June 27, 2017

Department of Justice Reverses Stance and Urges Supreme Court to Enforce Class Action Waivers in Employment-Related Arbitration Agreements

The Department of Justice has reversed its stance and now urges the Supreme Court to enforce class action waivers in employment-related arbitration agreements. This increases the likelihood that the Supreme Court will side with the now employer-friendly DOJ when it resolves the split among the federal Courts of Appeals during its October 2017 term. In light of the DOJ’s reversal of position, some commentators have expressed the belief that the Supreme Court will resolve this dispute by enforcing class waivers.

For much of this decade, employers and employees have disputed the enforceability of arbitration clauses that require employees to waive their right to bring claims against employers on a class-wide basis (“class waivers”), in turn permitting arbitration on an individual basis only. 

This battle appears one step closer to resolution after the U.S. Department of Justice, in an amicus brief filed with the Supreme Court on June 16, 2017, reversed the position it held under the Obama administration and argued that class waivers are enforceable. This increases the likelihood that the Supreme Court will side with the now employer-friendly DOJ when it resolves the circuit split on this issue during its October 2017 term. 

As background, the National Labor Relations Board took the position during the Obama administration that class action waivers were unenforceable. The NLRB contended that such waivers prevented employees who are covered by the National Labor Relations Act (both union and nonunion) from engaging in “concerted activities for . . . mutual aid or protection,” a right which is protected under Section 7 of the NLRA. The NLRB argued that when employees are required to bring claims in arbitration on only an individual basis, employees are unable to seek “mutual aid” to collectively challenge the terms and conditions of their employment as guaranteed by the NLRA. The Courts of Appeals for the Sixth, Seventh and Ninth Circuits—which cover the states of Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana, Kentucky, Michigan, Montana, Ohio, Oregon, Tennessee, Washington and Wisconsin—have sided with the NLRB, finding class waivers to be unenforceable under the NLRA. 

Meanwhile, the Courts of Appeals for the Second, Fifth and Eighth Circuits—which cover the states of Arkansas, Connecticut, Iowa, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, New York, North Dakota, Rhode Island, South Dakota, Texas and Vermont— have rejected the NLRB’s position and held that such waivers are enforceable. Those courts have opined that the Federal Arbitration Act reflects Congress’s strong federal policy favoring arbitration, and that reading the NLRA to invalidate class waivers impermissibly undermines that policy.

In September 2016, the Obama administration’s DOJ, on behalf of the NLRB, filed a petition for certiorari with the Supreme Court to resolve the circuit split. The Court granted the NLRB’s petition, as well as two others filed by private companies that had been sued in circuits refusing to enforce class waivers, just seven days before President Trump took office.  

The DOJ has now filed an amicus brief supporting the employers and indicated that the NLRB will have to represent itself through its own counsel. The anti-class waiver side will also be represented by private counsel for the plaintiffs in the consolidated cases.

In light of the DOJ’s about-face in its amicus brief, the NLRB will be without the assistance and experience of the Solicitor General of the United States when it presents oral arguments to the Supreme Court during the October 2017 term. Some commentators have expressed the belief that the Court will give considerable weight to the DOJ’s brief. A decision enforcing class waivers would be a boon for employers who in recent years have increasingly forgone the inclusion of class waivers in arbitration agreements. 

In anticipation of the Supreme Court’s decision, employers should consider the utility of including class waivers in employee agreements requiring all employment disputes, including disputes concerning discrimination, payment of wages, eligibility for overtime and employee/independent contractor classification to be submitted to private arbitration on an individual basis only. We will continue to monitor this important matter and report on any new developments.

Goodwin represented the Business Roundtable, a trade association of chief executive officers, as an amicus curiae in the Supreme Court cases. The views expressed in this update are those of its authors alone, who are not writing on behalf of any Goodwin client.