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Supreme Court rejects NLRB position on class action arbitration waivers

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On May 21, the United States Supreme Court issued its long awaited decision in Epic Systems Corp v. Lewis. Justice Gorsuch delivered the opinion of the court. Rejecting the position of the National Labor Relations Board, the court ruled that employers and employees may lawfully agree that any disputes between them will be resolved through one-on-one arbitration. The court ruled that under the National Labor Relations Act, employees do not have the right to file class or collective actions, no matter what they agreed with their employer.

In passing the Federal Arbitration Act, Congress has instructed the federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized arbitration. The court rejected the NLRB interpretation that Section 7 of the National Labor Relations Act trumps a Federal Arbitration Act. The NLRB is not king.

The court noted the Supreme Court has never before read a right to class actions into the NLRA. For over 75 years, neither did the National Labor Relations Board.

In 2010, NLRB General Counsel Ron Meisburg (a Bush appointee) issued a memorandum expressing the opinion that a class action arbitration waiver was enforceable. General Counsel Meisburg opined that the validity of such agreements "does not involve consideration of the policies of the National Labor Relations Act."

When President Obama nominee, Richard Griffin, became the general counsel, he had more activist ideas. For the first time in 77 years, the NLRB asserted that the National Labor Relations Act effectively nullifies the Federal Arbitration Act.

While noting that the Federal Arbitration Act would normally require a court to enforce the arbitration agreements at issue, the NLRB argued that the NLRA overrides and that the arbitration agreements are unlawful. The court rejected that argument. The court stated that to override the Federal Arbitration Act, the NLRB had to show a clear and manifest intention on the part of Congress to do so.

The court ruled that Section 7 of the National Labor Relations Act expressed no clear and manifest Congressional command to displace the Federal Arbitration Act. Section 7 does not mention class or collective action procedures. "It does not even hint at a wish to displace the Arbitration Act – let alone accomplish that much clearly and manifestly, as our precedents demand."

The NLRB pointed the court to the Section 7 catchall phrase: "other concerted activities for the purpose of other mutual aid or protection." The NLRB argued that this catchall phrase should be read to include class and collective legal actions.

The court also rejected that argument. The catchall phrase appears at the end of a detailed list of activities speaking of "self organization," "forming, joining, or assisting labor organizations," and "bargaining collectively." Because the catchall phrase appears at the end of a detailed list of activities, it should be understood to protect the same kind of things, i.e., things employees do for themselves in the course of exercising their right to free association in the workplace.

Critical of the Board, the court noted that nothing in the NLRA "even whispers to us" about class and collective actions.

In a stinging rebuke to the NLRB, the court stated "It's more than a little doubtful that Congress would have tucked into the mousehole of Section 7's catchall term an elephant that tramples the work done by these other laws; flattens the parties' contracted-for dispute resolution procedures; and seats the Board as supreme superintendent of claims arising under a statute it doesn't even administer."

In conclusion, the court made it clear that the NLRB and its general counsel were trying to usurp the role of Congress. It is apparent the NLRB disagreed with the policy of enforcing arbitration agreements. However, the court made clear: "Congress has instructed that arbitration agreements like those before us must be enforced as written."

Significance:  This was a bad day for the class action plaintiff lawyers. More employers will now include such class action waivers in their mandatory arbitration agreements, resulting in fewer class action cases. Additionally, the court's decision supports a narrow definition of "concerted activity." I predict employers will argue that this case allows employers to prohibit other employee conduct that is not directly oriented toward "collective bargaining" or "union organizing."

L. Michael Zinser is the founding partner of The Zinser Law Firm in Nashville, Tenn. The firm, which has a heavy concentration of clients in communications media, represents management in the area of labor and employment. Zinser can be reached at (615) 244-9700 or mzinser@zinserlaw.com.

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