Seems like I May Be Right After All on One of My 2015 Predictions – Just a Little Late


by George H. Friedman*

SAC Contributing Legal Editor and Board of Editors Member

[This was originally published in the author’s blog at the Securities Arbitration Commentator. It was adapted and updated from several postings originally published in the Arbitration Resolution Services, Inc. blog. Reposted with permission of and thanks to SAC!]

Readers of my blogs here and at Arbitration Resolution Services may recall how I fared on one of my predictions for 2015. To refresh your recollections, prediction #4 for 2015 was “SCOTUS will rebuke the National Labor Relations Board on its anti-arbitration policy.” That didn’t happen in 2015, but it turns out I may just have been too aggressive in my timetable. In recent weeks, three petitions for certiorari have been filed seeking SCOTUS review of this very issue. And as discussed below I am confident the Supreme Court will take up at least one of these cases to resolve a major split among the Circuits.

What’s the Issue?

Back in 2014 I wrote a blog post, NLRB is Cruisin’ for a Bruisin’ on its Anti-Arbitration Policy, that captured the essence of the issue. Section 2 of the Federal Arbitration Act (“FAA”) states that arbitration agreements are enforceable “… save upon such grounds as exist at law or in equity for the revocation of any contract.” The is known as the “savings clause” because it creates a window whereby some predispute arbitration agreements (“PDAA”) may not be enforced under the FAA.


The Supreme Court held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that PDAAs containing class action waivers (“CAWs”) were enforceable under section 2 of the FAA, and that a state rule of law prohibiting such waivers was preempted by the FAA. Two years later the Court in American Express Co. v. Italian Colors Restaurant, 570 U.S. ___, 133 S. Ct. 2304 (2013), addressed the validity of a PDAA that required an individual to waive the right to participate in a class action litigation and to individually arbitrate a claim arising out of a federal statute. The Court enforced the PDAA even though proving the claim in an individual arbitration might be costly compared to a class action litigation.


And this has what to do with the NLRB?

As my kids would say, “Yes, but what does this have to do with the NLRB?” In 2012, the Board ruled in D.R. Horton Inc., 357 NLRB No. 184 (2012), that class action waivers in PDAAs violated Section 8(a)(1) of the National Labor Relations Act (“NLRA”) because the class action waiver unduly interfered with the employees’ right to “concerted activities” protected by section 7. This case eventually found its way to the Fifth Circuit, which reversed this part of the Board’s ruling, in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013): “Because the Board’s interpretation does not fall within the FAA’s ‘saving clause,’ and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Mutual Arbitration Agreement must be enforced according to its terms.”


My 2015 Prediction: “SCOTUS will rebuke the National Labor Relations Board on its anti-arbitration policy.”

Despite the fact that a federal circuit court in Horton, relying heavily on several Supreme Court holdings, had expressly overruled the NLRB’s take on class action waivers, some of the Board’s administrative law judges continued to issue rulings ignoring Horton. So, I wrote in early 2015: “sooner or later, the Supreme Court will – in ‘read our lips’ fashion – deliver the message that class action waivers in PDAAs are enforceable under the FAA … and the NLRA. Specifically, sooner or later, the Supreme Court is going to hit the NLRB with a 2 x 4 over its rulings on class action waivers in arbitration clauses in employment agreements.”

What happened in 2015: While The NLRB continued to thumb its at the Fifth Circuit, it escaped that 2 x 4 from SCOTUS in 2015. It was, however, hit pretty hard by a federal Circuit Court of Appeals. In Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), the Court delivered a unanimous, stinging rebuke to the NLRB: “Our decision [in Murphy Oil] was issued not quite two years ago; we will not repeat its analysis here. Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here” (citations omitted).

My updated prediction as we headed into 2016 was: “Sooner or later this issue will end up before SCOTUS.”


Sooner or Later is here: A Major Split in the Circuits

Decisions in recent months have resulted in a major split between the federal circuits:

  • First came Lewis v. Epic Systems, Inc., 823 F.3d 1147 (7th May 26, 2016), where a unanimous Seventh Circuit held that a class action waiver in an employment arbitration agreement violated the NLRA. The Epic Systems Court said: “In short, Sections 7 and 8 of the NLRA render Epic’s arbitration provision unenforceable … We conclude that, insofar as it prohibits collective action, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA.”
  • Just a week after Epic was decided a unanimous Eighth Circuit in Cellular Sales of Missouri LLC v.  NLRB, 824 F.3d 772 (8th June 2, 2016), held that enforcing the PDAA is permitted by the NLRA, but the PDAA’s chilling effect on filing unfair labor charges is not.
  • In mid-August the Fifth Circuit in a tidy, two-page, unpublished per curiam ruling in Citi Trends, Inc. v. NLRB, 15-60913 (5th Cir. Aug. 10, 2016), found that it must follow the precedent it established in Horton and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), which hold that “an employer does not engage in unfair labor practices by maintaining and enforcing an arbitration agreement prohibiting employee class or collective actions and requiring employment-related claims to be resolved through individual arbitration.”
  • Then came Morris v. Ernst & Young, 13-16599 (9th Cir. Aug. 22, 2016), where the Ninth Circuit, in a 2-1 decision also moved into the “no class action waivers” camp.
  • As September dawned the Second Circuit in Patterson v. Raymours Furniture Co., 15-2820 (2d Cir. Sept. 2, 2016), reaffirmed that it was in the “enforce the PDAA” column. The Court here stated that it must follow the precedent it established in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013), but noted that it might have joined the Seventh and Ninth Circuits if it were not bound by Sutherland.

Now comes word that Epic Systems, E&Y, and the NLRB (in Murphy Oil) are seeking SCOTUS review. Epic Systems on September 2nd petitioned the Supreme Court for certiorari. Less than a week later, E&Y followed suit with its own petition, and on September 9th the National Labor Relations Board sought certiorari in Murphy Oil. The issues in each petition are similarly framed. The language in the Murphy Oil petition is a good example:

Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in ‘concerted activities’ in pursuit of their ‘mutual aid or protection,’ 29 U.S.C. 157, and are therefore unenforceable under the saving clause of the Federal Arbitration Act, 9 U.S.C. 2.


My Updated Prediction

I predict SCOTUS will grant certiorari in at least one of the three cases, most likely Murphy Oil because it involves NLRB as a party. This is an important issue and there is an evident, major split in the Circuits. My view is that these sections of the NLRA aim to protect concerted activities like organizing union representation, not participating in class actions, and that Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), would require the NLRA to expressly ban arbitration if that was the intent of Congress. As SCOTUS said in CompuCredit Corp. v. Greenwood, 565 U.S. 7 (2012): “Had Congress meant to prohibit these very common provisions in the [statute], it would have done so in a manner less obtuse than what respondents suggest.” Time will tell if I have to again eat this prediction.


*George H. Friedman, an ADR consultant and Chairman of the Board of Directors of Arbitration Resolution Services, Inc., retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He is an Adjunct Professor of Law at Fordham Law School. Mr. Friedman serves on the Board of Editors and is a Contributing Legal Editor of the Securities Arbitration Commentator.  He is also a member of the AAA’s national roster of arbitrators.  He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional.

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