Sixth Circuit joins the “robust debate” regarding enforceability of arbitration agreements, class actions and section 7 of the NLRA

The Sixth Circuit joined what it understatedly called a “robust debate” regarding the enforceability of mandatory pre-dispute arbitration agreements that do not permit class actions. The courts are split. The NLRB takes the position that such agreements violate section 7 of the National Labor Relations Act, the nation’s leading labor (union-related) law. Section 7 is a section of the NLRA that applies to both unionized and non-unionized employers. It permits employees to work together to further their wages, hours and working conditions. The NLRB takes the position, and the Sixth Circuit here agreed, that class action litigation is itself one form of protected activity under Section 7, in other words, that it is itself one way that two or more employees can work together to further their wages, hours or working conditions.

The Sixth Circuit summarized the current state of the split between the courts, as follows:

Whether federal law permits employers to require individual arbitration of employees’ employment-related claims is a question of first impression in this circuit; however, at least four other circuits have recently considered this question. See Morris v. Ernst & Young, LLP, 834 F.3d 975 , 985-86 (9th Cir. 2016) (holding arbitration provisions mandating individual arbitration of employment-related claims violate the NLRA and fall within the FAA’s saving clause); Lewis v. Epic Sys. Corp., 823 F.3d 1147 ,1160 (7th Cir. 2016) (same); Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 , 1018 (5th Cir. 2015) (upholding its earlier holding in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013), that arbitration provisions mandating individual arbitration of employment-related claims do not violate the NLRA and are enforceable under the FAA); Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772 , 776 (8th Cir. 2016) (upholding its earlier holding in Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013), that arbitration provisions mandating individual arbitration of employment-related claims do not violate the NLRA).4 The California Supreme Court also recently considered this question. See Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 , 173 Cal. Rptr. 3d 289 , 327 P.3d 129 , 141-43 (Cal. 2014) (holding that arbitration provisions banning class-action litigation or collective arbitration of employment-related claims are enforceable under the NLRA and the FAA’s saving clause, but also holding that arbitration provisions banning representative claims under California’s Private Attorneys General Act violates that Act). There were dissenting opinions in three of these cases. See Morris, 834 F.3d at 990 (Ikuta, J., dissenting); D.R. Horton, 737 F.3d at 364 (Graves, J., dissenting in part); Iskanian, 327 P.3d at 159 (Werdegar, J., dissenting in part). Although this question is one of first impression in this circuit, there is already a robust debate about the enforceability of arbitration provisions like the one at issue in this case.

With so many decisions, split so decisively, the issue is sure to require Supreme Court resolution, and fortunately the Supreme Court agreed to take three of the cases: Murphy Oil, Epic Systems and Ernst & Young. Opening briefs are due a few days after this post (by 6/9/17), with a decision hopefully to follow by end of year or early 2018.

Source: NLRB v. Alternative Entertainment, Inc., — F.3d —, case no. 16-1385 (6th Cir. 5/26/17)