HR Management & Compliance

Supreme Court will consider class action waivers

The U.S. Supreme Court has agreed to hear a trio of wage and hour cases involving arbitration agreements that require workers to waive their right to pursue employment claims as a group.

In recent years, the validity of such waivers has divided federal appeals courts and drawn the attention of the National Labor Relations Board (NLRB). The Board has held several times that even though federal law allows employers to adopt mandatory arbitration agreements, the National Labor Relations Act (NLRA) grants workers the nonwaivable right to pursue claims on a class or collective basis.

The NLRB first reached that conclusion in 2012, holding that an employer’s arbitration agreement violated the NLRA because it required employees to agree to dispute claims individually. The employer appealed to the U.S. 5th Circuit Court of Appeals, which reversed the Board’s ruling. D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir., 2013).

Undeterred, the NLRB reaffirmed its position in a 2014 ruling, which the 5th Circuit vacated. Murphy Oil U.S.A., Inc. v. NLRB, 808 F.3d 1013 (5th Cir., 2015).

The Supreme Court has now agreed to hear that case, along with two others that take the opposite position—Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir., 2016), and Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir., 2016).

The Supreme Court has previously upheld employers’ ability to require arbitration with respect to other laws, but it has not evaluated whether employees can waive their NLRA right to pursue claims collectively.

Potential outcomes

The NLRB is currently short two board members. Experts say that once President Donald Trump fills those vacancies, the Board may reverse course on some of its recent employee-friendly positions, including this issue. It will take some time to see the effects of the appointments, however, said David S. Fortney, a founder of Fortney & Scott LLC and an editor of Federal Employment Law Insider.

The real game-changer will be when the current NLRB General Counsel’s term expires in November, Fortney said. The Board can rule only on cases brought by the General Counsel, so it could be at least a year until it can change some of its positions, he explained.

That means the NLRB is unlikely to be involved in further decision making on this issue. “This case is going to get decided on its own,” said Brian Mumaugh, a partner at Holland & Hart.

A new Supreme Court justice, however, could have an effect on the case, Mumaugh said. Trump has said he will nominate a justice during his first two weeks in office, which means the nominee could be in place by April, according to the SCOTUSblog. The Court has not yet said when it will consider this case, but Mumaugh said it is likely to do so by June. Thus, it’s possible the new justice could rule on the case.

However, while Trump is widely expected to appoint an employer-friendly justice, Mumaugh said it’s not a given that the Court will be split 5-4 on this issue. “Everybody thought the Obamacare ruling would go 5-4,” but it didn’t, he said. “So you never know. It’s difficult to predict.”

Employer takeaway

While clarity on the issue will be good for everybody, Mumaugh said, employers obviously will be disappointed if the Court finds class arbitration waivers invalid. Businesses have spent considerable time and money setting up the agreements, and they’ve been effective, he said.

If the Court rules in that direction, employers likely will look to other strategies to minimize the impact of potential litigation, Mumaugh said. “Everybody’s going to have to recalibrate and consider other options.”

One option is to continue using arbitration agreements but without class action waivers. Mumaugh said it’s also possible that employers will turn to jury waivers, which, as the name implies, ensure that a case is decided by a single judge. It’s not the same tool, but it is another way to lessen the impact of employment litigation, he said.

For now, employers probably will want to maintain the status quo, Mumaugh said. The risk of doing so is small compared to the work involved in undoing the waivers, especially considering that their validity ultimately may be upheld. “If you haven’t made any changes now, regardless of where you’re located or where your operations are, I would wait it out,” Mumaugh said. On the other hand, he said, “If you don’t have them in place, and you were considering it, I would wait until this decision comes down.”