An important case addressing legal issues that overlap two hot button areas of the law – employee rights and class actions – will be heard by the United States Supreme Court this year. It will be the first big test for new Justice Neil Gorsuch in connection with his views on these important and highly litigated areas of law. The Supreme Court’s decision has the potential to reshape class action litigation in the employment context.
Legal issues involving class action waivers and employee rights have been hotly litigated in recent years. Class actions, traditionally, have been intended to address cases where small amounts are wrongfully taken from a large group of persons. Courts allow and encourage class actions “to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.” (Amgen, Inc. v. Connecticut Retirement Plans And Trust Funds (2013) 133 S.Ct. 1184, 1202 (citations omitted).) In the employment context, class actions are a powerful weapon for employees to enforce rights, including asserting minimum wage and overtime violations.
Class action waivers in arbitration agreements, however, insulate companies from class actions, and provide significant protection to potential defendants. Employment class actions have been significantly impacted and curtailed as a result of the increasing trend of employers to include class action waivers in mandatory arbitration agreements.
Class action waivers have been repeatedly upheld by the Courts in recent years. However, an opening to challenge them in the employment context has recently emerged. In 2016, two federal circuit appeals court decisions, Lewis v. Epic Systems Corporation (7th Cir. 2016) 823 F.3d 1147 and Morris v. Ernst & Young LLP (9th Cir. 2016) 834 F.3d 975, ruled that class action waivers in employment contracts are illegal under the National Labor Relations Act. These decisions were contrary to prior other federal appellate court case law, including a 2015 decision in Murphy Oil USA, Inc. v. N.L.R.B. (5th Cir. 2015) 808 F.3d 1013.
The United States Supreme Court has granted review of Murphy Oil, Lewis, and Morris, to resolve the conflict between the circuit courts, and decide the issue. Oral argument in the Supreme Court will occur in the fall of this year, with new Supreme Court Justice Gorsuch participating in the decision. The Supreme Court’s the decision has the potential to have a wide impact. Because of the likely 4-4 split amongst the Justices other than Justice Gorsuch on this case, he will likely cast the deciding vote.
The National Labor Relations Act provides that “[e]mployees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” (29 U.S.C. §157.) This is the statute that gives employees the right to unionize.
Prior to Lewis and Morris being decided, federal courts had consistently concluded that the NLRA’s authorization of “concerted activities,” however, did not negate class action waivers in arbitration agreements. In that vein, on October 26, 2015, the Fifth Circuit Court of Appeals decided the first of the three cases currently under review by the Supreme Court, Murphy Oil USA, Inc. v. N.L.R.B. (5th Cir. 2015) 808 F.3d 1013. Murphy Oil addressed an individual arbitration provision in an employment contract that “waive[d] the right to pursue class or collective claims.” (Murphy Oil, supra, 808 F.3d at 1015.) Consistent with existing precedent, Murphy Oil held that the employer “committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here.” (Id. at 1018.)
On May 26, 2016, however, the Seventh Circuit Court of Appeals in Lewis issued a major blow to existing precedents enforcing class action waivers in employment contracts. The Lewis Court held the National Labor Relations Act’s provision that employees have the right to engage in “concerted activities” includes “‘resort to administrative and judicial forums.’” (Id. at 1152.) Lewis held that the class action waiver violated the NLRA. With respect to the Federal Arbitration Act, Lewis explained that the FAA contains a Savings Clause, which allows a party to challenge to arbitration agreements on “such grounds as exist at law or in equity for the revocation of any contract.” (Id. at 1157.) One such ground illegality, i.e., is that the class action waiver in the arbitration provision is illegal under the NLRA. (Id. at 1157.) Because the FAA’s Savings Clause applied to the issue of whether the class action waiver was illegal, Lewis held that “there is no conflict between the NLRA and the FAA, let alone an irreconcilable one.” (Lewis, supra, 823 F.3d at 1157.)
This significant decision in Lewis was followed in quick succession by the Ninth Circuit decision in Morris, which also found class actions waivers in an arbitration agreement illegal under the NLRA, and unenforceable under the FAA. Morris held that “concerted action is the basic tenet of federal labor policy,” and includes the right to bring employment class actions. (Id. at 983.) Morris concluded that, because the employee has a substantive right under the NLRA to bring an employment class action, that right “cannot be waived in arbitration agreements.” (Id. at 985.) With respect to the FAA, Morris noted NLRA prohibits a “ban on . . . concerted legal claims – not a ban on arbitration.” (Id.) Thus, Morris held that “the illegality [of the class action waiver] . . . has nothing to do with arbitration. . .” (Id. at 985.)
Following the decisions in Lewis and Morris, a conflict exists between the federal circuits as to whether class action waivers were enforceable in employment contracts. The Unites States Supreme Court granted review of the decisions in Murphy Oil, Lewis, and Morris to resolve this conflict. The matter will most likely be heard during the fall term this year.
Justice Gorsuch’s judicial record on employee rights is mixed, although some have perceived hostility towards employee interests. He has not weighed in on a significant class action waiver case. Given the existing makeup of the Court, Justice Gorsuch will likely be the deciding vote on the case. The decision will likely impact this area of law for decades to come. It also poses a significant test for Justice G0rsuch, and may define how is viewed by many.