Current Events

Friday, January 20, 2017

Supreme Court to Decide Whether Arbitration Agreements Can Prohibit Employees from Filing Collective Actions and Whether “Individual Action Only” Clauses Violate the NLRA

On Friday, January 13, 2017, the US Supreme Court agreed to hear arguments over whether the National Labor Relations Act (NLRA) is violated when employer arbitration policies prohibit employees from filing class or collective actions. The Court granted cert and consolidated three petitions: Ernst & Young LLP v. Morris, a California case; Epic Systems v. Lewis, an appeal from a District Court for the Western of Wisconsin; and Murphy Oil USA v. National Labor Relations Board, which had been appealed in the US Court of Appeals for the Fifth Circuit. Each of the cases dealt with arbitration agreements requiring individual arbitration to resolve disputes arising out of the employer/employee relationship.

Employers use arbitration agreements as a required prerequisite of employment to prevent being sued in a court of law for disputes arising out of the employer/employee relationship. I have successfully represented employees in such arbitration-only proceedings and in employer sponsored mediation, obtaining favorable financial results for my clients. When employers require employees to sign arbitration agreements as a condition of their employment and the agreement stipulates that only individual employees, and not a class of employees, may file for arbitration, it may prevent the filing of a concerted or collective arbitration. Some agreements prohibit the filing of any class action lawsuit which are frequently done in wage and hour disputes, or when an employer misclassifies employees in an attempt to avoid having to pay them overtime. Many of theses arbitration agreements contain clauses which preclude collective actions in any forum, including arbitration. This law office represents employees in wage and hour disputes and when there has been a misclassification of workers to avoid their being paid overtime.

The US Supreme Court will decide upon the enforceability of “individual filing only” arbitration clauses in employment contracts, when the workers want to file a collective action, as a class, and not file for arbitration as individual employee actions. Many employee advocates, including this blog's author who has lobbied in Washington  D.C. for the passage of federal legislation which would make such arbitration clauses unenforceable, believe these types of clauses are contracts of adhesion and should not be enforceable. 

A contract of adhesion is usually a boilerplate standard form drafted by the party that has the stronger bargaining power (such as car dealer, insurance company, or employer) that is signed by the weaker party (such as the purchaser, prospective employee or employee). Because of the unequal bargaining power between the parties and the unfairness of a take-it-or-leave-it contract which leaves the consumer or employee no other recourse, this author thinks these agreements to be for the most part unconscionable and should not be enforced. Unfortunately the courts do not always agree. In New Jersey, when a prospective employee signs an arbitration clause in his/her employment application, the courts have found them enforceable, which precludes an employee from filing lawsuits in courts for disputes arising out of the employment relationship. 

A federal appeals court in Murphy Oil USA v. National Labor Relations Board, rejected the argument that the federal law protects employees' rights to engage in concerted activities by filing a class action lawsuit. But two federal appeals courts, one in Illinois, in Lewis v. Epic Systems Corp; and the other in California, in Morris v. Ernst & Young, LLP; have accepted the argument that the federal law does protect employees' rights to engage in collective arbitration activities, and in the California case, even when there is contract provision that says “arbitration only” that prevents them from filing in a Court.

The Appeals Court in California, the United States Court of Appeals for the Ninth Circuit, in Morris v. Ernst & Young, LLP,  held that the problem with the contract at issue was not that it requires arbitration and does not allow a lawsuit to be filed in Court, but that the contract term requiring only individual and not class arbitration proceedings defeats a substantive federal right to pursue concerted work-related legal claims in an arbitration proceeding.

In Morris v. Ernst & Young, LLP, what was at issue was whether an employer violates the National Labor Relations Act by requiring workers to sign an agreement that prevents them from bringing in any forum, a concerted, i.e., group or collective, legal claim regarding disputes arising out of their employment. The United States Court of Appeals for the Ninth Circuit concluded that it does, and vacated the order of the District Court compelling individual arbitration. To phrase it another way, the issue was whether “class” waivers in arbitration provisions of the employees’ contracts will actually be enforced, or whether the employees could file a collective arbitration against the employer, even if precluded from filing a class (collective) action in a court.

In Ernst & Young, as is the case in many class actions, it is alleged that the employer misclassified employees to deny them overtime wages in violation of the Fair Labor Standards Act and California labor laws. In this matter, the employees were required to sign agreements that contained a “concerted action waiver” as a condition of employment, requiring the employees to pursue legal claims against the employer, Ernst & Young, exclusively through arbitration, and arbitrate only as individuals and in separate proceedings. The Appeals Court vacated the District (lower) Court's order which had compelled the individual arbitration to resolve the dispute that Ernst & Young misclassified its employees to deny overtime wages in violation of the Fair Labor Standards Act and California labor laws.

The Appellate Court stated in its opinion filed August 22, 2016:

The illegality of the "separate proceedings" term here has nothing to do with arbitration as a forum. It would equally violate the NLRA for Ernst & Young to require its employees to sign a contract requiring the resolution of all work-related disputes in our and in "separate proceedings." The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract 1 limited resolution to that mechanism and 2 required separate individual proceedings. The problem with the contract at issue is not that it requires arbitration, it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims... 

... the enforcement defense in this case does not specially "disfavor" arbitration. The dissent makes dire predictions about the future arbitration if the "separate proceedings" clause is invalidated. However, our holding is not that the arbitration may not be used in workplace disputes. Quite the contrary. Rather, our holding is simply that when arbitration or any other mechanism is used exclusively, substantive federal rights continue to apply in those proceedings. The only role arbitration plays in today's case is that it happens to be the forum the Ernst & Young contract specifies as exclusive. The contract here would face the same NLRA troubles if Ernst & Young required its employees to use only courts, or only rolls of the dice or tarot cards, to resolve workplace disputes- as long as the exclusive forum provision is coupled with a restriction on concerted activity in that forum. At its heart, this is a labor law case, not an arbitration case. 

In the Lewis v. Epic Systems, a health care software company, required groups of employees to agree to bring any wage-and-hour claims against Epic Systems only through individual arbitration pursuant to an arbitration agreement. The agreement did not permit employee collective arbitration or collective or class action in any other forum. 

The United States Court of Appeals for the Seventh Circuit, in the Lewis v. Epic Systems, decided May 26,2016, held as follows: “We conclude that this agreement violates the National Labor Relations Act (NLRA)29 U.S.C. and is also un-enforceable under the Federal Arbitration Act (FAA). We there for affirm the the district court’s denial of Epic’s motion to compel arbitration.”

In the third case,  Murphy Oil USA v. National Labor Relations Board, which is consolidated with the other cases, the United States Court of Appeals for the Fifth Circuit reached a different conclusion than the other two. In June 2010, several employees filed a collective action against Murphy Oil in the United States District Court for the Northern District of Alabama alleging violations of the Fair Labor Standards Act (“FLSA”). The National Labor Relations Board argued that Murphy Oil USA, Inc., had unlawfully required employees at its Alabama facility to sign an arbitration agreement waiving their right to pursue class and collective actions. The employees also argued that the Arbitration Agreement interfered with their right under the NLRA to engage in Section 7 protected concerted activity. The Appellate Court on January 18, 2017 disagreed and held that the Murphy Oil USA did not commit unfair labor practices by requiring employees to sign its arbitration agreement or seeking to enforce that agreement in federal district court.

This consolidated challenge to the legitimacy of required- by-the-employer class action waivers in the US Supreme Court will likely be decided when new a Justice will be added to the Supreme Court.

What You Can Do

If you have a dispute with your employer and you signed, or think you may have unwittingly signed, an “arbitration only” agreement, it is important to consult with an aggressive and experienced employment attorney who is passionate about enforcing your rights.

You may contact Hope A. Lang, Attorney at Law today for a free consultation. Hope A. Lang, Attorney at Law serves clients throughout New Jersey, including Bergen, Middlesex, Essex, Hudson, Monmouth, Ocean, Union, Camden, Burlington, Passaic, and Morris Counties with locations in Central, Western and Northern NJ to meet with clients.



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