In 2012, the National Labor Relation Board held that employers cannot enforce class action waivers in arbitration agreements with employees covered by the National Labor Relations Act. The Seventh Circuit in Lewis v. Epic Systems, agreed, holding that the Federal Arbitration Act does not override Sections 7 and 8 of the National Labor Relations Act, which together make contracts that restrain the employee’s right to engage in “concerted activities” for the purpose of collective bargaining unenforceable. Rather, the FAA and the NLRA must be read together and to the extent an employer attempts to enforce an individual arbitration clause, it must be deemed “illegal” and unenforceable under the FAA.
The Ninth Circuit in Ernst & Young LLP v. Morris followed the Seventh Circuit rationale. Other circuits, however, have disagreed. For example, the Fifth Circuit in NLRB v. Murphy Oil, said that the NLRB provisions do not override the FAA because the use of class action procedures is a procedural, rather than a substantive right. Although the employer had to allow employees to seek relief for unfair labor practices before the NLRB, the employer could enforce an arbitration clause that waived the employee’s right to collective action.
Given this split, the Supreme Court agreed to resolve the issue by accepting certiorari (appeal) of and consolidating the three cases. Oral argument was held in October. In an interesting twist, the Solicitor General’s Office, which had originally filed a brief with the NLRB, switched sides after the change in administration and argued in support of the employers.
