Supreme Court to Review Rulings on Arbitration Agreements that Preclude Class Action Lawsuits

Mandatory agreement to binding arbitration of employment disputes as a condition of employment was upheld under the Federal Arbitration Act of 1925 (FAA) in Gilmer v. Interstate/Johnson Lane Corporation (1991) [500 U.S. 20] in a case in which two stockbrokers claimed age discrimination.  Individual arbitration is not at issue here.  What is at issue is whether the same mandatory agreements can legally preclude class action lawsuits by employees.  In a recent case (American Expressway Company v. Italian Colors Restaurant (2013) [133 S. Ct. 2304], the Supreme Court ruled the FAA applies to merchants held to mandatory prohibition of class actions against credit card companies in spite of the Sherman Antitrust Act (1890).  The latter ruling, though, does not necessarily apply to more traditional workplace class actions by employees.  This issue represents a battle between the FAA on one hand and the National Labor Relations Board’s (NLRB) interpretation of the National Labor Relations Act (1935) (NLRA) on the other.  The NLRB position is that mandatory arbitration agreements precluding class action lawsuits by employees illegally interfere with “employee rights to engage in concerted activity for their mutual aid or protection.”

The NLRB asked the Supreme Court to consider the issue in light of the 5th Circuit’s ruling in NLRB v. Murphy Oil USA, Inc. (2015) [ 808 F.3d 1013] that rejected the NLRB’s position. Similar rejections have also made by the 2nd and 8th Circuits, while rulings favoring the NLRB position have been made by the 7th Circuit (Epic Systems Corp. v. Lewis (2016) [823 F.3d 1147]) and 9th Circuit (Ernst & Young, LLP v. Morris (2016) [834 F.3d 975]).

The Supreme Court has agreed to combine the Murphy Oil, Epic Systems, and Ernst & Young cases for review, and the outcome will, I believe, have major implications relating to collective actions by employees regardless of whether they have signed away their individual right to seek redress in federal district court. I don’t often do this, but I think the NLRB position will win because it’s connection to labor is more critical and direct than the FAA which, originally, was written to apply maritime transactions.  Prior attempts to defeat FAA mandatory agreements have not faced stiff opposition from the NLRB.

By Art Gutman, Ph.D., Professor, Florida Institute of Technology

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