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January 19, 2017

U.S. Supreme Court to Consider Legality of Arbitration Agreements Containing Class Action Waivers

On January 13, 2017, the United States Supreme Court agreed to consider the legality of class action waivers in arbitration agreements.  At issue is the National Labor Relations Board’s (“NLRB”) interpretation that arbitration agreements containing class action waivers prohibiting employees from pursuing group claims are illegal under the National Labor Relations Act (the “Act”).  The Board maintains that class action waivers restrict employee rights to engage in “concerted activities” in pursuit of their “mutual aid or protection” under the Act.  The Board’s position dates back to its 2012 holding in D.R. Horton, 357 NLRB No. 184 (2012).

Circuit courts have split on the issue.  The Second, Fifth, and Eighth Circuits have rejected D.R. Horton.  The Seventh and Ninth Circuits have held that employers cannot use such waivers in arbitration agreements under the Act.  The Supreme Court will hear three consolidated cases in an hour-long oral argument: it will review the Seventh Circuit’s ruling in Epic Systems v. Lewis, the Ninth Circuit’s ruling in Ernst & Young LLP. v. Morris, and the Fifth Circuit’s ruling in Murphy’s Oil USA Inc. 

The Supreme Court is expected to reach a decision by early summer, 2017.  However, with only eight Supreme Court Justices currently on the bench, a 4-4 tie remains possible, and the issue would be left unresolved.  If that were to occur, the rulings of the appellate courts would be affirmed.  It remains to be seen whether the incoming Trump administration will be able to nominate and successfully confirm a ninth Justice to the Court in time for this case to be decided.  In addition, the Trump administration will be responsible for appointing new members of the Board, which could cause the Board to revise or abandon the position that it has held since D.R. Horton.

Takeaway for Employees

The Second Circuit, the federal appeals court with jurisdiction over New York, Connecticut, and Vermont, has upheld arbitration agreements with class action waivers.  We would not therefore recommend any change to such agreements until the Supreme Court decision is handed down.  We also recommend that employers regularly review their current arbitration agreements with counsel to ensure that they are in compliance with ever changing applicable law. 

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We’ll keep you apprised of developments.  If you have any questions regarding class action waivers in arbitration agreements, please do not hesitate to contact us.