively preempted by the Federal Arbitration Act.  See our Client Alert on the New York Ban.

Facing increasing headwinds against mandatory arbitration of sexual harassment claims, several large companies have proactively and publicly declared that they will exempt sexual harassment claims from existing mandatory arbitration programs.  Other companies also are considering more limited arbitration programs, such as mandatory arbitration and class waivers for wage-hour claims only.  But the Halloween bill and other attempts to ban workplace arbitration altogether are also becoming more common following Epic.  The California legislature passed a law that would have barred arbitration of any violation of the California Labor Code or the Fair Employment and Housing Act, but it was vetoed by Governor Brown on September 30, 2018.  Governor Brown’s term ends this year, and on November 6th Californians will pick a new Governor of California to take office on January 7, 2019.

Kentucky also recently joined the fray.  On September 27, 2018, the Kentucky Supreme Court, in Northern Kentucky Area Development District v. Snyder shot down a workplace arbitration agreement on the basis that a mandatory arbitration agreement for employment claims is prohibited by Kentucky law, and not preempted by the Federal Arbitration Act.   Kentucky’s law prohibits any employer from requiring as a condition of employment an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit…”.  The Court ruled that the statute was not an anti-arbitration clause provision, but an anti-employment discrimination provision.  Of course, calling arbitration a diminution of rights are “fightin’ words” to the U.S. Supreme Court, so we remain on the lookout for a cert petition.

For now, employers are staying the course.  Many companies remain interested in implementing dispute resolution procedures and mandatory arbitration programs that would limit their exposure to class and collective actions.  Most employers report faster and more efficient resolution of workplace grievances and concerns, with more ability to direct money and time to the resolution of real complaints, rather than simply to line the pockets of class action plaintiffs’ lawyers.

For more information on this topic, please contact the authors, your Seyfarth Attorney, or any member of the Firm’s Labor & Employee Relations Team.

Co-authored by Noah A. Finkel, David S. Baffa, and Andrew L. Scroggins

Seyfarth Synopsis: Following oral argument, employers should be cautiously optimistic that the Supreme Court will allow mandatory arbitration programs containing waivers of the ability to bring collective and class actions.

In yesterday’s oral argument, in one of the most significant employment law cases we have seen in some time, a divided Supreme Court appeared more likely than not to give the green light to employers’ mandatory arbitration programs that contain waivers of collective and class actions. Our summary of the issues this case presents can be found here: https://www.wagehourlitigation.com/arbitration-agreements/will-the-supreme-court-finally-remove-doubt-that-an-employer-can-mandate-that-employees-enter-into-arbitration-agreements-with-class-waivers/

Reading tea leaves from oral argument is always a challenge, especially for those who have a stake in the matter.[1] But the three authors of this post attended yesterday’s argument and, judging from the questions from the Court, the various Justices’ reactions to the answers to those questions, and the prior rulings from the Court, are optimistic that the Court ultimately will issue a closely-contested ruling in favor of class waivers.

Four Justices Appear Ready to Invalidate Class Waivers in Employment Cases

While our prediction is somewhat uncertain, there is one aspect in which we are completely confident: there will not be a unanimous decision. Indeed, it appeared that there are four solid votes to hold that Section 7 of the National Labor Relations Act provides an employee with a right to bring a collective or class action, that requiring an employee to waive that right as a condition of employment violates NLRA Section 8’s prohibition against employer restraint of that right, and that, therefore, an employer’s arbitration agreement including a class waiver cannot be enforced either because the class waiver is illegal or because the NLRA constitutes a contrary congressional command to the general rule that, under the Federal Arbitration Act, arbitration agreements are to be enforced according to their terms.

Justice Ginsburg asserted in her questions that “the driving force of the NLRA was the recognition that there was an imbalance, that there was no true liberty of contract,” which is why concerted activity — including, in her apparent view, class and collective action — is protected against employer interference. She further contended that the Court’s prior precedents regarding the FAA concerned only commercial contracts and did not involve NLRA rights. (As the employers’ counsel Paul Clement rightly pointed out, however, the Court has twice reviewed the propriety of arbitration agreements between employers and employees, and neither time did the Court reason that arbitration agreements in the employment context are entitled to any less weight than those in the commercial context.)

Justice Kagan relied on the Court’s prior precedent to argue that the NLRA protects “employees seeking to improve working conditions through resort to administrative and judicial forums” and thus implied that filing a class action also is protected by the NLRA. But the employers’ counsel retorted that Court precedent merely protects “resort to” courthouses, and that “there is no right to proceed as a class once you get there.” Once in court, nothing prohibits an employer from asserting all available defenses to class treatment, including moving to enforce an agreement between an employer and employee to arbitrate all disputes on a bilateral basis.

Justice Sotomayor questioned that argument by maintaining that an employer cannot enforce a contract that is “illegal” even under the FAA. In response to that, employers’ counsel Clement retorted that the Court has decided two other cases (Circuit City v. Adams and Gilmer v. Interstate Johnson/Lane Corp.) in which employees had agreed to bilateral arbitration and in which it could have been argued that the NLRA makes such an agreement unlawful. “But no dog barked at that point . . . and that’s because the NLRA in no other context extends beyond the workplace to dictate the rules of the forum,” Clement told the Court.

The most vigorous questioner was Justice Breyer, who appeared offended by the idea of a class waiver. He went so far as to say that he is worried that the employers’ position “is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal” and that “I haven’t seen a way that you can, in fact, win the case, which you certainly want to do, without undermining and changing radically what has gone back to the New Deal.” Clement explained, however, that “for 77 years” — from the passage of the NLRA until its 2012 D.R. Horton decision — “the [NLRB] did not find anything incompatible about Section 7 and bilateral arbitration agreements” and the NLRB’s General Counsel issued a memorandum on the issue in 2010 in which it found that a mandatory class waiver does not violate the NLRA.

But From Where Does the 5th Vote Come?

Despite these fairly clear votes to invalidate class waivers, four votes does not a majority make.  And in questioning of counsel for the NLRB and counsel for the employees, it appeared that it will be difficult to find that fifth vote. Justice Thomas, in keeping with his usual demeanor, did not ask a question, but he has been in the Court’s majority in other cases enforcing arbitration agreements and is regarded as generally receptive to employer’s views. Nor did Justice Gorsuch ask a question. He, however, thus far has joined the Court’s conservative majority in all decisions in which he has been a part.

Chief Justice Roberts and Justice Alito clearly were skeptical of the NLRB’s position. Indeed, in questioning its General Counsel Richard Griffin, Chief Justice Roberts and Justice Alito led Griffin into a significant admission, providing the most dramatic moment of the morning. They asked Griffin a series of questions that led Griffin to agree that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this.  He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Interestingly, counsel for the employees, Daniel Ortiz of the University of Virginia School of Law, did not agree with that concession, thus highlighting fundamental dissent from the NLRB’s position. These cases at the Supreme Court already were notable because the Solicitor General took a position opposite that of the NLRB. Oral argument added another layer of disagreement: even the employees urging the Court to adopt the Board’s view of the NLRA don’t agree with the concession made by Griffin. In other words, the employees and the NLRB are asking the Supreme Court to recognize a right that overrides the FAA, but they cannot agree on what that right is.

As in any close case recently at the Supreme Court, most eyes were on the swing vote, Justice Kennedy. Going into the argument, he appeared to be the Justice most likely to join Justices Ginsburg, Sotomayor, Kagan, and Breyer, the four justices who dissented from the Court’s enforcement of a bilateral arbitration agreement in the consumer context in AT&T Mobility v. Concepcion. Justice Kennedy did not tip his hand as much as the other Justices. But he did appear to be interested in the concession that NLRB General Counsel Griffin made (and clarified Chief Justice Roberts’ question that induced that concession), and his questioning of the Board and the employees’ counsel suggested that he believed that, even with a collective and class action waiver, employees still can exercise Section 7 rights in various ways, and that he did not wish to “constrain[] employers in the kind of arbitration agreements they can have.”

Little of the argument focused on the FAA and the nature of its saving clause or what constitutes a “contrary congressional command.” The Justices seemed more interested in exploring whether the NLRA contains a right to a class action in the first place.

What Next?

Our predicted close victory for the employers is just that: a prediction. After all, even the Justices who appeared to favor permitting class waivers did not strongly signal how they might reach that result or whether any guidelines or restrictions might accompany the rule. We do not recommend that employers bank on our prediction, because one never knows what is in the minds of the Justices or how they will come out after discussing the cases with each other. Until a decision is issued — which likely will be early 2018 — there will be no definitive answer as to whether a class waiver in an arbitration program provides a defense to an employment class or collective action. Employers should continue to consider whether an arbitration program with a class or collective action waiver is right for them and, if it is, be ready to implement one if the Supreme Court rules in the employers’ favor in these cases.

[1] Seyfarth Shaw LLP is counsel for Epic Systems Corporation — one of the three companies whose arbitration programs are at issue in the three consolidated cases at the Supreme Court — and represents Epic at the district court in this case, was counsel for Epic in the appellate court, and is co-counsel for Epic at the Supreme Court.  The views expressed in this blog post are Seyfarth Shaw’s and not necessarily those of Epic.

Authored by Holger G. Besch 

Perhaps signaling the importance of the issue for American businesses and jurisprudence, the U.S. Supreme Court‎ chose the first day of its term beginning in October as the date to set oral arguments in three petitions for certiorari asking whether employees can be required to waive their rights via arbitration agreements to file class and collective actions against their employers. The arguments in Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis; and NLRB v. Murphy Oil USA Inc., will all be heard on October 2nd, so mark your calendars.

The cases before the Supreme Court originated either before the National Labor Relations Board, which had ruled that such agreements violate workers’ rights under the National Labor Relations Act to take collective action to ameliorate their working conditions, or with district courts that had used the NLRB’s ruling to reject employers’ motions to compel bilateral arbitration of putative collective and class actions.

SCOTUS will be resolving the resulting Circuit split, in which the Ninth and Seventh Circuits backed the NLRB’s position when they ruled against Ernst & Young and Epic Systems, respectively, and the Fifth Circuit ruled in favor of Murphy Oil. Opening briefs are already on file and address, at bottom, whether the Federal Arbitration Act or the NLRA should take precedence.