Federal arbitration expert Q&A on NLRB v. Murphy Oil, Lewis v. Epic Systems, and Morris v. Ernst & Young LLP
The headline question before the Supreme Court on October 2 concerns employees and class arbitration in the National Labor Relations Board v. Murphy Oil. At the heart of the argument is whether a company can compel employees to waive their rights in joining a class or collective action against their employer and opt for individual dispute resolution through binding arbitration.
Miami Law’s Teresa Verges, director of the Investor Rights Clinic carves out the highlights. Before joining the law school, Verges served as the assistant director of enforcement for the Securities and Exchange Commission in the Miami Regional Office, leading investigations into potential violations of federal securities laws.
What are these cases about?
The cases are among the most closely watched by businesses and employee rights advocates in years. The basic facts underlying each case are essentially the same: the employers required new and existing employees, as a condition of employment, to sign an agreement that requires employees to pursue any work-related claims in individual arbitration. These arbitration agreements also included a collective action waiver, which is a provision that prohibits employees from bringing a collective or class action, either in arbitration or in court.
All three cases involve employees seeking to bring wage and hour claims under the Fair Labor Standards Act on behalf of themselves and similarly situated employees. For example, in Murphy Oil, a worker at one of the gasoline convenience stores operated by Murphy Oil, alleged she was improperly classified as an exempt employee and should have been paid overtime wages. She sought to bring a representative action against Murphy Oil on behalf of herself and similarly situated employees working at other Murphy Oil gasoline retail locations throughout several states. Constrained by the class action waiver in her employment agreement, the convenience store employee instead filed a complaint with the National Labor Relations Board challenging the collective action waiver as an “unfair labor practice” under the National Labor Relations Act. Although Epic Systems and Morris are procedurally different – the employees in those cases ignored the arbitration provisions altogether and filed class actions asserting their wage and hour claims in federal court – the central issue in the three cases is the same.
What is the central issue in these consolidated cases?
The central question in these cases is whether arbitration provisions in employment agreements that bar employees from pursuing any collective or class action to address work-related claims violate workers’ rights to engage in “concerted activities” to improve their working conditions under the NLRA. The Circuit Courts that have addressed this issue are evenly split: the Seventh (Lewis), Ninth (Morris) and Sixth Circuits have held that an employee’s right to file a representative action to address workplace grievances is a protected, substantive right, and an agreement barring them from doing so is unenforceable under the savings clause of the Federal Arbitration Act. The Fifth (Murphy Oil), Second and Eighth Circuits disagree, finding this interpretation at odds with the FAA and strong federal policy favoring arbitration. The cases have been consolidated for oral argument before the Supreme Court on October 2, 2017. The Supreme Court’s resolution of these cases could have a significant impact on how work-related claims are resolved in this country.
Why are these cases so important to employers and employees?
Although arbitration has long been used in the employment context, employers have increasingly required employees to sign agreements that contain class action waivers as a condition of continued employment. By requiring individualized arbitration, employers gain an effective tool to control litigation costs. Businesses can significantly limit their exposure to expensive judicial class actions. Since claims must be brought individually, many claims will never be brought in the first place because the cost of litigation will often exceed the value of the potential claim.
However, the savings to businesses come at a significant cost to employee rights. Collective actions are a useful tool in redressing a wide range of employee grievances, including discrimination cases, wage and hour claims, workplace safety claims, and claims for violations of the employment agreement. In addition to monetary relief, collective actions frequently serve to affect proactive changes to hiring and promotion practices, employee working conditions and compensation, among other things and often include relief for class members that may not have been aware of a problem in the first place.
Has the Court previously considered class action waivers in the employment context?
The cases provide the Court the first opportunity to decide this issue in the context of employment cases. The Court first considered the use of class action waivers in the context of consumer contracts in the 2011 landmark case AT&T Mobility LLC v. Concepcion. In a 5-4 decision, the Court held that held that the class action waiver provision in AT&T’s mobile carrier contract was enforceable under the FAA, notwithstanding a California law ruling these types of provisions unconscionable. Many scholars and commentators believe that Concepcion opened the floodgates to the use of class action waivers in numerous contexts. The Court has also upheld the use of these provisions to bar class actions alleging violations of federal statutes, such as under the antitrust laws (American Express Co. v. Italian Colors Restaurant) and the Credit Repair Organization Act (CompuCredit Corp. v. Greenwood), even if the litigation costs of individual claims were prohibitively expensive.
The critical difference in Murphy Oil, Epic Systems, and Morris is the NLRA itself – Section 7 of the NLRA provides a substantive right to employees to engage in “concerted activities” to improve their working conditions. Does this substantive right include the right to bring collective litigation? If so, is the right to collective litigation under the NLRA a substantive right (which will then trump the FAA’s requirement that arbitration agreements be enforced according to their terms) or is the right merely procedural (and thus require enforcement of the agreement)? The cases will also give the Court an opportunity to weigh in on the scope of the FAA’s savings clause, and whether that it even applies to claims under federal law.
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