CONFUSED OVER THE LAWFULNESS OF CLASS ACTION WAIVERS? YOU’RE NOT ALONE!

Posted: July 26, 2017 

The concept of a class action waiver is relative simple; the employee enters into an agreement with their employer waiving their right to bring a claim against their employer, either in court or by arbitration, as a class action.  Indeed, as it relates to arbitration, the Federal Arbitration Act (FAA) provides that arbitration agreements are “valid, irrevocable, and enforceable.”  With this in mind, employers have been using arbitration class action waivers for a number of years, as they are apparently permitted under the FAA.  However, a growing trend of litigation might put an end to these waivers.

In a series of cases, employees have challenged these waivers by filing charges with the National Labor Relations Board (NLRB).  In a decision rendered at the height of the Obama Administration, D.R. Horton, Inc. (2012), the NLRB found in favor of the employee, holding that “by maintaining a mandatory arbitration provision that employees could believe bars or restricts their right to file charges with the National Labor Relations Board, the [employer] has engaged in unfair labor practices.”  On appeal to the Fifth Circuit, the court reversed the NLRB, finding the class action waiver did not violate the National Labor Relations Act (NLRA), and were valid under the FAA.  Thereafter, sister circuits entered the fray, although with conflicting results.  While the Eighth Circuit reached the same conclusion as the Fifth Circuit, finding the arbitration clauses to not violate the NLRA in Cellular Sales of Mo., LLC v. NLRB (2016), the Ninth Circuit (Morris v. Ernst & Young, LLP (2016)) and the Seventh Circuit (Lewis v. Epic Sys. Corp, (2016)) agreed with the NLRB, finding the provisions violated the NLRA.  In the meantime, the Fifth Circuit reaffirmed its previous decision (Murphy Oil USA, Inc. v. NLRB, (2015)), solidifying the split among the federal courts of appeals, and sending this issue straight to the United States Supreme Court, which granted certiorari to hear the case, along with cases arising in the Seventh and Ninth Circuits. 

Recently, in NLRB v. Alternative Entertainment, Inc. (2017), the Sixth Circuit, which covers Michigan, weighed in on the issue, taking the side of the Seventh and Ninth Circuits.  In reaching this conclusion, the Sixth Circuit relied on a reading of the FAA’s savings clause, a provision limiting the FAA’s reach from disturbing “grounds as [they] exist at law or in equity for the revocation of any contract,” in conjunction with the NLRA.  The Sixth Circuit deferred to the NLRB’s interpretation of the NLRA that “employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial.”  Thus, the Sixth Circuit found that the FAA and NLRA “work in harmony” insofar as “[t]he NLRA prohibits the arbitration provision on grounds that would apply to any contractual provision, and thus trigger’s the FAA’s savings clause.”

Meanwhile, the Trump Administration has shifted course from the Obama Administration and indicated that it will no longer defend the NLRB’s position as it relates to class action waivers.  In so doing, the Department of Justice adjusted its position in an Amicus Curiae, “friend of the court,” brief before the court indicating that, although the Department had “previously filed a petition . . . on behalf of the NLRB, defending the Boards view,” that in light of the “change in administration, the [DOJ] reconsidered the issue and has reached the opposite conclusion.”  The NLRB, however, has indicated that they will continue to defend their position, independent of that of the Trump Administration.  Thus, at least at this time, the future of the class action waiver is up for grabs.  At this juncture, given President Trump’s two vacancies on the NLRB, the internal policies of the NLRB may be shifting to match that of the Administration.  However, it is unclear how and at what pace this shift will manifest.

The three cases from the Fifth, Seventh, and Ninth Circuits are set for oral argument before the Supreme Court in October 2017.  Given the looming Supreme Court decision, the future of class action waivers remains uncertain as we can only guess what ruling will be handed down by the Court. 

Masud Labor Law Group will keep you apprised of any new developments related to class action arbitration waivers.  In the meantime, please contact Masud Labor Law Group if you have any questions or concerns related to class action arbitration waivers.

This article is published by the Masud Labor Law Group, and is intended as general information only.  This article is not intended to provide legal advice or opinion, as such advice may only be given when related to specific fact situations.  Questions or comments concerning this article should be directed to the Masud Labor Law Group, 4449 Fashion Square Blvd., Ste. 1, Saginaw, Michigan, 48603, (989) 792-4499.  E-Mail: .(JavaScript must be enabled to view this email address). ©Masud Labor Law Group 2011.  All rights reserved.  Reproduction of this article in whole or in part, without express permission from the Masud Labor Law Group is prohibited.

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