Arbitration Is Back at the Supreme Court
The Supreme Court is back in session this week, and so are the trial lawyers with attacks on legal arbitration despite repeated legal rebukes. On Monday the Justices will get a chance to reinforce their rulings when they hear challenges to an Obama National Labor Relations Board (NLRB) opinion that bars arbitration class-action waivers in employment contracts.
At issue is the NLRB’s 2012 D.R. Horton decision that opened the door to labor class-action lawsuits. Three appellate courts differed over whether an NLRB interpretation of the National Labor Relations Act overrides the Federal Arbitration Act. (The cases are NLRB v. Murphy Oil , Epic Systems v. Lewis, and Ernst & Young v. Morris.)
The labor board held in D.R. Horton that arbitration class-action waivers violate Section 7 of the NLRA, which protects workers’ ability “to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” According to the NLRB, class actions constitute a “concerted activity” even though this section of the law doesn’t mention litigation.
But the Supreme Court ruled in AT&T Mobility v. Concepcion (2011) that the Federal Arbitration Act makes arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The Supreme Court has construed these exceptions narrowly to include violations of law and contract principles such as fraud.
Trial attorneys have time and again tried to convince the Supreme Court to strike down arbitration agreements that conflict with state laws. Yet the High Court has repeatedly ruled—notably in Concepcion and DirecTV v. Imburgia (2015)—that the FAA pre-empts state laws and court rulings that prejudice arbitration.
The Obama NLRB in D.R. Horton attempted to end-run the High Court’s rulings by holding that arbitration class-action waivers in employment contracts conflict with federal labor law and therefore are invalid. But the Supreme Court held in CompuCreditCorp. v. Greenwood (2012) that a federal statute supersedes the FAA only when there is a “contrary congressional command.” Yet the NLRA—enacted before the era of class-action torts—contains no such command.
Unions argue that mandatory arbitration requires workers to renounce their substantive rights under federal law, but class actions are a procedural mechanism. The NLRA doesn’t confer a right to engage in collective litigation, and workers may pursue claims for violations of federal labor law in arbitration. Workers are more likely to vindicate their rights in arbitration where claims can be considered and resolved on an individual basis.
An eclectic coalition of Justices has upheld arbitration. Justice Stephen Breyer wrote the DirecTV 6-3 majority opinion while Justices Elena Kagan and Sonia Sotomayor concurred in CompuCredit Corp. Although Justice Clarence Thomas has held that the FAA doesn’t apply to proceedings in state courts, none of the cases on Monday present a tension between federal and state law. What’s really at stake is whether a federal agency can impair valid contracts and override federal law as well as Supreme Court precedent.