Earlier this month, the U.S. Supreme Court heard oral arguments on whether employment agreements that require an employee to resolve a dispute with her employer through individual arbitration and waive the option of having the dispute handled collectively is unlawful.
In D. R. Horton, 357 NLRB No. 184 (2012), the NLRB first held that arbitration agreements requiring employees to forfeit their right to proceed collectively violate Section 8(a)(1) of the Act. The waiver of the right to proceed collectively is termed a “class waiver.” The Fifth Circuit Court of Appeals refused to enforce the NLRB’s order. The Court of Appeals concluded that the NLRB’s interpretation of the NLRA placed it in conflict with the FAA’s requirement that arbitration agreements be enforced according to their terms; and pursuant to recent Supreme Court precedent, the NLRB’s interpretation of the NLRA must yield to the FAA, where, as here, there is no contrary congressional command.
The NLRB accepted the Fifth Circuit’s decision as the law of the case, but continued to issue decisions finding class waivers unlawful. Three circuit court of appeals subsequently enforced NLRB orders finding class waivers in arbitration agreements unlawful. The Supreme Court granted certiorari to hear three cases to resolve the circuit split.
The consensus among court watchers and labor attorneys before oral argument was that the Court would likely split 5-4 to uphold the validity of class waivers with the Court’s newest member, Justice Gorsuch, casting the deciding vote. However, no one is certain. Because of this, court watchers and labor attorneys eagerly listened to hear if the Justices would say anything to signal their view on the issue. Of the seven Justices that asked questions — none said anything to suggest the prognosticators were wrong. Still, we are no more certain of the outcome of the cases, largely because Justice Gorsuch, the likely deciding vote, did not question the parties.
Based on the questions and comments of Associate Justices Breyer, Ginsburg, Kagan, and Sotomayor, we are virtually certain they will find class waivers in employment arbitration agreements violate the NLRA and are therefore unenforceable under the FAA. For instance, Justices Kagan and Ginsberg suggested employees have a substantive non-waivable right to proceed collectively in any forum if workplace-related. Justice Ginsburg also expressed concern that approving such waivers would prevent employees from effectively vindicating their rights as the cost of individual arbitration might exceed the award.
It also appears based on questions and comments during argument that Chief Justice Roberts and Associate Justices Kennedy and Alito are inclined to uphold class waivers in arbitration agreements. For instance, Chief Justice Roberts pointed out that if the Court found such waivers unlawful it would invalidate arbitration agreements covering 25 million employees and the Court’s recent support for arbitration. Justice Kennedy, in turn, questioned whether class waivers really foreclosed employees from acting concertedly, pointing out that the waivers would not preclude employees from concertedly joining together to hire an attorney to handle their individual arbitrations on related claims, potentially sharing information, strategy, and reducing costs. Although Justice Thomas did not question the parties during oral argument, most people believe he will find waivers in employment arbitration agreements lawful. This is because of his past votes upholding arbitration agreements in other contexts.
Justice Gorsuch is the wild card on this issue. He did not ask any questions of the parties during oral argument. Although his views as a Judge on the U.S. Court of Appeals for the Tenth Circuit suggest he will find class waivers in arbitration agreements enforceable, his elevation to Associate Justice of the Supreme Court gives him the independence to depart from past positions and precedent with which he disagrees but was bound to follow at the Tenth Circuit. Justices have surprised their backers in the past.
We will let you know if the prognosticators were correct.