DOJ to NLRB: You’re On Your Own in the Supreme Court

CLASS WAIVER/MANDATORY ARBITRATION CASES

By Nicholas Denny

In the clearest illustration so far of the Trump Administration’s evolving hands-off policy toward mandatory arbitration clauses and class action waivers, the U.S. Solicitor General authorized the National Labor Relations Board (NLRB) last week to represent itself in one of three consolidated arbitration cases to be heard by the U.S. Supreme Court this fall.

At the same time, the U.S. Department of Justice, which had been representing the board in NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Supreme Court docket page at http://bit.ly/2kOPxal) until last week, switched sides in the case, filing an amicus brief backing the employer in the matter.

Justice, via the friend-of-the-court briefs, is now advocating against the NLRB, and against its previous position.

The case—along with its companions, Ernst & Young v. Morris, No. 16-300 (Docket page at http://bit.ly/2kLxCEg) and Epic Systems Corp. v. Lewis, No. 16-285 (Docket page at http://bit.ly/2kFVxm6)—asks whether mandatory arbitration clauses as a condition of employment bar individual employees from pursuing work-related claims on a collective or class basis under the National Labor Relations Act (NLRA). Mandatory arbitration clauses are used throughout employment settings and apply to employees regardless of titles or union affiliation; two of the three cases involve white-collar office workers.

The Supreme Court will hear the consolidated cases in the term beginning in October.

The issue in the consolidated cases is whether employers can continue to unilaterally require that employees agree to a mandatory arbitration clause in employment contracts. Often, these clauses are non-negotiable: either employees accept the employer’s terms or the employer finds someone else to hire.

The Supreme Court must decide which of two laws controls: the National Labor Relations Act, 29 U.S.C. § 151, et seq., or the Federal Arbitration Act, at 9 U.S.C. § 1 et seq. Under the NLRA, an employee’s rights to collective bargaining and action are protected. Under the FAA, however, an employment contract that includes a mandatory arbitration clause binds the worker to arbitrate with the employer instead of litigating in court, and is accompanied by a waiver barring the employee from bringing a class-action suit in favor of an individualized process.

As a result, arbitration clauses can deliver a one-two punch: (1) workers arbitrating individually may have less power, because they are not operating as part of a collective whole as contemplated by the NLRA, and (2) a worker may be less likely to find counsel because arbitration awards are perceived to be much smaller than court and class-action outcomes—meaning a lawyer working for a portion of the settlement would be less likely to take the case.

On the other hand, employers contend that mandatory arbitration clauses protect the company and benefit the employee. They argue that arbitration clauses ensure a speedier and more cost-effective conclusion to conflicts: class actions are harder and more costly to fight than arbitrations.

The disagreement over the use of mandatory arbitration clauses has arisen in the political arena, too. While the Obama Administration focused on pro-employee, anti-mandatory arbitration policies that prohibited employers from unilaterally waiving workers’ rights to concerted action under the NLRA, the Trump Administration is leaning toward an employer-centric policy by permitting mandatory arbitration clauses in employment contracts and as a condition of hiring.

This drastic shift in policy culminated with Friday’s news that the NLRB will represent itself, and that the Department of Justice would switch sides. The NLRB, as an autonomous government entity, is tasked with protecting “the right of employees to engage in protected concerted activities—group action to improve wages, benefits, and working conditions and to engage in union activities and support a union,” according to its website, as well as protecting the right of workers to refrain from engaging in protected concerted or union activities.

While the Justice Department prosecutes on behalf of the nation as well as defends government agencies, it is exceedingly rare for it to withdraw its representation of an agency it had been representing and subsequently file a brief in opposition to the position had it previously taken.

The Justice Department amicus brief switching sides in Murphy Oil is available at http://bit.ly/2sUnFbL.  The NLRB’s June 16 announcement that it would represent itself without Justice Department support can be found on the board’s website at http://bit.ly/2traH2s.

The move, however, is consistent with another recent Trump Administration policy shift on arbitration. In early June, the Centers for Medicare and Medicaid Services, an arm of the U.S. Department of Health and Human Services, withdrew a 2016 Obama Administration position prohibiting mandatory arbitration clauses in long-term care nursing home contracts.

CMS’s new position allows arbitration agreements provided that the provisions are written in plain language, and explained to and accepted by the applying resident.  Among other conditions, the CMS requires that the nursing home retain a copy of the signed agreement and post a notice that details the nursing home’s arbitration policy.

In addition, House Republicans introduced the “Financial CHOICE Act” earlier this month, a proposed law that aims to dismantle the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank is an extensive law that was passed to ensure higher accountability in the U.S. financial sector after the economic recession of 2008 and it was endorsed by former President Obama.

Among its many goals, Dodd-Frank pointed its then-new Consumer Financial Protection Bureau at pre-dispute mandatory arbitration clauses in consumer finance contracts. A lengthy study concluded last year by the CFPB resulted in a promise to finalize regulations that would ban the use of predispute mandatory arbitration in consumer financial contracts, such as cellphone agreements.

But should the “Financial CHOICE Act” become law, it likely would allow financial institutions to include mandatory arbitration clauses in their consumer contracts and agreements, and negate the CFPB efforts.

President Trump’s stance on mandatory arbitration clauses is becoming clear. Whether the clauses are legal in the employment context, and whether they will withstand Supreme Court scrutiny, are developing issues that are expected to be answered within the year. Watch CPR Speaks for updates.


The author is a CPR Institute Summer 2017 intern.

Making the Mandatory Argument: Arbitration, Class Waivers and the Practitioners’ Role

By Russ Bleemer

Legislative and court arguments over whether ADR processes can be used to defray class litigation are moving toward a decisive 2017 conclusion.

New regulations barring the use of class waivers associated with mandatory arbitration clauses in consumer financial contracts, like credit card agreements or wireless telephone service agreements, are due for release soon by the Washington, D.C.-based Consumer Financial Protection Bureau.  The CFPB had issued a proposal in May and accepted public comments until August.

In the December Alternatives, Sanford Jaffe and Linda Stamato, longtime conflict resolution process theorists, designers, and practitioners at the Center for Negotiation and Conflict Resolution at Rutgers University in New Brunswick, N.J., backed the move.  They argue that the mandatory arbitration processes that prohibit class litigation that the CFPB targets indeed should go.

But with the intervention of last month’s election, the prospects for the vitality and longevity of the coming regulation has dimmed.

So the authors also argue that the responsibility for preserving the integrity of alternative dispute resolution processes by breaking the link between mandatory processes and class waivers lies with practitioners themselves.

“Rarely seen are misgivings about mandatory arbitration expressed by dispute resolution professionals,” the authors write. “But we ought to be heard in the hearings and rule-making processes, and in social and print media, to support the proper use of the processes we have worked to design, develop, apply and evaluate.  We need . . . to defend the principles upon which this field is grounded, not the least of which is choice. We need to return to the attitudes and beliefs with which the field started decades ago, to fulfill the promises of the architects of the field.”

In addition to discussing mandatory arbitration in contracts over which the CFPB regulates, Jaffe and Stamato discuss mandatory arbitration in the employment context, noting the line of cases involving the clash between the Federal Arbitration Act and the National Labor Relations Act.

Three federal circuit courts have held that the FAA permits employers to use class waivers in requiring arbitration to resolve workplace disputes, while two circuits have gone the other way, saying that the NLRA preserves a right to class processes, including litigation, under the law which says that employees may “engage in . . . concerted activities.” See CPR Blog post from Aug. 23 HERE.

Since the December issue of Alternatives was released (HERE free on CPR’s website for members logged in; HERE with archives on publisher John Wiley’s site) , the U.S. Supreme Court has scheduled five FAA-NLRA cases for discussion at its Jan. 6 case conference.

Experts believe the Court will accept one or more of the cases—perhaps one favoring the defense view upholding mandatory arbitration with a class waiver, and one backing the National Labor Relation Board’s ruling that class processes must be preserved—to finally decide the matter, which has been brewing since the NLRB struck the mandatory arbitration/class waiver provision it found in D.R. Horton Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013)(Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

Meantime, the viability of the CFPB’s yet-to-be-released regulations is in doubt in light of President-elect Trump’s anti-regulation views, including his loathing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB.  While the agency is committed to a forthcoming final regulation, it’s unlikely it will stand without attack.

In the forthcoming January issue of Alternatives, available at the links above on or around Jan. 4, Philadelphia-based Ballard Spahr partner Alan Kaplinsky will counter the December Alternatives commentary discussed above with an outline of the options to challenge to the CFPB’s regulation, which some analysts say may emerge before Trump’s Jan. 20 inauguration.

As Kaplinsky points out, a Congressional repeal may not even be necessary.  A new Trump appointee replacing current CFPB Director Richard Cordray could roll back the roll-out, restore (or reassert) mandatory arbitration and class waivers, and delay or change the regulations via the Administrative Procedure Act.

The December Alternatives commentary, “Private Justice: Losing Our Day in Court,” by Sanford M. Jaffe and Linda Stamato, is available now for all readers HERE.

The author edits Alternatives to the High Cost of Litigation for the CPR Institute.

Class Act: Looking at How the CFPB Wants to Restrict Arbitration Agreements

By Russ Bleemer

If you want to make your voice heard on federal arbitration regulation, now’s the time.
The Consumer Financial Protection Bureau in May released its proposal to ban arbitration agreement provisions that bar class processes and require individual ADR for disputes in consumer financial services contracts under the agency’s jurisdiction.

The formal public announcement early last month was followed by the publication May 24 of the official proposal. “If finalized in its current form,” said CFPB Director Richard Cordray last month, “the proposal would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their customers the right to band together to seek justice and meaningful relief from wrongdoing. This practice has evolved to the point where it effectively functions as a kind of legal lockout.”

Public comments, due by Aug. 22, are piling up. There are 599 at this writing. (You can view them HERE, along with the full proposal and the link to provide a comment.) A day after the comment period opened, the deluge was kicked off with a letter signed by more than 200 law professors strongly supporting the agency’s proposals.

But Republicans on the House Financial Services Committee, continuing a long-running push to eliminate the CFPB and overturn the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 that created the agency, introduced on June 8 a new proposal that specifically bars the CFPB from regulating arbitration.

The June Alternatives, available now HERE, covers in detail Cordray’s remarks and those of a pro-and-con panel at the May 5 CFPB Albuquerque, N.M., field hearing that introduced the proposed regulation. (An enhanced, annotated version of the article can be accessed directly by subscribers and individuals at CPR Institute members who are logged into CPR’s website at this link.)

The June Alternatives article discusses how the agency’s research into arbitration’s effects on consumers—a voluminous 728-page report conducted over a three-year period that was released in March 2015–led to last month’s proposal.

Agency representatives, including Cordray, emphasized that the CFPB is not proposing to ban pre-dispute arbitration agreements. The key agency goal is to allow consumer class actions that the waivers have cut off.

The Albuquerque panel discussion of arbitration practice experts included three consumer advocates who congratulated the agency, and three business representatives who criticized it and suggested alternative paths–assuming what has become, for some of the panel, traditional public roles in a short period of regulatory time.

The debate continues in Alternatives in the special combined summer July/August issue, which will be available by July 14 HERE. In “Between the Lines: How the CFPB Will Police Financial Services Arbitration,” we examine the specifics of the proposal, including the mandatory language that the CFPB wants included in consumer financial services arbitration agreements.

Following the June report linked above, the new article wades through the 377-page proposal and accompanying report to highlight how the class action moves will affect arbitration parties, providers, contract drafters, neutrals and tribunals.

It will focus on the details in the CFPB’s proposal and report absent from generalized coverage of the CFPB’s move—minutiae to most, but parts of the proposal that are essential to arbitration practitioners and providers’ businesses, and which are drawing comments this summer.

Russ Bleemer edits the CPR Institute-published Alternatives to the High Cost of Litigation.