January 31, 2018

As Supreme Court Class Action Waiver Decision Looms, District Courts Aid Employers Seeking to Enforce Arbitration Agreements

At this moment the Supreme Court is considering a consolidated appeal from three federal circuits that have split on the question of whether employees may waive their rights to file a collective action lawsuit under the National Labor Relations Act (NLRA) via an arbitration agreement. But the question garnering even more attention from lower courts is whether this ruling will be limited to a labor context under the NLRA, or whether it will also reach the multitude of federal employment law statutes as well.

When this decision by our highest court comes down in the next few months, the precise wording of that ruling will be critical to determining the enforceability of any particular arbitration agreement, and even a ruling adverse to employers may not necessarily defeat a well-crafted arbitration clause.

Current Interpretation of the NLRA and FAA: Circuit Split on Class Action Waivers

The key language in dispute comes from two different federal statutes. First, the NLRA protects employees’ right to engage in “concerted activity” in pursuit of their “mutual aid or protection.” Second, the Federal Arbitration Act (FAA) establishes the enforceability of arbitration clauses “save upon such grounds as exist at law or in equity for the revocation of any contract.” The Sixth, Seventh and Ninth Circuits (covering a total of 16 states) have ruled these two provisions, read together, bar the enforcement of collective action waivers in arbitration agreements. The Second, Fifth and Eighth Circuits (covering a total of 13 states) have ruled that the FAA’s “liberal federal policy favoring arbitration agreements” supersedes this language of the NLRA and FAA, and thus class actions waivers in favor of individual arbitration are enforceable.

Current Interpretation of Circuit Court Decisions: Diversity of Thought Among District Courts

These circuit court decisions have ostensibly considered the enforceability of class action waivers in arbitration agreements on an all-or-nothing basis. But there have been a number of different interpretive approaches in the lower courts as to the actual scope of these decisions, and these cases showcase the importance of context on the enforceability of any particular agreement to waive class action claims.

On one end of the spectrum, some courts have held that these ruling are, indeed, a total bar to class action waivers in arbitration agreements (Davis v. Vanguard Home Care, LLC, N.D. Ill. Nov. 22, 2016; Gaffers v. Kelly Servs., Inc., E.D. Mich. Aug. 24, 2016).

However, judges in Ohio, Kentucky and Tennessee have held that these circuit court decisions only apply to claims which “arise” under the NLRA, meaning that the employee’s complaint arises “as a result of a labor dispute or an unfair labor practice.” Thus these courts held FLSA collective action claims can still be waived in their entirety via arbitration agreement, because an FLSA claim does not constitute such “concerted activity” under the NLRA (Mason v. Synchrony Bank, S.D. Ohio Jan. 22, 2018; McGrew v. VCG Holding Corp., W.D. Ky. Mar. 27, 2017; Doe #1 v. Deja Vu Consulting Inc., M.D. Tenn. Sept. 1, 2017). Indeed, an Ohio judge went so far as to hold that arbitration agreements which lack a class action waiver were still enforceable on an individual-basis only, because these circuit court decisions only addressed express class action waivers (Pyle v. VXI Glob. Sols., Inc., N.D. Ohio Nov. 6, 2017).

A few courts have also opted for a middle ground. For example, an Illinois judge held that employees who qualify as “supervisors” under the NLRA may have ADEA class action waivers enforced against them, because they have no NLRA collective bargaining rights which require protection (Morgan v. Sears Holdings Mgmt. Corp., N.D. Ill. Mar. 6, 2017). Similarly, an Indiana judge distinguished this circuit court precedent, finding that an arbitration agreement containing an “opt-out” clause as to its class action waiver was still enforceable (Scroggins v. Uber Techs., Inc., S.D. Ind. Jan. 26, 2017). And yet another Illinois court found that the entire issue was beyond the court’s reach, as the enforceability of the class action waiver was an issue for the arbitrator under the arbitration agreement (Ali v. Vehi-Ship, LLC, N.D. Ill. Nov. 27, 2017).

Bottom Line

Even if the Supreme Court were to rule that the NLRA and FAA render unenforceable waivers of class and collective action claims in arbitration agreements, the precise language of that ruling will be of paramount importance, because as the district courts have demonstrated, there are still a multitude of ways a company may resurrect a seemingly extinct class action waiver, depending on the language of the arbitration agreement and the nature of the claim.

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