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Ongoing Saga - Class Action Waivers

Since 2012, there has been an ongoing saga created by the National Labor Relations Board (NLRB) as to whether or not an Employer can require its Employees, as a Condition of Employment, to agree to arbitrate all Legal Claims against the Employer on an individual basis only, thereby waiving Class and Collective Action Procedures. The NLRB initially took issue with this type of action in the D.R. Horton, Inc. Case., 357 NLRB No. 184 (2012), in which it held that requiring Employees to waive the right to bring Claims in the form of a Class Action (or a Collective Action under the Fair Labor Standards Act) violated the guarantee of rights, as provided in Section 7 of the National Labor Relations Act, that allows Employees the right to engage in "protected concerted activity for mutual aid or protection". When that Case was appealed to the Fifth Circuit Court of Appeals, the Fifth Circuit denied enforcement of the Board's Order in the D.R. Horton, Inc. Case. Subsequently, the NLRB issued another Decision with a different Employer (Murphy Oil USA, Inc., 361 NLRB No. 72 (2014)) reaching the exact same results - that Class Waivers in Arbitration Agreements, as a Condition of Employment, unlawfully interfered with Employees' rights to engage in "protected and concerted activity" under the National Labor Relations Act. That ruling was again rejected by the Fifth Circuit on Appeal.

Subsequent to the Fifth Circuit's position in rejecting the NLRB stance on Class Waivers in Arbitration Agreements, those Decisions were joined in Decisions by the Second Circuit, the Eighth Circuit, as well as the Eleventh Circuit and numerous State Courts including, for example, the California Supreme Court in the Iskanian Decision (Iskanian v. CLS Transportation Los Angeles, LLC, 327 P.3d 129 (2014).

Undaunted, in May 2016, the NLRB finally had a favorable decision issued by the Seventh Circuit Court of Appeals in the Lewis v. Epic Systems Case (823 F.3d 1147 (7th Cir. 2016)). The Seventh Circuit did find that the inclusion of a "Class Waiver Provision was in violation of the National Labor Relations Act". The Seventh Circuit was joined by the Ninth Circuit (Morris v. Ernst and Young, LLP, 834 F.3d 975 (9th Cir. 2016)). Because of the obvious conflict among Federal Court of Appeals Circuits, the United States Supreme Court agreed to take up this matter, consolidating the Murphy Oil, Lewis and Morris Cases, and is expected to rule on this interesting issue sometime in the latter part of 2017 or early 2018.

Unfortunately, even though this matter is currently pending before the United States Supreme Court, the Sixth Circuit Court of Appeals decided to join in with the Seventh and Ninth Circuit in concluding that mandatory Waivers of Class and Collective Action proceedings violated Section 7 of the National Labor Relations Act in NLRB v. Alternative Entertainment, Inc. (Case No. 16-1385 (May 26, 2017)). The Sixth Circuit Court of Appeals has taken it a little further than the Seventh and Ninth Circuit in stating that "The right to engage in Class Action Litigation is not merely a procedural right that can be waived by Employees but, in fact, is a Substantive Right guaranteed by the National Labor Relations Act" and thus an Employer cannot require Employees to waive this Substantive Right as a condition of Employment.

Hopefully, sometime in the latter part of 2017 or early 2018, the Supreme Court will take a stand on this issue and finally and fully resolve it for Employers. Until that time, stay tuned for developments.

Questions? Contact Attorney Walter Liszka in our Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com

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