The U.S. Supreme Court heard oral argument yesterday in three cases—NLRB v. Murphy Oil USA, Epic Systems Corp. v. Lewis, and Ernst & Young, et al. v. Morris—to resolve whether arbitration provisions in employment agreements that waive an employee's right to bring or participate in a class or collective action against the employer are enforceable under the Federal Arbitration Act (FAA) or violate the National Labor Relations Act (NLRA).

The Seventh and Ninth Circuits, in Epic Systems Corp. and Ernst & Young, respectively, agreed with the National Labor Relations Board (NLRB) that class action waivers in mandatory arbitration agreements violate the NLRA by restraining employee rights to engage in "protected concerted activity." In contrast, the Fifth Circuit, in NLRB v. Murphy Oil USA, overturned the NLRB's decision, holding that waivers are enforceable under the FAA, which embodies a strong policy in favor of arbitration agreements. The Fifth Circuit reasoned that because the FAA was enacted prior to the NLRA, and the language in the NLRA does not expressly prohibit arbitration, the FAA controls.

In an interesting twist, the U.S. Solicitor General's office, which filed the Petition for a Writ of Certiorari on behalf of the NLRB, changed its position and argued in support of employers. The NLRB, through its General Counsel, continued to pursue its position at oral argument opposing class action waivers.

The Court granted certiorari when there were only eight justices. With the appointment of Neil Gorsuch, a critic of judicial deference to administrative agencies such as the NLRB, the decision is likely to be closely divided. Although Justice Gorsuch may provide the critical vote, he did not question the parties during oral argument. Justice Anthony Kennedy, who may also be a swing vote, seemed to favor the employer arguments supporting class action waivers in his questions from the bench. Justices Breyer and Ginsburg evinced support for the NLRB's position in their questions, asserting that the NLRA was enacted as a means to protect workers from contracts that have the effect of depriving them of the right to organize for mutual protection.

These cases come at a time when agencies such as the Consumer Financial Protection Bureau are banning class action waivers in consumer financial services arbitration agreements, and others, such as the Departments of Education and Health and Human Services, are proposing bans. Thus, the ramifications of the Court's decision may be broader than employment agreements and the NLRA.

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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