Attorney: U.S. SC review of arbitration agreements to impact businesses

By Jessica Karmasek | Jan 31, 2017

WASHINGTON (Legal Newsline) - The U.S. Supreme Court has agreed to review the validity of class action waiver clauses in employer/employee arbitration agreements, and one attorney says its decision could have “important implications” for businesses.

In an order list released Jan. 13, the nation’s high court granted petitions for writ of certiorari, or review, in Epic Systems Corp. v. Lewis, Ernst & Young v. Morris and NLRB v. Murphy Oil USA Inc.

Julianna Thomas McCabe is a class action litigator and appellate lawyer with national experience representing clients in the financial services industry. She also chairs Carlton Fields’ National Class Actions practice group.

McCabe, who has represented clients at arbitration and has litigated the enforceability of contractual arbitration clauses under the Federal Arbitration Act, told Legal Newsline it “made sense” for the Supreme Court to consolidate the three cases, noting that all three petitions raise an identical issue.

The court now must consider whether the National Labor Relations Act bars enforcement under the FAA, of class action waiver provisions in an arbitration clause in an employment contract.

“In other words, the question is whether employers can utilize arbitration agreements within employment contracts that require their employees to resolve disputes individually, as opposed to collectively,” McCabe explained.

The court’s decision in the cases aims to resolve a significant split among federal appellate courts.

The Second, Fifth and Eighth circuit courts have held that the FAA requires the enforcement of class action waivers in employment arbitration agreements.

The Seventh and the Ninth circuits have reached the opposite conclusion, holding that such waivers are unenforceable.

In May, the Seventh Circuit ruled against Epic Systems, a Wisconsin-based health-care software company.

Epic required certain groups of employees to agree to bring any wage-and-hour claims against the company only through individual arbitration. The agreement did not permit collective arbitration or collective action in any other forum.

The Seventh Circuit said in its decision that employers can’t prevent class, or collective, actions through waivers in mandatory arbitration agreements.

In August, the majority of a three-judge panel of the Ninth Circuit vacated a district court’s order compelling individual arbitration in a class action filed against Ernst & Young by its employees.

The Ninth Circuit sided with the approach of the National Labor Relations Board in ruling that individual arbitration waiver agreements are unenforceable under federal law.

The employees, Stephen Morris and Kelly McDaniel, alleged Ernst & Young, one of the “Big Four” audit firms, misclassified employees to deny overtime wages in violation of the Fair Labor Standards Act and California labor laws.

In Murphy Oil, the NLRB had ruled that similar arbitration agreements barring the gas station chain’s workers from pursuing class or collective actions were unlawful. However, the Fifth Circuit reversed the board’s ruling.

The NLRB, an independent agency of the U.S. government, is charged with investigating and remedying unfair labor practices.

McCabe said it’s too early to predict how the court will decide.

“In recent years, the court has issued a series of pro-arbitration opinions, but it has not addressed this precise question,” she noted. “The court also is missing one of the conservative members who voted in the majority in each of those prior cases.”

The current high court is without Justice Antonin Scalia, who died in February. He served on the high court for nearly 30 years. His death has left eight justices on the court, split 4-4 between being fairly conservative and fairly liberal.

Scalia authored the Supreme Court’s 5-4 opinion in AT&T Mobility v. Concepcion. In April 2011, the court ruled that companies can enforce contracts that bar class action lawsuits. Meaning businesses that include arbitration agreements with class action waivers can require consumers to bring claims only in individual arbitrations, rather than in court as part of a class action.

Experts called the decision a “game-changer” for class action litigation.

McCabe said the court’s current makeup could have an impact on the three cases at issue.

“If the justices deadlock 4-4, each case will be affirmed as decided by the circuit court without an opinion and with no precedential value,” she explained.

“That seems unlikely to happen, however, because the court accepted certiorari to resolve a split among the circuit courts as to whether such arbitration clauses are enforceable.”

A ninth justice may or may not be confirmed in time to participate, she noted.

“It is unclear whether Democrats in the Senate will attempt to stall or block a new appointee of President-elect Trump,” McCabe said.

Either way, the cases have “important implications” for businesses, she said.

“The individual resolution of employment disputes in an arbitral forum is much more cost-effective and private, than the litigation of employment disputes in a class action or collective format in a judicial forum,” McCabe explained.

In recent years, following Concepcion and similar decisions, the use of class action waivers in arbitration agreements in various types of contracts has significantly increased.

According to Carlton Fields’ 2016 Class Action Survey, the use of arbitration clauses barring class actions went from a reported 16.1 percent to 39.2 percent from 2012 to 2015.

McCabe said she expects the three cases to be set for oral argument at the end of the current session. The Supreme Court holds oral argument between October and April, and the cases have been allotted a total of one hour for argument.

If the court hears argument by April, a decision could come by late June or early July, when the court recesses for the summer, she said.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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