Today the United States Supreme Court granted and consolidated three petitions for certiorari related to the validity of class action waiver clauses in employer/employee arbitration agreements. The Court has consolidated the petitions in Epic Systems Corp. v. Lewis (No. 16-285), Ernst & Young v. Morris (No. 16-300), and NLRB v. Murphy Oil USA, Inc. (No. 16-307).
Classified previously blogged about the Ninth Circuit’s decision finding Ernst & Young’s class action waiver unenforceable based on the collective action provisions of the National Labor Relations Act (the “NLRA”). In recent years, following a series of arbitration-friendly Supreme Court decisions, including Stolt-Nielson in 2010, Concepcion in 2011, and DirectTV in 2015, businesses have significantly increased the use of class action waivers in arbitration agreements in various types of contracts.
As Carlton Fields reported in our 2016 annual Class Action Survey of Best Practices in Reducing Cost and Managing Risk in Class Action Litigation, the use of arbitration clauses barring class actions increased from a reported 16.1% to 39.2% from 2012 to 2015. The issue that the High Court will consider this term is whether such waivers are enforceable in the employment context, or whether the collective-bargaining provisions of the NLRA render such waivers unenforceable under the Federal Arbitration Act (the FAA), and provide an absolute right to employees to resolve their employment disputes through collective proceedings, whether or not they entered into otherwise enforceable arbitration contracts. The Court’s decision in these cases is expected to resolve a significant Circuit split. The Second, Fifth, and Eighth Circuit courts have held that the FAA requires the enforcement of class action waivers in employment arbitration agreements. The Seventh and the Ninth Circuits have reached the opposite conclusion, holding that such waivers interfere with the rights of employees to “concerted activities” under the NLRA, and are unenforceable. The current eight member Supreme Court is without Justice Scalia, who authored the 5-4 Concepcion opinion in 2011, and whose vote on this issue would have almost certainly fallen on the side of enforceability. The Court’s ultimate decision is likely to have significant financial implications for business in resolving employment disputes.