May 21, 2018

A victory for freedom of contract

By Deborah J. La Fetra Senior Attorney

In the federal statute heavyweight championship bout between the 1925 Federal Arbitration Act (FAA) and the New Deal’s 1935 National Labor Relations Act (NLRA), the Supreme Court today declared a winner: The Federal Arbitration Act by a knockout!

Today’s decision upholds workers’ and employers’ freedom to choose how to resolve workplace disputes. The freedom to contract for arbitration makes sense for many workplaces: Arbitration and other non-court methods of dispute resolution have proven effective at resolving workplace-related claims, much more quickly and with far fewer costs.

Epic Systems Corp. v. Lewis (consolidated with two other cases) pitted the NLRA’s protection of workers’ rights to engage in “concerted activities” for their mutual benefit against the FAA’s protection of the freedom of contract enabling employers’ and employees’ to agree to resolve their workplace disputes outside the court system, in individual arbitration (meaning: no class actions). PLF submitted an amicus brief supporting the freedom of contract.

In a 5-4 opinion authored by Justice Gorsuch, the Court explained that one federal statute will override another only when there is a “clear and manifest” congressional intention. The NLRA has no such manifestation: “other concerted activities” is a catchall term that cannot bear the weight of an inference to derail the otherwise applicable FAA. The statutes simply operate in different spheres and the constitutional separation of powers counsels restraint to avoid the risk of transforming judges from “expounders of what the law is into policymakers choosing what the law should be.”

The opinion emphasizes that the National Labor Relations Board (NLRB) itself agreed with this interpretation for 77 years, until changing its mind in 2012. That change was both sudden and had tremendous consequences because the NLRB follows a “policy of nonacquiescence” that ignores Circuit Court opinions in favor of its own determinations. Without addressing that policy by name, the Court effectively rebuked the Board by holding that it was not entitled to Chevron deference for its decision to reinterpret the NLRA to eliminate the freedom of contract protected by the FAA. The Court pointedly notes that the Board did not seek deference to its 2010 decision that the NLRA and FAA “coexist peaceably,” but rather to its 2012 opinion that the NLRA displaces the FAA. The Court concludes that Chevron does not apply at all because deference is warranted only to interpretations of ambiguous statutes that an agency administers, and the NLRB does not administer the FAA.

While the trial bar that benefits most from taking a cut from class action litigation takes the biggest hit from today’s opinion, both workers and employers have reason to celebrate.

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Epic Systems, Inc. v. Lewis

Under its terms of employment, Epic Systems, Inc. required that employees agree to handle any workplace dispute individually. This meant waiving any future class-action or collective arbitration—a freedom of contract protected by the Federal Arbitration Act (FAA). Lower courts disagreed, saying the company’s one-on-one arbitration agreement and class-action waiver violated the National Labor Relations Act’s (NLRA) protection of concerted activities for workers’ mutual benefit. At the request of Epic Systems, PLF filed a friend of the court brief asking the U.S. Supreme Court to decide if the NLRA trumps the FAA. On May 21, 2018, the Supreme Court ruled 5-4 in favor of Epic and the freedom of contract.

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