Court joins Seventh and Ninth Circuits in holding that employer’s requiring employees to waive class and collective action procedures as a condition of employment is unenforceable, but issue will be resolved late this year by United States Supreme Court

The issue of whether an employer can require, as a condition of employment, that an employee agree to arbitrate all claims against it, and that the employee do so only on an individual basis, thereby forgoing class and collective action procedures, has been quite the ongoing saga.  In brief, in 2012, the National Labor Relations Board (NLRB) held that requiring employees to waive the right to bring claims in the form of a class action (or a collective action under the Fair Labor Standards Act) violates the guarantee of rights in Section 7 of the National Labor Relations Act (NLRA), which includes the right to engage in protected concerted activity for mutual aid of protection.  The employer in that case (D.R. Horton, Inc.) appealed with NLRB’s decision to the Fifth Circuit Court of Appeals, which denied enforcement of the NLRB’s order.  Undaunted, the NLRB thereafter issued a decision in a different case (Murphy Oil USA, Inc.), but reaching the same result – class waivers in arbitration agreements unlawfully interfere with employees’ right to engage in protected concerted activity under the NLRA.  Once again, the employer appealed to the Fifth Circuit, and once again, the court invalidated the NLRB’s ruling.

The Fifth Circuit’s position rejecting the NLRB’s stance on class waivers in arbitration agreements subsequently was joined in decisions from the Second and Eighth Circuits, as well as impliedly agreed to by the Eleventh Circuit and numerous state courts, including, notably, the California Supreme Court (in the Iskanian decision).  However, in May 2016, the Seventh Circuit Court of Appeals issued the first federal appeals court decision agreeing with the NLRB’s interpretation (in Lewis v. Epic Systems).  Several months later, in August 2016, the Ninth Circuit joined the Seventh Circuit in holding that class waivers in arbitration agreements violate the NLRA (in Morris v. Ernst & Young)Based on this emergent split in authority, in January 2017, the U.S. Supreme Court agreed to take up the issue, granting certiorari and consolidating the Murphy Oil, Lewis, and Morris cases.  Those cases will be heard during the upcoming Supreme Court term, which starts in October 2017, and a decision is expected in late 2017 or early 2018.  For more information, see our extensive coverage on this issue in posts here (Murphy Oil NLRB decision), here (Murphy Oil Fifth Circuit decision), here (Lewis decision), here (Morris decision), and here (US Supreme Court grants certiorari).

On May 26, 2017, the anti-waiver parties in the consolidated Supreme Court proceeding got a boost from the Sixth Circuit Court of Appeals, which joined the Seventh and Ninth Circuits in concluding that mandatory waivers of class and collective action proceedings violate the NLRA because they interfere with employees’ rights under that law to engage in protected concerted activity.  Central to the court’s ruling in NLRB v. Alternative Entertainment, Inc. was its determination that the right to engage in class action litigation is not a procedural right which can be waived by employees, but instead is a substantive right guaranteed by the NLRA, and thus an employer cannot require that employees give up that right as a condition of employment.

Of course, the employer in this decision almost certainly will seek Supreme Court review, given that the issue presented in the case is nearly identical to that in Murphy Oil, Lewis, and Morris.  How the high court resolves this issue finally will put to rest an issue that has divided the courts and caused ongoing confusion (and headaches) for employers by providing a much-needed answer to the question of whether class waivers in employment arbitration agreements are enforceable.