In a widely anticipated result, a 5-4 divided Supreme Court
rejected the Obama-era challenge to the Federal Arbitration Act brought under
the National Labor Relations Act. Epic Systems
Corp. v. Lewis, No. 16-285
(5-21-18) a/k/a Murphy Oil v. NLRB
No. 16-307. Just as the Court had
rejected prior challenges brought under the Sherman Act, FLSA, ADEA and Title
VII, the Court found that employees can be required to arbitrate their employment
claims (such as the FLSA and state law claims brought in this case) in
individual arbitration cases and rejected the argument that the NLRA required
employers to permit employees to bring class actions in federal court. Indeed, it had already rejected a similar
objection to consumer contracts in its 2011 opinion in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 and that
arbitration was inconsistent with the Norris LaGuardia Act, Boys Markets, Inc. v. Retail Clerks, 398
U. S. 235 back in 1970 when it found that the NLA’s anti-injunction provisions
do not bar enforcement of arbitration agreements. Observing that the FAA has
always been interpreted this way and that the NLRB did not change its
interpretation until the Obama Administration, the Court refused to give any
deference to the NLRB’s “new” position, particularly because it lacked statutory
authority to interpret the FAA. “In the Federal Arbitration Act, Congress has
instructed federal courts to enforce arbitration agreements according to their
terms—including terms providing for individualized proceedings.” The FAA’s savings clause only applies to
defenses to “any” contract (such as fraud and duress), not just defenses to
employment contracts that would be arguably covered by the NLRA.
The Court’s opinion concerns three consolidated cases. In one, an accountant who had signed an
arbitration agreement nonehtless brought a nationwide class action claiming
that E&Y misclassified junior accountants as exempt professionals and did
not pay them overtime compensation under the FLSA and state law. The Ninth Circuit found that the FAA created
an exception when arbitration would violate a federal law, which it found to apply
because the NLRA provides that employees may engage in concerted (i.e.,
collective) activities. Only in one – Murphy Oil – did the lower courts reject
the NLRB’s position.
The savings clause of the FAA provides an exception to
enforcing arbitration agreements when there exists a defense that applies to
any contract, such as fraud or duress.
However, the plaintiffs were asserting a specialized defense for only
certain arbitration agreements: those
that required individual proceedings for employment claims. This is not a generalized defense that
applies to “any contract.” As explained
by the Court:
This is where the employees’ argument stumbles. They don’t
suggest that their arbitration agreements were extracted, say, by an act of
fraud or duress or in some other unconscionable way that would render any
contract unenforceable. Instead, they object to their agreements precisely
because they require individualized arbitration proceedings instead of class or
collective ones. And by attacking (only)
the individualized nature of the arbitration proceedings, the employees’
argument seeks to interfere with one of arbitration’s fundamental attributes.
. . . .
The employees’ efforts to distinguish Concepcion fall short.
They note that their putative NLRA defense would render an agreement “illegal”
as a matter of federal statutory law rather than “unconscionable” as a matter
of state common law. But we don’t see how that distinction makes any difference
in light of Concepion’s rationale and rule. Illegality, like unconscionability,
may be a traditional, generally applicable contract defense in many cases,
including arbitration cases. But an
argument that a contract is unenforceable just because it requires bilateral
arbitration is a different creature. A
defense of that kind, Concepcion tells us, is one that impermissibly disfavors
arbitration whether it sounds in illegality or unconscion- ability. The law of
precedent teaches that like cases should generally be treated alike, and
appropriate respect for that principle means the Arbitration Act’s saving
clause can no more save the defense at issue in these cases than it did the
defense at issue in Concepcion. At the end of our encounter with the
Arbitration Act, then, it appears just as it did at the beginning: a
congressional command requiring us to enforce, not override, the terms of the
arbitration agreements before us.
The Court also rejected the argument that the NLRA’s right
to engage in concerted action necessarily included the right to file a federal
class action lawsuit because such a right did not exist when the NRLA was
enacted:
The notion that Section 7 confers a right to class or
collective actions seems pretty unlikely when you recall that procedures like
that were hardly known when the NLRA was adopted in 1935. Federal Rule of Civil Procedure 23 didn’t
create the modern class action until 1966; class arbitration didn’t emerge
until later still; and even the Fair Labor Standards Act’s collective action
provision postdated Section 7 by years.
As the Court earlier observed:
The NLRA secures to employees rights to organize unions and
bargain collectively, but it says nothing about how judges and arbitrators must
try legal disputes that leave the workplace and enter the courtroom or arbitral
forum. This Court has never read a right to class actions into the NLRA—and for
three quarters of a century neither did the National Labor Relations Board. Far
from conflicting, the Arbitration Act and the NLRA have long enjoyed separate
spheres of influence and neither permits this Court to declare the parties’
agreements unlawful.
. . .
Although the Arbitration Act and the NLRA have long
coexisted—they date from 1925 and 1935, respectively— the suggestion they might
conflict is something quite new. Until a couple of years ago, courts more or
less agreed that arbitration agreements like those before us must be enforced
according to their terms. . . .
. . .
But recently things have shifted. In 2012, the Board— for the
first time in the 77 years since the NLRA’s adoption—asserted that the NLRA
effectively nullifies the Arbitration Act in cases like ours. . . . More
recently still, the disagreement has grown as the Executive has disavowed the
Board’s (most recent) position, and the Solicitor General and the Board have
offered us battling briefs about the law’s meaning.
The Court also observed that the NLRA’s detailed structure
for addressing different types of concerted activities (such as organizing and
bargaining and grievances) does not address any issues related to federal court
class actions:
But missing entirely from this careful regime is any hint
about what rules should govern the adjudication of class or collective actions
in court or arbitration. Without some
comparably specific guidance, it’s not at all obvious what procedures Section 7
might protect. Would opt-out class
action procedures suffice? Or would
opt-in procedures be necessary? What
notice might be owed to absent class members? What standards would govern class
certification? Should the same rules always apply or should they vary based on
the nature of the suit? Nothing in the
NLRA even whispers to us on any of these essential questions. And it is hard to
fathom why Congress would take such care to regulate all the other matters
mentioned in Section 7 yet remain mute about this matter alone— unless, of
course, Section 7 doesn’t speak to class and collective action procedures in
the first place.
. . . .
Perhaps worse still, the employees’ theory runs afoul of the
usual rule that Congress “does not alter the fundamental details of a
regulatory scheme in vague terms or ancillary provisions—it does not, one might
say, hide elephants in mouseholes.”
Finally, the Court rejected any Chevron deference: “And on no account might we agree that Congress
implicitly delegated to an agency authority to address the meaning of a second
statute it does not administer.” While the NLRB is clearly authorized to
interpret and administer the NLRA, it has absolutely no authority relating to
the FAA.
The Court’s majority observes that the dissenting justices
cannot reconcile their position with the Court’s precedent and, instead, rely
on policy arguments. While policy
arguments may be appropriate for Congress, they are not statutory interpretation
or legal arguments:
The policy may be debatable but the law is clear: Congress
has instructed that arbitration agreements like those before us must be
enforced as written. While Congress is of course always free to amend this
judgment, we see nothing suggesting it did so in the NLRA—much less that it
manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s
statutes to work in harmony, that is where our duty lies.
NOTICE: This summary is designed merely to inform and alert you of
recent legal developments. It does not constitute legal advice and does not
apply to any particular situation because different facts could lead to
different results. Information here can be changed or amended without
notice. Readers should not act upon this information without legal advice. If
you have any questions about anything you have read, you should consult with or
retain an employment attorney.
