On October 2, 2017, the United States Supreme Court heard oral argument in Epic Systems v. Lewis, which considers the import of the National Labor Relations Act (NLRA) on the enforceability of class action waivers under the Federal Arbitration Act (FAA). According to some estimates, approximately 25 million employees are covered by arbitration agreements that prohibit class actions or other joint proceedings. Thus, the Supreme Court’s decision is likely to have a significant impact on employment and labor relations throughout the country.

Summary of Oral Argument

Questioning during oral argument hinted at a divide down ideological lines. In one interesting exchange, Justice Breyer appeared to tip his hand:

The [NLRA] protects the worker when two workers join together to go into a judicial or administrative forum for the purpose of improving working conditions, and the employers here all said, we will employ you only if you promise not to do that. … That’s the argument against you. … I haven’t seen a way that you can, in fact, win the case … without undermining and changing radically what has gone back to the New Deal, that is, the interpretation of Norris-LaGuardia and the NLRA.

Notably, Justice Gorsuch (perhaps following the example of his quiet and contemplative colleague Justice Thomas) did not ask a single question during argument. 

Substantively, the Court focused on the nature of the right protected by Section 7 of the NLRA. According to Petitioners, Section 7 protects employees’ right to decide to bring class or representative actions. However, it does not govern the rules applicable in the judicial or arbitral forum. As Petitioners characterized it, the “Section 7 right … gets you to the courthouse, it gets you to the Board, it gets you to the arbitrator. … But once you’re there you're subject to the rules.” Framed this way, the arbitration agreement merely operates “to set the rules for the forum of arbitration when you get there.”

Just like an employer can contest the appropriateness of class proceedings based on failure to satisfy the requirements of Rule 23 (e.g., numerosity, commonality, etc.) without running afoul of the NLRA, it can also do so based on the existence of a bilateral arbitration agreement.

In contrast, Respondents contended that Section 7 prohibits employer interference with concerted activities, including requiring an employee to sign an agreement that precludes class proceedings in all forums. Justice Alito seemed skeptical of this formulation, appearing to find scant substantive distinction between enforcing an agreement precluding class proceedings and a procedural limitation on employees’ ability to engage in collective litigation. Justice Kagan attempted to address Justice Alito’s skepticism, stating:

Section 7 doesn’t extend to the ends of the Earth. If there are three employees who go out jointly rioting in the streets, they run up against antiriot laws and they go to jail just like everybody else. What Section 7 does and what Section 8 does is to establish a set of rules that deal with how employers can deal with employees. And one of the things that Section 7 and Section 8 say in concert, if you will, is that employers can’t demand as conditions of employment the waivers of concerted rights. And that's all you're saying here.

Justice Kennedy, the Court’s most frequent swing vote, suggested that class waivers may not significantly impact employees’ ability to collectively enforce employment rights. Justice Kennedy presented the following scenario:

[T]hree people … can[] go to the same attorney and say please represent us, and we will share our information with you, we have three individual arbitrations, but you represent all three of us, they can do that. … [T]hat is collective action. … [T]hey are proceeding concertedly. They have a single attorney. They are presenting their case. It is going to be decided maybe in three different hearings. … [M]any of the advantages of concerted action can be obtained by going to the same attorney. Sure, the cases are considered individually … 

While the availability of one method of collective employee action would not normally render valid a mandatory waiver of another, Respondents did not contend that employees were entitled to bring class proceedings in court. Respondents embraced the more modest proposition that so long as “joint legal action is available in one forum, that would be sufficient.” 

To the surprise of many, General Counsel for the National Labor Relations Board (NLRB), Richard Griffin, agreed that an arbitration provision that selects an arbitral forum that renders class proceedings onerous, if not impossible, would be enforceable. This is illustrated in the following colloquially with Chief Justice Roberts:

CHIEF JUSTICE ROBERTS: Let’s say … the rules of the arbitral forum says you can proceed individually, but you … proceed collectively, but only if the class represents more than 50 people. Is that all right under your theory? 

MR. GRIFFIN: That’s a rule of the arbitral forum, and the employee takes the rules of the forum as they find them. 

…

CHIEF JUSTICE ROBERTS: The arbitral forum has rules, just like the Federal Rules of Civil Procedures. And what you’re saying is … once you get into federal court, of course you’ve got to follow the rules of the forum. And we have arbitral forums as well. 

MR. GRIFFIN: And I’m saying those rules are equivalent, that … the employee takes the rules of the forum as they find them. What is prohibited [] under the National Labor Relations Act is an agreement by the employer that’s imposed that limits the employee’s right to take the rules … So it would be okay if the forum said that. 

Justice Alito highlighted that a decision adopting the rule advanced by the General Counsel would be pyrrhic victory for the NLRB. “[I]f that’s the rule, you have not achieved very much because, instead of having an agreement that says … no class action, no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.”

The Board’s General Counsel appears to have belatedly recognized the import of his concession at oral argument. On October 4, Griffin sent a letter to the Court correcting the position he articulated at oral argument, writing:

I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning from Chief Justice Roberts … My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts … were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions.

The above summary just scratches the surface of the October 2 oral argument. Not only did the Court and parties contemplate the issues above, they discussed a variety of other topics, including whether class waivers are akin to “yellow dog” contracts, and the operation of the FAA’s “savings clause.”

The Court’s decision will have a significant impact on the enforceability of widely-used class action waivers and potentially pending class litigation.