Supreme Court Backs Federal Arbitration Act’s Power to Require Mandatory Individual Arbitration

By Russ Bleemer

The U.S. Supreme Court this morning has affirmed the ability of companies to use mandatory arbitration clauses in employment agreements that are accompanied by waivers of class processes in litigation and arbitration.

In 5-4 decision by Associate Justice Neil Gorsuch, the Court held that the Federal Arbitration Act requires enforcement of employees’ agreements to mandatory individual arbitration. Gorsuch, joined by Chief Justice John G. Roberts Jr., and Associate Justices Anthony Kennedy, Clarence Thomas and Samuel Alito, held that the employees’ arguments that the FAA’s Sec. 2 Savings Clause, which would exempt arbitration agreement provisions from enforcement when they run afoul of “generally applicable contract defenses,” and the National Labor Relations Act, do not counter the FAA’s mandate.

The case is available at https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf

The long-running controversy involves arbitration provisions that kick in due to class waivers which prohibit employees from joining class processes—litigation or arbitration—in favor of mandatory, predispute, individualized arbitration to resolve disputes with their employers.

The cases—NLRB v. Murphy Oil (No. 16-307), from the Fifth U.S. Circuit Court of Appeals; Ernst & Young v. Morris (No. 16-300), from the Ninth Circuit, and the Seventh Circuit’s Epic Systems Corp. v. Lewis (No. 16-285)—had been consolidated into the Court’s 2017-2018 term’s kickoff argument on Oct. 2, with Epic Systems as the lead case, and four attorneys arguing the case on behalf of the parties in all three cases.

The class waivers in question require workers, from collectively bargained rank-and file to executive suites, to address disputes with their employers in individual arbitration. While unions can agree to mandatory predispute arbitration on behalf of their members, the cases involve white-collar employees and nonunion workers with little bargaining power.

The Court previously definitively permitted mandatory arbitration contract clauses accompanied by class waivers for products and services contracts where consumers have little or no bargaining power. The Federal Arbitration Act-focused decision today now settles how arbitration is used in workplace matters.

Gorsuch’s opinion rejects a 2012 National Labor Relations Board administrative that held that FAA Sec. 2 removed mandatory individual arbitration from FAA application for employee agreements.  The Court’s opinion notes that the reasoning interfered with a fundamental attribute of arbitration.

After rejecting the Sec. 2 argument, Gorsuch dismantled the employees’ other arguments.  He develops the Supreme Court precedent concerning two clashing federal statutes, finding that the National Labor Relations Act, passed in 1935, didn’t override 1925’s FAA to require class or collective actions.

“Section 7 focuses on the right to organize unions and bargain collectively,” Gorsuch writes. “It may permit unions to bargain to prohibit arbitration. Cf. 14 Penn Plaza LLC v. Pyett, 556 U. S. 247, 256–260 (2009). But it does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.”

Moreover, Gorsuch notes that NLRA Sec. 7’s definition of protected employees’ “concerted activities” didn’t include, nor was it amended to include, class-action litigation. “[W]e’ve stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act,” the majority opinion states.

Similar arguments regarding claims under the Fair Labor Standards Act and the Norris-LaGuardia Act also were rejected.

Finally, Gorsuch, a longtime critic of Chevron U. S. A. Inc. v. Natural Resources Defense Council Inc., 467 U. S. 837, which provides Court deference to agency determinations made in the areas of the agency’s expertise, writes that the NLRB’s decision that launched the case, In re Horton, 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), didn’t meet the Chevron deference standards.

The NLRB, the opinion notes “has sought to interpret this statute in a way that limits the work of a second statute, the Arbitration Act. And on no account might we agree that Congress implicitly delegated to an agency authority to address the meaning of a second statute it does not administer. One of Chevron’s essential premises is simply missing here.”

Gorsuch, after countering the lengthy dissent—we will return to the dissent and majority’s counterpoints in a subsequent CPR Speaks post later today–concludes:

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act. Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.

 

Russ Bleemer is editor of CPR’s award-winning publication, Alternatives

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