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We Called It. SCOTUS Narrowly Holds that the FAA Trumps the NLRA
Posted on Categories Arbitration, Class Action/Collective Waivers, Court Decisions, Federal, NewsTags , , , , ,

In a narrow 5-4 decision split along ideological lines, the Supreme Court on May 21 held in Epic Systems Corp. v. Lewis, No. 16-285, that the Federal Arbitration Act (“FAA”) permits employers to use arbitration clauses containing class action waivers, notwithstanding the National Labor Relations Act’s (“NLRA”) protections of workers’ rights to act collectively.

He may not have asked any questions at oral argument (see SAA 2017-37 (Oct. 4)), but Justice Neil Gorsuch certainly answered many questions in his majority Opinion in Epic Systems. He was joined by Justices Alito, Kennedy, and Thomas, and Chief Justice Roberts.

FAA vs. NLRA

To review, as we have reported previously, the Supreme Court in January 2017 granted Certiorari in three cases involving whether the FAA prevails over the NLRA when it comes to enforcing class action waivers in employment arbitration agreements. The issue under review: The National Labor Relations Board and some Circuits had held that class action waivers in employment PDAAs violate NLRA section 8(a)(1) because they interfere with the employees’ statutory right to “concerted activities.” Other courts had ruled to the contrary, resulting in a split (ed: for an analysis of the conflict, see the September 2016 guest blog post by SAC Board Member and Contributing Legal Editor George H. Friedman, Seems Like I May Be Right After All on One of My 2015 Predictions – Just a Little Late). The question before the Court as framed by the Petition for Certiorari: “Whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.” The Court granted Certiorari “to clear the confusion” over these issues and the conflicting holdings. In the Epic decision, it holds: “As a matter of policy these questions are surely debatable. But as a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms – including terms providing for individualized proceedings.”

FAA Prevails: Savings Clause of No Help

The majority upholds class action waivers on two bases. First, the Justices apply narrowly the “savings” clause in section 2 of the FAA, which requires courts to uphold PDAAs “save upon such grounds as exist at law or in equity for the revocation of any contract.” The Court rejected the challengers’ argument that the FAA’s “any contract” exception can be triggered by a claim that the NLRA makes illegal arbitration clauses with class action waivers: “Illegality, like unconscionability, may be a traditional, generally applicable contract defense in many cases, including arbitration cases. But an argument that a contract is unenforceable just because it requires bilateral arbitration is a different creature. A defense of that kind, Concepcion tells us, is one that impermissibly disfavors arbitration whether it sounds in illegality or unconscionability. The law of precedent teaches that like cases should generally be treated alike, and appropriate respect for that principle means the Arbitration Act’s saving clause can no more save the defense at issue in these cases than it did the defense at issue in Concepcion” (emphasis in original).

FAA Prevails: Congress did not Intend in Passing the NLRA to Preclude PDAAs with Class Action Waivers

Second, the majority holds, if in enacting the NLRA Congress intended to preclude these PDAAs it would have said so explicitly: “Congress has likewise shown that it knows how to override the Arbitration Act when it wishes…. What all these textual and contextual clues indicate, our precedents confirm. In many cases over many years, this Court has heard and rejected efforts to conjure conflicts between the Arbitration Act and other federal statutes. In fact, this Court has rejected every such effort to date (save one temporary exception since overruled), with statutes ranging from the Sherman and Clayton Acts to the Age Discrimination in Employment Act, the Credit Repair Organizations Act, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Racketeer Influenced and Corrupt Organizations Act…. Throughout, we have made clear that even a statute’s express provision for collective legal actions does not necessarily mean that it precludes “‘individual attempts at conciliation’” through arbitration…. And we’ve stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the Arbitration Act” (citations omitted).

Chevron of No Help, Either

The Court also rejected the employees’ argument that the NLRB’s ruling on class action waiver use was entitled to deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984), holding that the Board’s authority to interpret labor and employment statutes did not extend to the FAA: “Here, though, the Board hasn’t just sought to interpret its statute, the NLRA, in isolation; it has sought to interpret this statute in a way that limits the work of a second statute, the Arbitration Act. And on no account might we agree that Congress implicitly delegated to an agency authority to address the meaning of a second statute it does not administer.”

Harsh Dissent

The Court’s liberal wing dissented in a blistering Opinion authored by Justice Ginsburg, joined by Justices Breyer, Kagan, and Sotomayor, that reviews in detail the legislative histories of the FAA and federal employee-protection laws. Describing the majority views as “egregiously wrong” Justice Ginsburg writes: “If these untoward consequences stemmed from legislative choices, I would be obliged to accede to them. But the edict that employees with wage and hours claims may seek relief only one-by-one does not come from Congress. It is the result of take-it-or-leave-it labor contracts harking back to the type called ‘yellow dog,’ and of the readiness of this Court to enforce those unbargained-for agreements. The FAA demands no such suppression of the right of workers to take concerted action for their ‘mutual aid or protection.’”

(ed: *Justice Thomas wrote a brief Concurring Opinion, agreeing with the majority but adding that section 2’s savings clause in his view goes to contract formation, not enforcement:Because ‘[r]efusal to enforce a contract for public-policy reasons does not concern whether the contract was properly made,’ the saving clause does not apply here” (citations omitted; brackets in original). **Our editorial note in SAA 2018-19 (May 16) predicted that a decision was imminent and added: “Our thinking is that Epic will be a close call, with concurrences and dissents…. We’re still sticking with our prediction that this will be a split decision reaffirming the preemptive effect of the FAA over federal laws that do not expressly preclude arbitration, with Justice Gorsuch voting with the pro-arbitration camp.” ***When Justice Gorsuch was nominated, we analyzed his past opinions and concluded in a February 2017 blog post that he was pro-arbitration. ****Query what this means for FINRA-regulated members of the financial services industry? Readers should be aware that FINRA has not closed the door on class action waivers in the employment context, as it has (a la the Charles Schwab disciplinary action), in the customer arena. Now that SCOTUS has elevated the FAA over the NLRA and permits class action waivers in the rest of industry, we would not expect that FINRA would regulate an exception that blocks the brokerage industry from claiming the same right.) (SAC Ref. No. 2018-20-01)

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