October 01, 2018

Proceedings of the New York University 69th Annual Conference on Labor

By Kalpana Kotagal

I. Introduction

In 1985, the Supreme Court’s decision in Mitsubishi Motors solidified a principle that has come to define the modern era of arbitration: requiring parties to engage in arbitration is simply a change of forum and does not change or weaken substantive rights. The Court extended that holding to employment discrimination cases and built upon those principles with its “effective vindication” doctrine, such that mandatory arbitration is permitted as long as parties can effectively vindicate substantive legal rights.

Class and collective action waivers combined with mandatory arbitration can be, and increasingly are, written to prohibit employees or consumers from bringing complaints in court and from pursuing them as class, collective, or representative actions. These waivers appear in a wide range of arbitration contracts, from credit card and cellular phone contracts to employment handbooks. In recent years, a series of Supreme Court decisions interpreting the Federal Arbitration Act (“FAA”) have strengthened mandatory arbitration and narrowed dramatically the availability of collective or representative procedures. By limiting the situations where mandatory arbitration agreements can be found unenforceable and then interpreting such agreements to eliminate the availability of class and collective procedures, the Supreme Court’s recent jurisprudence has undermined access to the courts and severely constrained the options of employees, consumers, and even small businesses seeking to equalize their bargaining power with major companies. These decisions have left commentators, scholars and advocates wondering what remains of the effective vindication doctrine and what remaining avenues exist to pursue class or collective actions in employment and consumer settings. As the options have dwindled, the bedrock principle that arbitration, even if mandatory, is simply a different forum and does not impact substantive rights has also been eroded.

The enforceability of class and collective action waivers in mandatory arbitration agreements in the employment setting is before the Supreme Court once again, but this time the Court must address the relationship between the FAA and National Labor Relations Act (“NLRA”). The Court will decide whether the right to class or collective legal action is a substantive right protected by Sections 7 and 8(a)(1) of the NLRA and, if so, whether interference with this right makes such waivers unenforceable.

This issue previously arose in the National Labor Relations Board’s (“NLRB” or “The Board”) D.R. Horton decision. In that case and in many cases since, the NLRB interpreted the NLRA to require that employers not eliminate all avenues to class or collective legal action even when arbitration of employment disputes is required. In reaching its holding, the Board interpreted the NLRA and FAA to be harmonious with one another and accounted for the Supreme Court’s recent jurisprudence on mandatory arbitration and class waivers.

The Fifth Circuit reversed the Board’s decision in D.R. Horton, and a few years later a circuit split developed, with the Seventh and Ninth Circuits on one side of the issue and Second, Fifth and Eighth Circuits on the other.

On January 13, 2017, acknowledging the circuit split and the Board’s petition seeking clarification, the Supreme Court granted writs of certiorari in three cases. The question presented in those three cases is whether “an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act.”

These cases raise issues of statutory interpretation: (1) does the NLRA protect the availability of class, collective or representative actions, whether in a judicial or arbitral forum, as a substantive right; (2) does the saving clause contained in Section 2 of the FAA apply to make unenforceable a class waiver in an arbitration agreement where that waiver violated a federal statute? Ultimately, answers to these questions will resolve whether the NLRA and FAA can be read to be harmonious with one another and with recent Supreme Court precedent regarding the enforceability of class and collective action waivers in arbitration agreements, as the NLRB, Seventh and Ninth Circuits contend.

After a series of decisions that strengthened the hand of employers by making it easier to mandate arbitration and limiting the availability of aggregation in arbitration, the Board’s interpretation of the NLRA in D.R. Horton offers a reality check about bargaining power and the meaning of “consent” to a contract when one’s job is conditioned on that consent. The Board’s candor and the traction it gained in the Seventh and Ninth Circuits are refreshing. These cases offer a chance to restore balance to the role of the FAA, to remove it from the pedestal it has come to occupy and place it back on even footing with other federal statutes and the rights they protect, consistent with Congress’ original intent.

The complete article can be accessed here.

Copyright 2018. Posted with express consent by Carolina Academic Press.