Argument preview: Reconciling class waivers and the National Labor Relations Act (UPDATED)

(This post was updated at 3:13 p.m. to account for the court’s September 25 order granting motions for divided argument by the U.S. solicitor general and the National Labor Relations Board.)

When the justices return to the bench on Monday, October 2, they will hear arguments in a trio of consolidated cases – Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA – involving the intersection of two federal laws, both of which date back nearly a century. The first law, the Federal Arbitration Act, provides that arbitration agreements “shall be valid, irrevocable, and enforceable.” The second, the National Labor Relations Act, provides that employees have the right to engage in “concerted activities” for “mutual aid or protection.” But what happens when employers include a clause in their employment contracts that requires employees to arbitrate any disputes with the company individually, and to waive the right to resolve those disputes through either class actions or collective proceedings? That is the question before the justices next week; their answer could have a significant impact on how and whether employer-employee disputes are resolved in the future.

Each of the three cases now before the justices made its way to the Supreme Court along a slightly different path, but all arose when an employee who had entered into an arbitration agreement with an employer filed a class action or collective action in federal court. In June 2010, Sheila Hobson and three other employees of Murphy Oil, which runs gas stations around the country, filed a collective action in which they alleged that they had not received overtime pay that they were owed. At the company’s request, the district court ordered the employees to take their dispute to arbitration, and it dismissed the case after they failed to do so. Hobson went instead to the National Labor Relations Board, which charged Murphy Oil with committing an unfair labor practice. In an earlier case, the NLRB had ruled that arbitration agreements like Murphy Oil’s that require employees to waive their rights to collective or class proceedings violate the employees’ right under the NLRA to “engage in concerted action for mutual aid or protection.” But the U.S. Court of Appeals for the 5th Circuit disagreed, ruling for Murphy Oil.

In February 2015, Jacob Lewis filed a lawsuit in federal court in which he alleged that Epic Systems, a Wisconsin-based software company, had denied overtime pay to him and others. The lower courts allowed Lewis’ lawsuit to go forward, rejecting Epic’s motion to compel arbitration; like the NLRB in Hobson’s case, they ruled that the arbitration agreement’s waiver of class and collective proceedings could not be enforced because it interfered with Lewis’ right to “concerted activity.”

In the third case, two former Ernst & Young employees filed a class action against the accounting firm in federal court, alleging that the company had violated both the Fair Labor Standards Act and state law. A federal district court ruled that an arbitration provision in the employees’ contracts was enforceable, but the U.S. Court of Appeals for the 9th Circuit reversed and held that the arbitration provision was unenforceable. The Supreme Court agreed in early January to review all three rulings.

In their briefs on the merits at the Supreme Court, the employers argue that the justices’ job is to try to harmonize the Federal Arbitration Act and the National Labor Relations Act. The interpretation that they have proposed, they contend, does exactly that. Section 2 of the FAA is, they say, “unequivocal”: It provides that arbitration provisions “must be enforced.” And in cases involving the FAA, they stress, the Supreme Court has ruled that the FAA’s “unequivocal” command to enforce arbitration agreements “will yield only when it has been overridden by a contrary congressional command in another federal statute.” No such command exists here, the employers continue, because the NLRA does not refer to class proceedings at all, nor is there anything in the history of the NLRA indicating that Congress wanted it to trump agreements to arbitrate.

The employers add that there is no reason for the Supreme Court to defer to the NLRB’s interpretation of the NLRA because the law is not ambiguous (a necessary predicate for deference): The NLRA “unambiguously does not prohibit class waivers.” But even if the statute were ambiguous, they note, their interpretation is the only way to read the NLRA in light of the FAA’s command to enforce arbitration agreements. And even if the two laws cannot be harmonized, they conclude, the class waivers should be enforced because the FAA, as a more specific statute, overrides the less specific NLRA.

The NLRB and the employees, by contrast, argue that there is no need for the justices to try to harmonize the NLRA and the FAA. They acknowledge that, when it enacted the FAA, Congress wanted arbitration agreements to be enforced the same way that other contracts would be. But that does not mean, they say, that arbitration agreements are entitled to more protection than regular contracts. Instead, they argue, just like normal contracts, agreements to arbitrate will not be enforced when they are illegal. The NLRA’s reference to the right of employees to engage in “concerted activities” for “mutual aid or protection” has long been understood to include the right of employees to pursue joint legal claims; therefore, class waivers like the ones at issue in this case are illegal and unenforceable.

Because there is no valid contract to individually resolve work-related disputes, the NLRB and employees suggest, the justices do not need to determine whether the NLRA contains a “contrary congressional command” that can override the FAA’s presumption in favor of enforcing arbitration agreements. In any event, they continue, the NLRA and another federal labor law, the Norris-La Guardia Act, are precisely that kind of “contrary congressional command”: The two laws’ “text, history, and purposes unambiguously conflict with contract terms” that prohibit employees from joining forces “for the purposes of mutual aid or protection.” “No magic words,” they conclude, “are required.”

One sign of how high the stakes are in these cases is the sheer volume of “friend of the court” briefs supporting each side in the dispute – 17 supporting the employers and 11 supporting the NLRB and the employees. The Business Roundtable, a group of CEOs for major U.S. corporations that backs the employers, tells the justices that a ruling that deems class waivers void “would force employers to undergo ‘arbitration’ that is bereft of the benefits of arbitration, shorn of the efficiency and cost savings that make arbitration favored in the first place.”

A group of experienced arbitrators, supporting the NLRB and the employees, counters that any such losses are significantly overstated. In fact, the arbitrators contend, prohibiting group challenges could result in duplicative individual claims that would create “a procedural morass” and a burden on the employers. But employers would nonetheless prefer to require individual arbitration, the arbitrators suggest, because the relatively low stakes of each individual arbitration and the cost of getting a lawyer mean that, as a practical matter, even meritorious claims are far less likely to be brought.

Although the dispute itself is a significant one, it has also drawn attention for another reason: the complications surrounding which attorneys will argue the case. The justices agreed to review all three cases – Epic Systems, Ernst & Young and Murphy Oil – but consolidated them for one hour of oral argument, the same time that the court would normally allot to a single case. When the employers filed their opening briefs on the merits, the three private employers were represented by two well-respected veterans of the Supreme Court bar: former acting solicitor general Neal Katyal, now at Hogan Lovells, and Williams & Connolly’s Kannon Shanmugam.

But it is relatively rare for two private parties to argue on the same side at the court – particularly when they are sharing their time with yet another lawyer (more on that in a moment). This meant that the employers and their attorneys would have to decide who should argue on behalf of all three companies. In other cases, lawyers and their clients have sometimes opted for a coin flip or a “moot-off,” in which the attorneys jockeying to appear before the court compete against each other in practice arguments. But in this case, the employers went with a third option and brought in a new lawyer – former solicitor general Paul Clement, now with Kirkland & Ellis – to represent all three companies.

The drama over who will represent the employers at the Supreme Court pales, however, in comparison with the developments within the federal government. When the NLRB filed its petition for certiorari in September 2016, it was represented by the U.S. solicitor general’s office, which urged the justices to review (and eventually reverse) the 5th Circuit’s decision in favor of Murphy Oil. But in June of this year, the solicitor general’s office filed a “friend of the court” brief on behalf of the United States in which it supported the employers. Acting Solicitor General Jeffrey Wall told the justices in that brief that, although his office had previously filed a cert petition on behalf of the NLRB, “defending the Board’s view that agreements of the sort at issue here are unenforceable,” the office – in the wake of the change in administrations – had “reconsidered the issue and reached the opposite conclusion.”

At around the same time that the United States filed its brief supporting the employers, the NLRB announced that it had been authorized to represent itself in the Supreme Court proceedings. In a brief filed on August 9, it did exactly that, once again urging the justices to reverse the 5th Circuit’s ruling. And both the federal government and the NLRB have asked the Supreme Court to allow them to share oral argument time with their allies. The justices have not yet acted on those motions, but they are very likely to be granted – creating the very real possibility that an attorney representing the federal government will be arguing against an attorney for a U.S. government agency.

UPDATED: On September 25, the justices granted the motions of the U.S. solicitor general and the National Labor Relations Board for divided argument. This means that the employers will share their 30 minutes of argument time with the United States, while the employees will share their 30 minutes with the National Labor Relations Board.

This post was originally published at Howe on the Court.

Posted in: Featured, Merits Cases

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