Employment Class Action Waivers Forecast Big Legal Issues Ahead

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Employers commonly require new employees to execute arbitration agreements as a condition of employment. In many instances, such arbitration agreements contain class/collective action waivers, which provide that any employment-related disputes be adjudicated through arbitration and the employee waives his or her right to file or participate in any class/collective action in court.
Arbitration agreements with these waiver provisions have come under steady attack since 2012 by the National Labor Relations Board. That was the year of the board's much-debated D.R. Horton decision, which found class/collective action waivers violate employee concerted activity rights under the National Labor Relations Act. Since handing down that decision, the board has consistently found employers act unlawfully by maintaining and/or enforcing such waivers against employees. The board's unswerving adherence to its position is despite near-unanimous rejection of it by the federal courts that have reviewed the issue, including reversal of the D.R. Horton case itself by a federal appeals court.

The board's increasingly isolated viewpoint on the waiver issue got a boost recently however when, for the first time, a federal appeals court accepted the board's argument that class/collective action waivers violate the NLRA, creating further uncertainty for employers and teeing up what appears to be an inevitable resolution by the U.S. Supreme Court.

The Board's Expanding Role in Nonunion Employer Relations

Because the board has a more prominent role in traditional labor union activity, it may not be at the forefront of concerns for companies without a unionized workforce. However, both union and nonunion employees are protected by the NLRA when engaging in concerted activities regarding the terms and conditions of employment. With traditional labor union membership shrinking, the board has increasingly intensified scrutiny of other employment issues, including agreements containing class/collective action waivers.

The board has based such investigations on its statutory duties to interpret and enforce Section 7 of the NLRA, which provides that employees have the right to organize, bargain collectively, and "engage in other concerted activities for the purpose of … mutual aid and protection." Employees have the right to engage in protected concerted activity, and employment agreements of companies large and small across the country that contain class/collective action waivers have been unable to evade the board's scrutiny intact.

The Board's Nonacquiescence Doctrine

Despite the board's apparent aim to rid the employment landscape of class/collective waiver provisions, the overwhelming majority of courts to review the issue have rejected the board's position and found that such waivers in arbitration agreements do not unlawfully impede employee rights to engage in concerted activity under the NLRA. Courts have generally relied on established Supreme Court precedent to rule against the board, including reasoning that the Federal Arbitration Act, which allows and even encourages arbitration, is of equal importance in the statutory scheme.

The board, however, has largely disregarded such contrary rulings, even in states where the governing federal courts of appeal have found the board to be wrong on the issue. Indeed, the U.S. Courts of Appeals for the Second (covering Connecticut and New York), Fifth, Eighth, Ninth and Eleventh circuits have rejected the board's position or declined to find such employee waivers unlawful when addressing the issue. The board has justified its rebuff of these federal courts under its "nonacquiescence policy," by which the board considers its administrative law judges to be bound by board precedent until, and unless, the Supreme Court has reversed the board's rulings. Because D.R. Horton was reversed by the Fifth Circuit, but not yet by the Supreme Court, the board maintains that the decision is still good law.

Further, the board reasons that it may continue filing class/collective action waiver complaints in subsequent cases with different parties (even in states where federal courts have rejected the board's position) because the nonacquiescence policy permits the board "to continue holding a position rejected by a circuit court as it seeks to persuade other circuits, and eventually the Supreme Court, to endorse its position."

Seventh Circuit and Epic Systems

The board's brash strategy paid off recently when a circuit court was persuaded to accept the board's position on the issue. In Jacob Lewis v. Epic Systems, No. 15-2997 (May 26, 2016), the Seventh Circuit became the first federal appellate court to find that employers may not maintain or enforce an agreement requiring employees to waive class/collective actions, agreeing with the NLRB that such waivers impinge the concerted activity rights of employees under the NLRA.

In Epic Systems, employees of a health care company, some of whom had signed arbitration agreements containing class/collective action waivers, brought a collective action lawsuit in court nonetheless. The Seventh Circuit affirmed the trial court's refusal to enforce the waiver provision and compel individual arbitration, construing Section 7 broadly to find that the NLRA "renders unenforceable any contract provision purporting to waive employees' access" to collective legal proceedings. The court conceded that the "circuits have some differences of opinion" on the issue, noting that the Second, Fifth, Eighth, Ninth, and Eleventh circuits had upheld such class/collective action waivers. However, while the court acknowledged that other courts had found that the FAA made such arbitration agreements lawful, the court determined that its interpretation of the NLRA did not conflict with the FAA. The court reasoned that the FAA provides that agreements to arbitrate are enforceable unless grounds in law or equity exist for revocation. In this case, the court concluded that because "the provision at issue is unlawful under Section 7 of the NLRA, it is illegal and meets the criteria of the FAA's savings clause for nonenforcement."

While the reasoning of the court's analysis has been criticized and has not yet been joined by any other federal appeals court, the Seventh Circuit's ruling was a much-needed victory for the NLRB. By contradicting rulings of the other circuit courts, a clear split has arisen for potential Supreme Court certification and provided further fuel for the NLRB as it continues to pursue the invalidation of similar agreements.

Moving Forward

In the face of this uncertainty and continuing challenges by the NLRB, employers should review the scope of any agreements with class/collective action waivers, especially employers with employees in states covered by the Seventh Circuit (Illinois, Indiana and Wisconsin). Because of the current split, employers may face challenges in maintaining or enforcing arbitration agreements nationwide. Employers should ensure that agreements allow for the filing of administrative claims by employees. Even in states where courts have found that class/collective action waivers are lawful, agreements may still be found unlawful where employees could construe an agreement to prohibit the filing of any administrative claims, such as filing a charge with the Connecticut Commission on Human Rights, the Equal Employment Opportunity Commission, or the NLRB. Further, while no guarantee, companies may minimize risk by expressly permitting collective arbitration, as the Epic Systems court found that such a provision would not have run afoul of the NLRA because it would secure the employees' concerted activity rights under Section 7. Finally, employers should continue to carefully monitor this issue as the numerous cases that have been brought by the NLRB wind their way through the courts, until likely final resolution from the Supreme Court.

If you feel you have been mistreated by your employer or in your place of employment and would like to explore your employment law options, contact the experienced employment law attorneys today at 203-221-3100, or by email at JMaya@mayalaw.com. We have the experience and knowledge you need at this critical juncture. We serve clients in both New York and Connecticut including New Canaan, Bridgeport, White Plains, and Darien.

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Source: Marc Zaken, Ashley Totorica, Epic Showdown Looming Over Employee Class Action Waivers, The Connecticut Law Tribune, July 25, 2016, at http://www.ctlawtribune.com/id=1202763477377/Epic-Showdown-Looming-Over-Employee-Class-Action-Waivers?mcode=0&curindex=0