Class Action Waivers in Employment Contracts: The Clash between the National Labor Relations Act and the Federal Arbitration Act

Abstract

This article analyzes the Supreme Court appeal in Ernest & Young LLP v. Morris, argued in October 2017. The Court will decide if the provisions of National Labor Relations Act invalidate class action waivers in employment arbitration clauses, requiring that employees arbitrate their grievances on an individual, rather than a collective basis.

The Court’s consideration of the Ernst & Young appeal continues the Court’s recent attention to arbitration clauses and class action waivers. In particular, the Court will for the first time take up the controversial question of class action waivers included in employment contracts that contain arbitration clauses. The controversy centers primarily on a question of statutory construction of the NLRA in relation to the Arbitration Act.

Although the Court has upheld the primacy of the Arbitration Act in cases involving allegedly conflicting statutes, the purported clash of the Arbitration Act with the NLRA may present the Court with a closer call. The Court may focus on the NLRA’s statutory language repeatedly referring to the protection of collective worker rights under the law. The Court might well rely on this statutory language to find Congressional intent to override the Arbitration Act. On the contrary, if the Court resorts to a requirement of express Congressional intent to supersede the Arbitration Act, the plaintiffs’ appeal may fail to gain support.

If enforced, contractual arbitration clauses force employees to arbitrate their grievances with their employers and to forego litigation in court. The addition of class action waivers in arbitration clauses deprives employees of the ability to pursue class action litigation either in judicial forums or in arbitration.

The Court’s ruling in Ernst & Young is important because of the prevalence of arbitration clauses embedded in employment contracts. Employers nationwide now routinely include arbitration provisions in their employment contracts. The Court’s initial arbitration jurisprudence centered on arbitration provisions in consumer product contracts and warranties. Until now, the Court has not considered the enforceability and legality of arbitration clauses in employment contracts. The Court’s decision potentially will affect millions of workers.

In the consumer arena, the Court’s arbitration jurisprudence generally has not been sympathetic to plaintiffs’ attempts to invalidate and render arbitration clauses unenforceable. Instead, the Court has defaulted to the policy favoring arbitration and the enforceability of arbitration clauses as a matter of contract law. Moreover, the Court has consistently deflected various challenges to class action waivers contained in arbitration clauses.

Recognizing the magnitude of the Court’s decision relating to employer-employee rights, an array of amicus briefs have been filed in support of the contending parties. Unsurprisingly, the business community and assorted defense organizations have supplied briefs in furtherance of Ernst & Young’s position on the primacy of the Arbitration Act over the NLRA. Countering this, a usual collection of liberal groups, labor organizations, and civil rights advocates have joined to urge the Court to uphold the Ninth Circuit’s decision rendering Ernst & Young’s arbitration provision unenforceable.

Keywords: Class Action Waivers, Arbitration Clauses, Waivers in Arbitration Clauses, National Labor Relations Act, Federal Arbitration Act, Fair Labor Satndards Act, FSLA, FAA, American Express v Italian Colors Restaurant, CompuCredit Corp v Greenwood, AT&T Mobility v. Concepcion, Stolt Nielsen