Source: https://www.mintz.com/insights-center/viewpoints/2196/2018-06-scotus-throws-haymaker-class-arbitration-waiver-class
Timestamp: 2019-04-25 10:26:02+00:00

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The majority of a divided (5-4) SCOTUS recently held that a waiver of “class arbitration” in agreed terms of employment is indeed enforceable. In doing so, the Court advanced the legal analysis of “class arbitration” that was begun several years ago by Justice Antonin Scalia, confirmed that arbitration is fundamentally a creature of contract, and concluded, among other things, that the NLRA was not in conflict with and did not override or displace the FAA.
The asserted tension between (a) the right of employees under the National Labor Relations Act (“NLRA”) to engage in “concerted activities,” NLRA § 7, 29, U.S.C. § 157, and (b) the right of a contracting party under the Federal Arbitration Act (“FAA”) to enforce a bilateral arbitration agreement, was teed-up for consideration by the Supreme Court on October 2, 2017, when oral argument was heard in three related cases -- Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young v. Morris, No. 16-300; NLRB v. Murphy Oil USA, Inc., No. 16-307. The Supreme Court held on May 21, 2018 that there was no such tension, and that an employment-related contractual waiver of class arbitration was enforceable. Epic Systems Corp. v. Lewis, 2018 BL 178768, 2018 U.S. LEXIS 3086 (May 21, 2018). The Court relied in part on its prior comments concerning the fundamental nature of arbitration as a less formal method of bilateral dispute resolution.
Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?” Slip Op. (“Op.”) at 1.
The Court noted that Congress directed the judiciary to treat arbitration agreements as “valid, irrevocable, and enforceable,” Op. at 5, citing 9 U.S.C. §2, and to “respect and enforce the parties’ chosen arbitration procedures,” id., citing 9 U.S.C. §§3-4. Thus, the FAA requires courts to enforce arbitration agreements according to their terms, “including terms that specify with whom the parties choose to arbitrate their disputes, and the rules under which that arbitration will be conducted.” Id. at 5-6, citing American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 233 (2013). The arbitration agreements in question indicated an “intention to use individualized rather than class or collective action procedures.” Id. at 6.
The Court found that that argument was errant, first because the saving clause defers only to defenses that apply to “any” contract -- that is, “generally applicable [state law] contract defenses such as fraud, duress, or unconscionability.” Op. at 7, citing AT&T Mobility v. Concepcion, 563 U.S. at 339. In that regard, the Court reminded that it had previously taught that defenses that apply only to arbitration or target arbitration or interfere with the “fundamental attributes of arbitration” are not what was contemplated by the saving clause or otherwise supportable. Op. at 7, citing Kindred Nursing Centers v. Clark, 581 U.S. ____, ____ (2017), slip. op. at 5. Ultimately, the employees’ defense was that a federal statute (the NLRA) rendered an agreement that bars employee class actions “illegal” under federal law, rather than “unconscionable” under state common law. The Supreme Court indicated that while illegality may be a generally applicable contract defense in many cases, “an argument that a contract is unenforceable just because it requires bilateral arbitration is a different creature,” one that “impermissibly disfavors arbitration” and that will not be supported. Op. at 9.
Justice Thomas provided a brief concurring opinion making the point that the FAA’s saving clause refers only to defenses that would be grounds for revocation of the arbitration agreement. He pointed out that the employees argued that a class waiver is unenforceable because it is “illegal” under the NLRA, but that “illegality” is a public policy defense rather than a ground for the revocation of a contract due to improper formation.
Op. at 8, citing Concepcion, 563 U.S. at 344-351; see also Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684-87 (2010). The contractual waiver apparently reinforced the parties’ agreement to bilateral arbitration. But the employees would have it that “class arbitration” could be compelled not only without the consent of the arbitral parties, but contrary to the express agreement of those parties. This was manifestly contrary to the “central insight” of the Court in Concepcion.
The majority also pointed out the Court’s duty to construe statutory provisions so as to harmonize them, not to find conflicts between them. Among other things, it noted that the Court historically had rejected every effort to manufacture conflicts between the FAA and other federal statutes. Op. at 16, citing American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, among others. (The cases before the Court seemed to it to present one more such effort.) But, the Court pointed out, the NLRA says “nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum.” Op. at 2. Therefore, even if the NLRA “secures to employees rights to organize unions and bargain collectively,” that does not put the NLRA at odds with the FAA. See, id. Indeed, though the NLRA says nothing about collective legal actions, the Court has made clear that “even a statute’s express provision for collective legal actions does not necessarily mean that it precludes ‘individual attempts at conciliation’ through arbitration.” Op. at 16.
Interestingly, each of the cases before the Supreme Court originated as employee claims under the Fair Labor Standards Act (“FLSA”). But that statute was irrelevant to the issues at hand. Rather, the employees argued that the NLRA should dictate the procedures applicable to claims under the FLSA, and that the NLRA should override the FAA with regard to its subject matter as well. “It’s a sort of interpretative triple bank shot, and just stating the theory is enough to raise a judicial eyebrow.” Op. at 15.
Indeed, the Court had much more to say in support of its decision: (1) that its responsibility in harmonizing Congressional legislation was to give effect to both, especially where, as here, neither addressed the other; (2) that the identified “concerted activities” protected by § 7 of the NLRA concerned the right to organize unions and bargain collectively, did not mention class or collective judicial or arbitral actions, and concluded with a catch-all term (“other concerted activities for the purposes of . . . other mutual aid or protection”) that should be construed to protect only activities of the kind listed before (the ejusdem generis rule of statutory construction) -- i.e., “things employees do for themselves when exercising their right to free association in the work-place”; (3) that Congress, which showed that it knew how to override the FAA and how to specify particular dispute resolution procedures, did neither in the NLRA; (4) that although the employees’ underlying causes of action did not arise under the NLRA, but under the Fair Labor Standards Act (“FLSA”), the employees did not suggest that the FLSA displaced the FAA, probably because the Supreme Court had already held long ago that it did not; (5) that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions;” and (6) that deference, under Chevron U.S.A. Inc v. Natural Resources Defense Council, 467 U.S. 837, to the NLRB’s position on the issue was not required because, among other things, the NLRB was interpreting, but does not administer, the FAA.
In rebuttal, Justice Ginsberg provided a lengthy, rousing, albeit policy-based, dissent on behalf of the minority.

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