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October 27, 2016

Class and Collective Action Waivers in Employment

The U.S. Supreme Court repeatedly has affirmed the enforceability under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA) of class action waivers. For example, in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the U.S. Supreme Court held that state law doctrines that "disfavor arbitration" are preempted by the FAA if requiring the option of class-wide arbitration interferes with fundamental attributes of arbitration under the FAA. Id. at 344.

Nevertheless, the NLRB has taken the position that class and collective action waivers in employment and other agreements, as well as handbook policies are unlawful. See D.R. Horton, Inc., 357 N.L.R.B. 2277 (Jan. 3, 2012). The Board's position is that Sections 7 and 8 of the NLRA1 prohibit an employer from requiring employees covered by the Act, to sign an agreement that precludes joint, class, or collective claims concerning wages, hours or their working conditions. The rationale is that that such waivers deprive employees of their statutory right to engage in concerted activities in pursuit of mutual aid or protection. In D.R. Horton the Board found Concepcion inapplicable because it did not address the NLRA or employment. Conception involved a consumer waiver.

The Circuits are split as to the enforceability of such waivers by employees. The Second, Fifth and Eighth Circuits have rejected the Board's position. See Sutherland v. Ernst & Young, 726 F.3d 290 (2d Cir. 2013); D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015); Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772 (8th Cir. 2016). The Seventh and Ninth Circuits, however, have adopted it. See Morris v. Ernst & Young LLP, No. 13-16599, 2016 U.S. App. LEXIS 15638 (9th Cir. Aug. 22, 2016); Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016).

The disagreement centers largely on whether the right to engage in collective activity is considered a substantive right or a procedural one. The Fifth Circuit, rejecting the NLRB's conclusion in D.R. Horton, reasoned that a class action is a procedural device used to bring substantive claims rather than a substantive right in and of itself. Since neither the NLRA's statutory text nor its legislative history contains a congressional command against application of the FAA, the Fifth Circuit concluded that the class action waiver was enforceable as part of the agreement between the parties.

In contrast, the Seventh Circuit in Lewis pointed out that the right to engage in collective action lies at the heart of the employment relationship that Congress meant to achieve when it enacted the NLRA. The Lewis court found support for this proposition in the structure of the NLRA, reasoning that Section 7 is a substantive provision and that every other provision of the statute serves to enforce those rights. The Seventh Circuit distinguished other statutory schemes, like the ADEA and the FLSA, on the grounds that although those schemes allow class or collective actions, they do no guarantee collective process. Ninth Circuit likewise found that Section 7 establishes the substantive right of employees to organize.

The NLRB and the U.S. Department of Justice have filed a petition for writ of certiorari with the Supreme Court, seeking review of the Fifth Circuit's decision in Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015). In Murphy Oil, the Fifth Circuit held that a mandatory class- and collective-action waiver in an employer's arbitration agreement did not violate the National Labor Relations Act (NLRA) because the use of class action procedures is not a substantive right under the NLRA.

Citing Conception, the Second Circuit held in Sutherland that the Fair Labor Standards Act (FLSA) does not preclude the waiver of collective action claims because the FLSA's opt-in requirement for collective actions means that Congress gave employees the power to waive their right to participate in collective actions. 726 F.3d at 296. See also Patterson v. Raymours Furniture Co., Inc., 2016 U.S. App. LEXIS 16240 (2d. Cir. Sept. 2, 2016) (Summary Order) (Court cites Sutherland and affirms district court, which ruled enforceable an employer's class action waiver in an employment agreement mandating arbitration of all employment and compensation-related claims).


While the Second Circuit's Patterson decision provides guidance that class and collective action waivers in the employment context remain enforceable in New York, the disagreement among the circuits warrants caution. Certainly, employers with multi-state operations face inconsistent rules until the Supreme Court steps in.

1Section 7 provides that employees have the right to engage in "concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. Section 8 provides that employers may not "interfere with, restrain, or coerce employees in the exercise of" Section 7 rights. Id. at § 158.
If you have any questions about compliance, or are unsure how this new enforcement initiative may impact your business, please contact the Labor & Employment attorney at Barclay Damon with whom you normally work or any attorney in our Labor & Employment Practice Area.


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