SCOTUS Decision to Impact Millions of Employment Contracts

February 1, 2017
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How Could This SCOTUS Decision Affect Employment Contracts?

The U.S. Supreme recently agreed to weigh in on a very hot topic — the enforceability of class-action waivers in employment agreements. The decision will address a circuit split and is expected to impact employment contracts involving millions of workers across the country.SCOTUS Decision to affect employment contractsThe specific question before the Court in National Labor Relations Board v. Murphy Oil USA, Inc. is:

Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. 157, and are therefore unenforceable under the saving clause of the Federal Arbitration Act, 9 U.S.C. 2.

NLRB’s Position on Class-Action Waivers

Section 7 of the National Labor Relations Act (NLRA) protects employees who engage in “concerted activity,” which is defined acting together to improve the terms and conditions of employment, including their wages, job performance, and staffing levels. Meanwhile, Section 8(a)(1) forbids an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7.”

The National Labor Relations Board (NLRB) has taken the position that agreements with individual employees that require them to use individual arbitration for all work-related disputes with their employer interfere with their Section 157 right to engage in concerted activities in violation of the NLRA. In D.R. Horton, Inc., 357 N.L.R.B. 2277, 2278- 2283 (2012), the NLRB first held that although the FAA “generally makes employment-related arbitration agreements judicially enforceable,” when such an agreement violates the NLRA, the FAA does not require its enforcement.

Circuit’s Split on Enforceability

The Fifth Circuit rejected the Board’s analysis in D.R. Horton, holding that the NLRA does not “override” the FAA and that the “use of class action procedures … is not a substantive right” under Section 157. In Murphy Oil, the NLRB reaffirmed its position in D.R. Horton. Again, the Fifth Circuit refused to enforce the board’s ruling.

The Second and Eighth Circuits have also rejected the NLRB’s position. However, the Ninth and Seven Circuits have agreed that class action waivers in employment agreements are unlawful. The Supreme Court will now have the final word.

In addition to Murphy Oil, the justices agreed to hear two other cases involving class-action waivers in employment contracts. They are both private lawsuits alleging that a class action waiver violates the NLRA. Oral arguments have not yet been scheduled for the consolidated cases. We encourage readers to check back for updates.

Are you a New Jersey business owner unsure how this U.S. Supreme Court decision could affect employment contracts? Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Michael Jimenez, at 201-806-3364.