Circuit Split Widens Over Enforceability of Arbitration Agreements Containing Class/Collective Action Waivers

By Jim Sullivan

Are employer/employee arbitration provisions containing class/collective action waivers enforceable? The law on this issue is anything but settled at this point. For now, it may depend upon where a case is filed, and the Supreme Court likely will resolve the conflicting lower court decisions on the issue. 

Five years ago, the United States Supreme Court in AT&T Mobility LLC v. Concepcion ruled, in a 5-4 decision written by Justice Scalia, that state laws prohibiting the enforcement of consumer contracts containing an arbitration provision with a class action waiver were contrary to the Federal Arbitration Act. Within a year of that decision, the National Labor Relations Board in D.R. Horton ruled that Concepcion did not apply in the context of employee rights under the National Labor Relations Act, specifically § 7 which vest employees with the right to engage in “concerted activities.” The NLRB found that D.R. Horton’s arbitration agreement which precluded class/collective actions was an unfair labor practice. D.R. Horton appealed the NLRB’s decision to the Fifth Circuit, which rejected the Board’s conclusion that § 7 of the NLRA prohibited class/collective action waivers in arbitration agreements with employees.

In addition to the Fifth Circuit, the Second (Sutherland v. Ernst & Young LLP), Eighth (Owen v. Bristol Care, Inc.) and Eleventh Circuits (Walthour v. Chipio Windshield Repair) have ruled that class/collective action waivers in employer-employee arbitration agreements are enforceable. In June 2016, the Seventh Circuit in Lewis v. Epic Systems Corp. turned the tide, becoming the first federal court of appeals to adopt the NLRB’s rationale in D.R. Horton. The Court ruled that the class/collective action waiver in an arbitration provision which would have precluded plaintiff from pursuing a collective under the Fair Labor Standards Act violated the NLRA, and thus, was not enforceable.

On August 22, 2016, the Ninth Circuit in Morris v. Ernst & Young, LLP, adopted the reasoning of the Seventh Circuit, becoming the second federal court of appeals to find that class/collective action waivers in an arbitration provision violates the NLRA. In those Circuits that have not opined on the issue, the federal district court decisions indicate the same conflicting views.

Within the last week, Epic Systems Corp. and Ernst & Young have filed petitions for writ of certiorari to the Supreme Court. Given the conflicting court of appeals decisions, the Court will likely take the case. But, predicting how the Court might decide the issue is another matter. While Concepcion may support enforcement of class/collective action waivers, the 5-4 decision was written by the late Justice Scalia. When and how the Court decides this issue will likely depend on who fills Justice Scalia’s seat and when the new justice is confirmed.