Federal Government Does About-Face on Enforcement of Arbitration Agreements in Employment Contracts

10 August 2017 Dashboard Insights Blog

One of the changes in approach that the current administration has taken to the legal system—a change often overshadowed by other headlines—is the current administration’s willingness to enforce arbitration clauses. While this has garnered some attention in connection with the Trump administration’s position on arbitration provisions in nursing home agreements, the administration has quietly shifted its course on enforcing arbitration agreements in other realms as well.

One of these areas is the employment context, and the change in course coincides with the Supreme Court preparing to hear a series of consolidated appeals on the enforceability of arbitration agreements that waive the right to class or collective actions. The appeals come from Morris v. Ernst & Young, LLP, No. 13-16599 (9th Cir. Aug. 22, 2016); Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016); and Murphy Oil USA, Inc. v. NLRB, No. 14-60800 (5th Cir. Oct. 26, 2015). Each of the cases grappled with whether the protections for “concerted activity” in the National Labor Relations Act (“NLRA”) barred enforcement of such arbitration clauses contained in employment agreements, or whether the arbitration clauses had to be enforced under the Federal Arbitration Act (“FAA”). The Seventh and Ninth Circuits, in Lewis and Morris, held that such an arbitration clause ran afoul of the NLRA, and was unenforceable;  the Fifth Circuit held to the contrary in Murphy Oil. The Supreme Court has agreed to review these decisions, and consolidated them for hearing in October 2017.

While the decision itself will have a major impact on how employers can manage their exposure to class and collective actions by employees, the federal government’s position on these suits has been interesting to follow as well. In Murphy Oil, the National Labor Relations Board (“NLRB”)—through the United States Solicitor General’s office—filed the petition for the Supreme Court to review the case in September 2016, arguing that the Fifth Circuit incorrectly enforced the arbitration clause, and that the NLRA prevented enforcement of such clauses. But now that certiorari has been granted the United States has filed an amicus brief—also authored by the Solicitor General’s office—in the consolidated Supreme Court proceeding supporting the employers’ position that the arbitration provisions are enforceable. The NLRB has since announced that it will be representing itself in the case, without the Solicitor General’s assistance.

The Supreme Court might not announce its decision until June 2018, giving court watchers plenty of time to guess whether it will add to its line of cases upholding arbitration provisions against attack. If it does, employers will have a potent tool to reduce their exposure to class or collective actions. But even if it does not, the Trump Justice Department has shown its willingness to enforce arbitration provisions in circumstances where its predecessors did not, an important development to note as consumer groups and other organizations are pushing back on the use of arbitration agreements in consumer contracts.

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