July 06, 2018 Practice Points

Supreme Court Holds Employers Do Not Violate National Labor Relations Act by Requiring Employees to Agree to Arbitrate

The ruling comes in Epic Systems v. Lewis.

By James N. Boudreau

On May 21, 2018, in a 5–4 decision, the United States Supreme Court issued a long-awaited decision in Epic Systems Corp. v. Lewis, 584 U.S. ____ (2018), holding that arbitration agreements required as a mandatory condition of employment do not violate the National Labor Relations Act (NLRA). Justice Gorsuch, joined by Chief Justice Roberts and Justices Kennedy, Thomas, and Alito, delivered the opinion. 

The Court explained that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA) instructs “federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.” Relying on that rule, the Court held that employers can require employees to submit all work-related disputes to individual arbitration. It rejected the argument that the NLRA creates a right to group arbitration and thus prohibits such a requirement. It thus rejected the argument that the NLRA in this way trumps the FAA.

The Court’s decision resolves a circuit split on whether employers commit an unfair labor practice by requiring employees to agree to arbitrate claims arising out of their employment on an individual basis only. The Fifth Circuit held in 2013 that the answer to that question is no and reaffirmed its decision in 2015. In D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344, 362 (5th Cir. 2013); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015), cert. granted, (U.S. Jan. 13, 2017). The following year, however, the Seventh Circuit became the first appellate court to part ways with the Fifth Circuit’s rule. It held that requiring employees to agree to arbitrate on an individual basis only—and thereby waive their ability to bring class or collective claims—violated employees’ rights under the NLRA. Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted, (U.S. Jan. 13, 2017). The Ninth Circuit followed the Seventh Circuit, and the Supreme Court granted certiorari (consolidated cases from the Fifth, Seventh, and Ninth Circuits) in January 2017. Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, (U.S. Jan. 13, 2017).

It was not until May 2018, however, that the Supreme Court sided with the Fifth Circuit. In doing so, it notably chipped away at the viability of arguments based on Chevron deference. The Supreme Court rejected the contention that it must defer to the National Labor Relations Board’s (NLRB) interpretation of the interplay between the NLRA and FAA. The Court pointed out that, as recently as 2010, the NLRB had expressed a view contrary to what it was now espousing. But, regardless of the seeming position changes, the Court held Chevron did not require deference to the NLRB because no rule or precedent authorizes the NLRB to interpret, much less oversee, the FAA. Justice Gorsuch’s “straight talk” on Chevron deference may portend further such rulings on the issue.

Justice Ginsburg authored a strongly worded dissenting opinion in Lewis, joined by Justices Breyer, Sotomayor, and Kagan. The dissent takes the position that the NLRA does in fact protect workers’ rights to enforce employment laws on a group basis. It calls out and criticizes what it views as the Supreme Court’s variance in recent decades “away from Congress’ intent simply to afford merchants a speedy and economical means of resolving commercial disputes” in interpreting the FAA. In the end, the dissent opines that the FAA permits invalidation based on “generally applicable contract defenses,” and holds that illegality—i.e., violating the NLRA—is precisely such a defense. In the dissent’s view, therefore, nothing about the FAA prohibits the invalidation of mandatory arbitration agreements which violate the NLRA.

The majority opinion, however, leaves no room for doubt: Arbitration programs with class action waivers are enforceable and do not violate the NLRA, even when they are a mandatory condition of employment. This holding safeguards such employer-sponsored arbitration programs, an entrenchment that will likely increase their prevalence. Of course, employers may still choose not to utilize mandatory arbitration programs, perhaps offering as an alternative optional arbitration agreements for cultural reasons or to avoid potential state law pitfalls. Regardless, an uptick in mandatory individual arbitration programs does not necessarily foreshadow an end to aggregated claims and proceedings. Employers may still sometimes conclude that a class or collective resolution, whether in court or arbitration, is more efficient and cost-effective than myriad individual arbitrations.

 

James N. Boudreau is a shareholder with Greenberg Traurig in Philadelphia, Pennsylvania.