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Does Mandatory Individual Arbitration Violate the NLRA: Supreme Court Hears Argument

The new term of the Supreme Court began last Monday, October 2, and the first case up has the potential to affect millions of employers and employees across the country. The case, Epic Systems Corp v. Lewis (which was consolidated with two other cases, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA) examines whether employment agreements requiring employers and employees to resolve employment-related disputes through individual arbitration and waive class and collective proceedings are enforceable under the Federal Arbitration Act (FAA), notwithstanding the provisions of the National Labor Relations Act (NLRA).

Arbitration provisions in employment contracts are quite common, and generally these provisions are upheld by the courts. These provisions often include language specifically limiting employees to individual arbitration.  Therefore, employees are unable to pursue any claims through the courts as part of a class action, and are also unable to join together in a joint-arbitration.    

Attorneys representing the employers’ interests argued that the Court’s decision in this case is dictated by the FAA. Under the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable.”  They argued that because the FAA is so clear in its support for enforcing arbitration agreements as written, it could only yield when faced with an explicit contrary congressional command.  Arguing on behalf of the United States (who had originally sided with the employees before the change in administration), Deputy Solicitor General Jeffrey Wall stressed that the case was “at the heartland of the FAA” and “at best, at the periphery of the NLRA.”  Section 7 of the NLRA provides workers with the right to band together to pursue an action, but once they arrive at a forum they are bound by the rules of that forum.  If the forum is a courthouse, they are bound by class action rules.  If the forum is the National Labor Relations Board, they are bound by the rules of the Board which do not provide for class actions.  Here, the forum is individual arbitration, which the employees themselves agreed to.  Section 7 does not extend to dictate the rules of the forum, and therefore under the FAA the arbitration agreements must stand. 

Attorneys representing the interests of employees argued that the impact of the NLRA is much greater. Section 7 of the NLRA provides employees with the right to engage in “concerted activities” for “mutual aid or protection.” Employees banding together to pursue legal claims is exactly the type of concerted activity the  Act seeks to protect, and so an employer cannot bar an employee from bringing a collective action unless there is a different forum available to allow such an action. The FAA simply places arbitration agreements on the same footing as other contracts, and any provision that would strike down a contract would also strike down an arbitration agreement.  Section 8 of the NLRA makes clear that contractual provisions that conflict with Section 7 are unlawful, so therefore the arbitration provisions prohibiting joint-action cannot stand.

It will likely be at least several months before the Supreme Court issues a ruling in this case, but a safe prediction would be that it divides the Court. Given the Court’s strong past support for arbitration agreements, the more conservative justices would perhaps be unwilling to announce a ruling invalidating literally millions of employment agreements.  The more liberal justices, however, appeared sympathetic to the employees in these cases, with Justice Ginsburg noting that the “driving force” of the NLRA was to correct power imbalances between workers and their employers.  For now, as the justices begin the process of deliberation and debate, the county is left to await a final decision.

KMK Legal Alerts and Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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