Supreme Court Jumps Into Class Action Waiver Fight

On January 13, 2017, the Supreme Court agreed to take up the contentious class action waiver issue that has riled courts for the past four years.

In January 2012, the National Labor Relations Board ruled in D.R. Horton, 357 NLRB No. 184 (2012) that employers cannot use class action waivers in arbitration agreements with employees covered by the National Labor Relations Act. The Board reasoned such waivers limit employees’ rights under the NLRA to engage in “concerted activities” in pursuit of their “mutual aid or protection.” That holding appeared to put the Board on a collision course with Supreme Court precedent under the Federal Arbitration Act approving class action waivers; however, the Board reasoned the Supreme Court’s prior cases had never involved the NLRA and didn’t apply.

Most federal courts disagreed with the Board’s reasoning. In fact, the Fifth Circuit (in an appeal handled by Ogletree Deakins) refused to enforce the Board’s D.R. Horton decision. Scores of lower federal courts subsequently refused to follow the Board’s ruling, citing the Fifth Circuit’s rejection of it. Two other courts of appeals, the Second and the Eighth, similarly spurned the Board’s view.

Undeterred, the Board invoked its policy of not acquiescing to federal courts lower than the Supreme Court and adhered to its position in Murphy Oil USA, Inc., 361 NLRB No. 72 (2014). The Fifth Circuit again refused to enforce that decision.

Although dozens of federal and state courts continued to reject the Board’s rationale as inconsistent with the FAA, recently two courts of appeals went the other direction, creating a circuit split. The Seventh Circuit became the first federal appellate court to agree with the Board in Epic Systems v. Lewis in May 2016. The Ninth Circuit followed suit in August 2016 in Ernst & Young LLP v. Morris.

The four-year long standoff between the Board and most courts, and the more recent split between the Second, Fifth, and Eighth Circuits on one side and the Seventh and Ninth Circuits on the other, have left employers in a bind. Courts are regularly enforcing arbitration agreements with class action waivers. The Board is routinely filing unfair labor practice complaints against employers that maintain such arbitration agreements. The Fifth Circuit is repeatedly rejecting the Board’s ULP findings in summary decisions. And national and regional employers have found their employees and policies subject to conflicting precedent depending on the circuit in which they work.

Today the Supreme Court agreed to take up the matter. With at least a half dozen petitions for certiorari pending on this class action waiver issue, the Court agreed to hear appeals in Murphy Oil, Lewis, and Morris. The Court also consolidated the three cases.

Opening briefs are presently due February 27, 2017, with amicus briefs in support of the employers due March 6, 2016, absent extensions, which are likely. A decision is expected by early summer.

Adding to the uncertainty is the possibility of a 4-4 tie on the Supreme Court, which would leave the status quo in place. However, President-elect Trump is likely to appoint a ninth justice in the coming weeks. Whether such a nominee can be confirmed and seated prior to the Court hearing oral argument on the class action waiver issue remains to be seen. Compounding the uncertainty, the composition of the Board itself will change with new appointees, possibly leading the Board to abandon its current position, perhaps before the Supreme Court issues a decision in the consolidated appeal. We will keep you apprised of developments.