The National Labor Relations Board (NLRB) has asked the Supreme Court to review whether arbitration agreements that prohibit employees from pursuing class or collective actions are unlawful under the National Labor Relations Act (NLRA). NLRB v. Murphy Oil USA, Inc., U.S., No. 16-307, cert. petition 9/9/16. This issue is monumental, as up until recently the federal appeals courts have been ruling that the Federal Arbitration Act expresses a policy in favor of enforcing arbitration agreements like the ones at issue. These rulings allowing such broad arbitration provisions banning class and collective actions have been upheld by the federal circuit courts of appeal in the Second, Fifth, Eighth and Eleventh Circuits. The circuit courts of appeal from the Seventh and Ninth Circuits have reached a contrary result.
The magnitude of the issue is shown in cases such as those involving Uber Technologies, Inc. Uber is being sued in various cases across the country contending that its contract workers are actually employees, subject to the legal protections of the employment laws including those pertaining to minimum wage and overtime, unionization, discrimination, etc. In the face of such litigation threats, Uber instituted a national arbitration policy requiring its contract workers to resolve their disputes with the company through individual arbitration cases, rather than class or collective actions in court. In just one of the cases, Uber had agreed to pay as much as $100 million to cover drivers in several states, but a federal judge rejected the proposed settlement. In that case, a federal appeals court later ruled that Uber’s arbitration clause was enforceable, reducing the size of the pending class action to the small percentage of drivers who had opted out of the arbitration agreements. Mohamed v. Uber Techs., 2016 WL4651409 (C.A. 9, 9/7/16). Advocates of arbitration agreements argue that it is a fairer process and much less costly and quicker than lengthy court class action litigation.
As a result of this and other similar litigation, a majority of Fortune 500 companies have elected to institute individual arbitration agreements with their employees, often in devices as simple as including such provisions on their employment applications. As a result, employers have been able to lessen the volume of court litigation, while providing their employees a quicker and easier way to pursue legal claims. Recently the proliferation of arbitration provisions prohibiting class and collective action have become common, thus providing further protection to employers.
In recent years, the NLRB has been attacking these provisions, contending that such agreements banning class or collective actions unlawfully interfere with the employees’ rights under the NLRA to engage in concerted activity by participating in such class or collective actions. Thus, in D.R. Horton, Inc., 357 NLRB No. 184 (2012), the NLRB found that an employer violated the NLRA by enforcing an arbitration policy that prohibited any participation in a class, collective or similar actions by employees. The Fifth Circuit denied enforcement of that ruling at 737 F. 3d 344 (C.A. 5, 2013), and 808 F. 3d 1013 (C.A. 5, 2015). The NLRB argued in its petition for Supreme Court review that while the Federal Arbitration Act expresses a policy in favor of enforcing arbitration agreements, the savings clause in that law at 9 U.S.C. § 2, doesn’t require enforcement of an arbitration agreement that is illegal under a different law, the NLRA. Meanwhile, the NLRB continues to issue many dozens of rulings finding such class and collective action waivers to be unlawful under the NLRA. More recently, the NLRB has also found that an employer violates the Act by refusing to hire an employee who refuses to sign such a waiver of class and collective action rights. Keiser University, 363 NLRB No. 73 (12/23/15).
Editor’s Note: Many employers "swear by" individual employment arbitration provisions with class and collective action waivers. They contend arbitration is quicker, cheaper and generally private. Employees are not necessarily opposed to such quicker means of resolving their legal claims, although a few are skeptical and oppose such agreements as giving up their rights to "go to court." The potential disadvantage, however, is that because such provisions allow a simpler and quicker means of legal redress, more employees might be potentially inclined to use these procedures to bring claims. Most employers have found, however, that the use of such arbitration procedures is not excessive.
Some public interest groups feel that mandatory arbitration provisions are not fair, and should be found to be unenforceable, unless an employee plaintiff voluntarily decides to enter into such an agreement after bringing a lawsuit in court. The legal resolution of opposition to such arbitration agreements that bar class and collective actions is based on a potential conflict between the current NLRB’s interpretation of "concerted" activity, and the Federal Arbitration Act’s provisions encouraging enforcement of arbitration agreements. The Supreme Court is likely to review this conflict in light of the split of circuits and the importance of the issue. Further, the NLRB has more recently "raised the stakes" in such claims by finding an employer’s refusal to hire an applicant to be unlawful because of that applicant’s refusal to sign an arbitration agreement waiver of class or collective actions.
