Seyfarth Synopsis: Following oral argument, employers should be cautiously optimistic that the Supreme Court will allow mandatory arbitration programs containing waivers of the ability to bring collective and class actions.
In yesterday's oral argument, in one of the most significant employment law cases we have seen in some time, a divided Supreme Court appeared more likely than not to give the green light to employers' mandatory arbitration programs that contain waivers of collective and class actions. Our summary of the issues this case presents can be found here: http://www.wagehourlitigation.com/arbitration-agreements/will-the-supreme-court-finally-remove-doubt-that-an-employer-can-mandate-that-employees-enter-into-arbitration-agreements-with-class-waivers/
Reading tea leaves from oral argument is always a challenge, especially for those who have a stake in the matter.1 But the three authors of this post attended yesterday's argument and, judging from the questions from the Court, the various Justices' reactions to the answers to those questions, and the prior rulings from the Court, are optimistic that the Court ultimately will issue a closely-contested ruling in favor of class waivers.
Four Justices Appear Ready to Invalidate Class Waivers in Employment Cases
While our prediction is somewhat uncertain, there is one aspect in which we are completely confident: there will not be a unanimous decision. Indeed, it appeared that there are four solid votes to hold that Section 7 of the National Labor Relations Act provides an employee with a right to bring a collective or class action, that requiring an employee to waive that right as a condition of employment violates NLRA Section 8's prohibition against employer restraint of that right, and that, therefore, an employer's arbitration agreement including a class waiver cannot be enforced either because the class waiver is illegal or because the NLRA constitutes a contrary congressional command to the general rule that, under the Federal Arbitration Act, arbitration agreements are to be enforced according to their terms.
Justice Ginsburg asserted in her questions that "the driving force of the NLRA was the recognition that there was an imbalance, that there was no true liberty of contract," which is why concerted activity — including, in her apparent view, class and collective action — is protected against employer interference. She further contended that the Court's prior precedents regarding the FAA concerned only commercial contracts and did not involve NLRA rights. (As the employers' counsel Paul Clement rightly pointed out, however, the Court has twice reviewed the propriety of arbitration agreements between employers and employees, and neither time did the Court reason that arbitration agreements in the employment context are entitled to any less weight than those in the commercial context.)
Justice Kagan relied on the Court's prior precedent to argue that the NLRA protects "employees seeking to improve working conditions through resort to administrative and judicial forums" and thus implied that filing a class action also is protected by the NLRA. But the employers' counsel retorted that Court precedent merely protects "resort to" courthouses, and that "there is no right to proceed as a class once you get there." Once in court, nothing prohibits an employer from asserting all available defenses to class treatment, including moving to enforce an agreement between an employer and employee to arbitrate all disputes on a bilateral basis.
Justice Sotomayor questioned that argument by maintaining that an employer cannot enforce a contract that is "illegal" even under the FAA. In response to that, employers' counsel Clement retorted that the Court has decided two other cases (Circuit City v. Adams and Gilmer v. Interstate Johnson/Lane Corp.) in which employees had agreed to bilateral arbitration and in which it could have been argued that the NLRA makes such an agreement unlawful. "But no dog barked at that point . . . and that's because the NLRA in no other context extends beyond the workplace to dictate the rules of the forum," Clement told the Court.
The most vigorous questioner was Justice Breyer, who appeared offended by the idea of a class waiver. He went so far as to say that he is worried that the employers' position "is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal" and that "I haven't seen a way that you can, in fact, win the case, which you certainly want to do, without undermining and changing radically what has gone back to the New Deal." Clement explained, however, that "for 77 years" — from the passage of the NLRA until its 2012 D.R. Horton decision — "the [NLRB] did not find anything incompatible about Section 7 and bilateral arbitration agreements" and the NLRB's General Counsel issued a memorandum on the issue in 2010 in which it found that a mandatory class waiver does not violate the NLRA.
But From Where Does the 5th Vote Come?
Despite these fairly clear votes to invalidate class waivers, four votes does not a majority make. And in questioning of counsel for the NLRB and counsel for the employees, it appeared that it will be difficult to find that fifth vote. Justice Thomas, in keeping with his usual demeanor, did not ask a question, but he has been in the Court's majority in other cases enforcing arbitration agreements and is regarded as generally receptive to employer's views. Nor did Justice Gorsuch ask a question. He, however, thus far has joined the Court's conservative majority in all decisions in which he has been a part.
Chief Justice Roberts and Justice Alito clearly were skeptical of the NLRB's position. Indeed, in questioning its General Counsel Richard Griffin, Chief Justice Roberts and Justice Alito led Griffin into a significant admission, providing the most dramatic moment of the morning. They asked Griffin a series of questions that led Griffin to agree that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: "if that's the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don't allow class arbitration." Griffin did not dispute this. He commented that "the provisions of the [NLRA] run to prohibitions against employer restraint."
Interestingly, counsel for the employees, Daniel Ortiz of the University of Virginia School of Law, did not agree with that concession, thus highlighting fundamental dissent from the NLRB's position. These cases at the Supreme Court already were notable because the Solicitor General took a position opposite that of the NLRB. Oral argument added another layer of disagreement: even the employees urging the Court to adopt the Board's view of the NLRA don't agree with the concession made by Griffin. In other words, the employees and the NLRB are asking the Supreme Court to recognize a right that overrides the FAA, but they cannot agree on what that right is.
As in any close case recently at the Supreme Court, most eyes were on the swing vote, Justice Kennedy. Going into the argument, he appeared to be the Justice most likely to join Justices Ginsburg, Sotomayor, Kagan, and Breyer, the four justices who dissented from the Court's enforcement of a bilateral arbitration agreement in the consumer context in AT&T Mobility v. Concepcion. Justice Kennedy did not tip his hand as much as the other Justices. But he did appear to be interested in the concession that NLRB General Counsel Griffin made (and clarified Chief Justice Roberts' question that induced that concession), and his questioning of the Board and the employees' counsel suggested that he believed that, even with a collective and class action waiver, employees still can exercise Section 7 rights in various ways, and that he did not wish to "constrain employers in the kind of arbitration agreements they can have."
Little of the argument focused on the FAA and the nature of its saving clause or what constitutes a "contrary congressional command." The Justices seemed more interested in exploring whether the NLRA contains a right to a class action in the first place.
Our predicted close victory for the employers is just that: a prediction. After all, even the Justices who appeared to favor permitting class waivers did not strongly signal how they might reach that result or whether any guidelines or restrictions might accompany the rule. We do not recommend that employers bank on our prediction, because one never knows what is in the minds of the Justices or how they will come out after discussing the cases with each other. Until a decision is issued — which likely will be early 2018 — there will be no definitive answer as to whether a class waiver in an arbitration program provides a defense to an employment class or collective action. Employers should continue to consider whether an arbitration program with a class or collective action waiver is right for them and, if it is, be ready to implement one if the Supreme Court rules in the employers' favor in these cases.
1 Seyfarth Shaw LLP is counsel for Epic Systems Corporation — one of the three companies whose arbitration programs are at issue in the three consolidated cases at the Supreme Court — and represents Epic at the district court in this case, was counsel for Epic in the appellate court, and is co-counsel for Epic at the Supreme Court. The views expressed in this blog post are Seyfarth Shaw's and not necessarily those of Epic.
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