The U.S. Supreme Court has agreed to decide an important issue that has deeply divided the Courts of Appeals—are arbitration provisions in employment agreements that waive an employee's right to bring or participate in class or collective actions against their employers enforceable under the Federal Arbitration Act (FAA) or banned by the National Labor Relations Act (NLRA)? A decision by the Supreme Court is expected later this term.

The Court granted certiorari in three cases that rendered conflicting results on the enforceability of class action waivers in employment agreements. In Lewis v. Epic Systems Corp. and Morris v. Ernst & Young, the Seventh and Ninth Circuits, respectively, agreed with the position of the National Labor Relations Board (NLRB) that class action waivers in employment agreements violate Section 7 of the NLRA. That provision protects an employee's right to engage in "other protected activities," which the NLRB and the Seventh and Ninth Circuits viewed as including the ability to band together to pursue joint, collective, or class action proceedings.

By contrast, in Murphy Oil v. NLRB, the Fifth Circuit rejected the NLRB's position, and held that class action waivers in employment arbitration agreements are enforceable under the FAA. That is because the use of class or collective action procedures does not constitute a substantive right protected by Section 7 of the NLRA.

The three cases have been consolidated for argument by the Court, while similar cases remain pending in other Circuit Courts of Appeals. These cases will surely attract numerous amici curiae briefs on both sides. The Court is likely to be closely divided, and the outcome may be affected by whether a ninth justice is confirmed in time to participate. A key issue will be whether the Court applies the test set forth in CompuCredit Corp. v. Greenwood for determining the arbitrability of a federal claim: if the federal statute does not expressly prohibit arbitration, the FAA controls and claims brought under that statute are arbitrable. The Court’s decision will also likely impact recent efforts by the U.S. Department of Health and Human Services and the U.S. Department of Education to regulate class action waivers in consumer contracts.

Ballard Spahr's Labor and Employment Group routinely assists employers in drafting, reviewing, and defending the enforceability of employment and arbitration agreements. The firm's Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements.


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