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Supreme Court Continues Its Review of Workplace Arbitration Agreements - Labor and Employment Law News

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Labor and Employment Law News

Posted on: Dec 5, 2018

By Kimberly D. Jeselskis, Katz Korin Cunningham

On May 21, 2018, in a 5-4 decision, the Supreme Court held in a trio of cases that workplace arbitration agreements in which individual employees waive the right to pursue wage-and-hour class or collective claims in any forum are legally permissible. See Epic Systems Corp. v. Lewis, Ernst & Young, LLP v. Morris, and National Labor Relations Board v. Murphy Oil, USA (collectively referred to as the Murphy Oil trio.) The opinion, authored by Justice Gorsuch, was joined by Chief Justice Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito. Justice Ginsberg authored the dissenting opinion. Justices Breyer, Sotomayor and Kagan joined. The decision sharply divided the court on ideological lines. 

The issue before the Supreme Court required it to interpret the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). The FAA provides that “a written provision in…a contract evidencing a transaction involving commerce requiring the parties to arbitrate instead of litigate disputes shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” This is referred to as the FAA saving clause. The NLRA provides that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 

The Supreme Court decided that the FAA’s saving clause did not provide a basis for refusing to enforce arbitration agreements waiving collective or class action procedures. Furthermore, the court held the provision of the NLRA which guarantees to workers the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection, does not reflect a clearly expressed and manifest congressional intent to displace the FAA and to outlaw class and collective action waivers. In other words, arbitration agreements like these will prohibit employees’ ability to collectively arbitrate wage-and-hour disputes. 

Employers see the decision as a victory given the significant increase in the number of collective and class action wage-and-hour suits and will likely argue that the decision extends beyond wage-and-hour claims. Employees obviously view the decision as a significant blow to workers’ rights. 

Looking forward, the Supreme Court will continue its review of workplace arbitration agreements. The court has granted cert to review the Ninth Circuit’s decision in Lamps Plus, Inc. v. Varela. In this case, Varela filed a class action complaint against his employer, Lamps Plus, under various state law theories including negligence, invasion of privacy, and breach of contract after the employer released employee personal identifying information in response to a phishing scam. Varela signed an arbitration agreement as a condition of employment. The agreement was silent on the issue of class or collective actions. After Valera filed suit, his employer relied on the arbitration agreement to compel arbitration. The district court interpreted the arbitration agreement to authorize class arbitration. The Ninth Circuit affirmed. Lamps Plus petitioned for cert and the question before the Supreme Court in Varela is “whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” The court heard oral argument in the case on October 29, 2018.

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