Federal Courts and Nominations

Justices, Divided, Say Employment Contracts Banning Class Actions Are Lawful

“The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written,” Justice Neil Gorsuch wrote for the majority. In dissent, Justice Ruth Bader Ginsburg called the decision “egregiously wrong.”

Workplace employment agreements that ban class actions do not violate federal labor laws, the U.S. Supreme Court ruled on Monday.

The justices, in a 5-4 decision, sided with employers and the Trump administration’s Justice Department, which last June abandoned the Obama-era support of the National Labor Relations Board’s position.

The high court ruling, authored by Neil Gorsuch, came in a trio of cases: NLRB v. Murphy Oil USA (from the U.S. Court of Appeals for the Fifth Circuit); Epic Systems Corp. v. Lewis (Seventh Circuit), and Ernst & Young v. Morris (Ninth Circuit).

“The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written,” Gorsuch wrote. He was joined by Chief Justice John Roberts Jr. and justices Anthony Kennedy, Clarence Thomas and Samuel Alito Jr.

Gorsuch also wrote that the court had to abide by “a congressional command requiring us to enforce, not override, the terms of the arbitration agreements before us.”

In dissent, Justice Ruth Bader Ginsburg called the majority decision “egregiously wrong.” She called on Congress to counter the decision.

“Congressional correction of the court’s elevation of the FAA over workers’ rights to act in concert is urgently in order,” she wrote. Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan joined Ginsburg’s dissent, which she read in part from the bench Monday.

The federal labor board had ruled that bans of class or collective actions ran afoul of the National Labor Relations Act. But the government and employers argued that arbitration agreements containing the bans had to be enforced under the Federal Arbitration Act. The labor board’s then-general counsel, Richard Griffin, represented the board’s position during arguments—the first of the high court’s current term.

Dozens of companies in retail, health care and technology, among other industries, were waiting for the Supreme Court’s decision. Companies sued over alleged labor violations rooted in arbitration agreements include household names such as AT&T Mobility Service, Uber Technologies Inc., Kmart Corp., UnitedHealth Group Inc. and Neiman Marcus.

“This decision confirms that class action waivers in arbitration agreements are lawful,” said Lauren Novak, a partner at Schiff Hardin. “It allows the countless employers that have spent time and effort defending their employment agreements before the National Labor Relations Board and in the appellate courts to breathe a collective sigh of relief.”

Opponents of class action waivers saw meaning in the fact that Gorsuch wrote for the majority. “Make no mistake, working people in this country will be hurt by today’s ruling, while the U.S. Chamber of Commerce will surely consider this an early return on their investment in President Trump’s highest-profile judicial nomination, said Elizabeth Wydra, president of the Constitutional Accountability Center.

A recent memorandum from the NLRB general counsel’s office identified 152 cases awaiting the Supreme Court decision. Of those, 52 are on hold in appeals courts around the country.

The issue before the justices took on even wider public scrutiny with the dawning of the #MeToo movement in which a growing number of women spoke out—despite mandatory arbitration agreements—about workplace sexual harassment.

An estimated 25 million nonunion, private employees have arbitration agreements waiving class actions.

The issue before the justices was rooted in a 2012 board ruling that said the homebuilder D.R. Horton’s class action waivers violated federal labor law. Agreements that require employees to use arbitration for all work-related disputes interfered with employees’ right to engage in concerted activities under the National Labor Relations Act, the board determined. The board said that, when such an agreement violates the act, the Federal Arbitration Act does not require its enforcement.

During arguments on Oct. 2, the employers’ counsel, Kirkland & Ellis partner Paul Clement, argued that Supreme Court arbitration decisions offered “a well trod path” to resolving the issue and any tie, he added, goes to the Federal Arbitration Act. He drew support in the argument from Principal Deputy Solicitor General Jeffrey Wall.

But the NLRB’s Griffin countered that the board’s position that class waivers violated labor laws relied on “long-standing precedent.” Workers can agree to arbitrate individually, he said, as long as there is some forum for collective actions. Griffin shared argument time with Daniel Ortiz of the University of Virginia law school, representing one of the employees in the case.

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