Can Employers Continue Requiring Class Action Waivers? Employers Await the Supreme Court’s Answer

In 2016, the Ninth Circuit created an internal split on whether class action waivers in arbitration agreements violate the National Labor Relations Act (NLRA).

This inner-circuit split deepened a nationwide debate. The Second, Fifth, and Eighth Circuits have ruled that class action waivers do not interfere with employees’ NLRA rights, whereas the Seventh and Ninth Circuits have ruled that such class action waivers violate the NLRA. This dissonance prompted the U.S. Supreme Court to hear three consolidated cases on the subject: National Labor Relations Board v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris hear. The high court heard oral arguments in these three cases on October 2, 2017.  Employers across the country eagerly wait for the Court’s decision.

The Fifth Circuit case, National Labor Relations Board v. Murphy Oil USA Inc., follows a natural gas company and its employee Sheila Hobson. Hobson signed a “Binding Arbitration Agreement and Waiver of Jury Trial” upon being hired. However, under the NLRA, employers commit an unfair labor practice by restraining an employee’s right to engage in protected concerted activity. The NLRB stated that Murphy Oil USA had unlawfully required its employees to sign an arbitration agreement waiving their right to pursue class and collective actions. In its arbitration agreement, Murphy Oil USA states that an individual employee must agree to resolve “any and all disputes or claims…by binding arbitration.” The NLRB held that the agreement was unlawful, but the Fifth Circuit reversed the NLRB’s decision.

In the Ninth Circuit case, Ernst & Young LLP v. Morris, the law firm Ernst & Young LLP faced similar charges. As a condition of employment, new hires were required to sign agreements that contained a “concerted action waiver”, meaning employees were required to pursue legal claims exclusively through arbitration. The Ninth Circuit ruled that Section 7 of the NLRA mandates collective legal action for employees, so any waiver of collection legal action would be illegal under the Federal Arbitration Act.

Similarly, the in Seventh Circuit case, Epic Systems Corp. v. Lewis, Epic Systems Corporation required some employees to sign arbitration agreements regarding wage and hour violations, as well as collective actions. An employee filed a lawsuit alleging the company had misclassified him and other similarly-situated employers and denied them overtime pay.  The company moved to dismiss the lawsuit and compel individual arbitration.  The district court denied the motion to dismiss, and the Seventh Circuit affirmed.  The Seventh Circuit held that the waiver of collective action provisions violated the NLRA. 

The U.S. Supreme Court has thus far upheld arbitration agreements, stating that they must be enforced according to their terms unless Congress has directly instructed otherwise. In these consolidated cases, the Court will need to decide whether Section 7 of the NLRA prohibits class and collective action waivers in workplace agreements. The decision will make waves across the U.S., redefining how employment disputes can, or must, be resolved.

For more information on the NLRA, contact our experienced attorneys at our Sioux Falls law firm, Sioux City law firm, or Omaha law firm.