By Mark Kantor
The US Supreme Court heard oral argument this morning in the three consolidated cases involving the policy of the National Labor Relations Board (NLRB) prohibiting arbitration clauses in employment agreements that bar class actions (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA). The transcript of that oral argument will be available here later this afternoon – https://www.supremecourt.gov/oral_arguments/argument_transcript/2017
Many observers believe the Court’s decision in these cases will come down to Justice Anthony Kennedy’s vote. For what it is worth, Reuters characterized Justice Kennedy’s questions as “pro-employer” (https://www.reuters.com/article/us-usa-court-labor/u-s-supreme-court-divided-over-key-employment-dispute-idUSKCN1C71RP).
Justice Anthony Kennedy, often the swing vote in major cases, asked questions that appeared to favor employers, as did two fellow conservatives, Chief Justice John Roberts and Justice Samuel Alito.
Kennedy indicated that a loss for workers would not prevent them from acting in concert because they would still be able to join together to hire the same lawyer to bring claims, even though the claims would be arbitrated individually. That would provide “many of the advantages” of collective action, Kennedy said.
See also Bloomberg’s take, which picked up on the same Kennedy comment – https://www.bloomberg.com/news/articles/2017-10-02/justices-suggest-they-will-divide-on-worker-class-action-rights.
Anne Howe, the respected Court-watcher writing on her own blog Howe on the Court and on Scotusblog, started her review of the proceedings with her bottom line; “In the first oral argument of the new term, a divided Supreme Court seemed likely to uphold employment agreements that require an an employee to resolve a dispute with an employer through individual arbitration, waiving the possibility of proceeding collectively.” (http://amylhowe.com/2017/10/02/argument-analysis-epic-day-employers-arbitration-case/, republished at www.scotusblog.com/2017/10/argument-analysis-epic-day-employers-arbitration-case/#more-262296 ).
Not often noted in the analyses of these cases, the NLRB regulatory policy at issue in Epic Systems et al may in any event become moot. Effective just a few days ago, the Board of the NLRB now has a Republican majority (http://fortune.com/2017/09/26/nlrb-labor-workers-rights-william-emanuel/). Moreover, the incumbent NLRB General Counsel (a separate position appointed directly by the President, not the NLRB Board, and subject to Senate confirmation), who actually argued the cases for the NLRB, is scheduled to leave his post in November, thereby opening up that position to a Republican nominee who has apparently already been identified (http://www.insidecounsel.com/2017/09/19/peter-robb-trumps-pick-for-nlrb-general-counsel-is). It would not at all be surprising for Republican control of the NLRB to result in a reversal of this NLRB policy, just as Democratic control of the NLRB led to promulgation of the policy in the first place. This dispute is a reminder that many aspects of arbitration in the US are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.
More broadly, for those of you who feel that these individual employment cases (and similar measures by Federal regulators, under general regulatory statutes, preferring class actions in court over mandatory arbitration of individual claims) are not relevant to your commercial or investment arbitration practice, the precedential impact of a Supreme Court ruling overturning the NLRB’s pro-class action policy may extend far beyond employment and consumer-related claims. Illustratively, for many years, the U.S. Securities Exchange Commission (SEC) has maintained an informal policy of refusing to register public offerings of stock by companies that include mandatory arbitration clauses in their charter documents for disputes between shareholders and the issuing company. As a result, shareholder law suits (such as shareholder class actions) are brought in the US courts.
In July of this year, Republican SEC Commissioner Michael Piwowar stated publicly that the SEC is now open to the idea of allowing companies contemplating initial public securities offerings to include mandatory shareholder arbitration provisions in their company charter documents. That idea, if implemented, could arguably kill off shareholder securities class actions in the US courts. One might think that a Republican majority of Commissioners on the SEC would be amenable to changing the SEC’s shareholder claims policy barring arbitration. It is not, however, yet clear whether the SEC’s new Republican Chairman Jay Clayton is also receptive to the idea. See https://www.reuters.com/article/us-otc-arbitration/shareholder-alert-sec-commissioner-floats-class-action-killing-proposal-idUSKBN1A326T .
The SEC’s unwritten policy barring mandatory arbitration of shareholder claims came under interest group pressure in 2006-2007. It was also the subject of several corporate efforts to cause a change in the SEC’s policy, most notably in connection with a 2012 proposed share offering by the Carlyle Group. But the SEC policy survived due to inter alia push-back from the Democratic-controlled Congress. A broad pro-arbitration decision by the US Supreme Court, rejecting the NLRB’s regulatory effort to preserve employment class actions by prohibiting mandatory arbitration, could easily have a significant impact on the SEC’s unwritten policy to deny registration of securities offerings covered by a mandatory arbitration provision in the issuer’s charter documents.
The SEC question is sure to trigger aggressive lobbying by both sides as it arises again – indeed, it has already done so in the blogosphere. Illustratively:
For shareholder arbitration and against class actions – http://clsbluesky.law.columbia.edu/2017/08/21/shareholders-deserve-right-to-choose-mandatory-arbitration/
Against shareholder arbitration and for class actions – http://clsbluesky.law.columbia.edu/2017/08/28/mandatory-arbitration-does-not-give-stockholders-a-choice/
Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. He currently serves as an arbitrator and mediator. He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.
This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.