January 13, 2017

Cert grant pitting “concerted activities” against freedom of contract

By Deborah J. La Fetra Senior Attorney

Today the Supreme Court granted certiorari in three cases that raise the same issue: whether the National Labor Relations Act, which protects workers’ rights to engage in “concerted activities” for their mutual benefit, trumps the Federal Arbitration Act’s protection of the freedom of contract that allows employers and employees to agree to resolve their workplace disputes in individual arbitration (meaning: no class actions).

Most courts to consider the question held in favor of the freedom of contract. The National Labor Relations Board, however, steadfastly held to its position that such contracts are unlawful. This “policy of nonacquiescence” to the court holdings was eventually rewarded by the Seventh and Ninth Circuit Courts of Appeals, which created a Circuit split by invalidating employment contracts that require individual arbitration. In early September, employers sought Supreme Court review of the Seventh Circuit case, Epic Systems Corp. v. Lewis, and the Ninth Circuit case, Ernst & Young LLP v. Morris. Meanwhile, the National Labor Relations Board sought review of National Labor Relations Board v. Murphy Oil USA, challenging the Fifth Circuit opinion that upheld an individual arbitration contract.

PLF filed an amicus brief supporting the Epic Systems petition and urged the Supreme Court to review both the Seventh and Ninth Circuit decisions. The Supreme Court agreed and went a step farther, consolidating all three cases. Although Justice Scalia’s strong advocacy for freedom of contract was well-known, particularly through his majority opinion in AT&T Mobility v. Concepcion, more recent cases upholding arbitration contracts have drawn support from the Court’s more liberal justices, as in Justice Breyer’s decision in DIRECTV, Inc. v. Imburgia, joined also by Justice Kagan. As merits briefing moves through the Spring, with a new solicitor general representing the United States and potentially a new Justice to consider the arguments, these consolidated cases could go far to establish the importance of contractual freedom in the employment context and even beyond.

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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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