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Supreme Court Divided Over Class Waiver Ban

The Supreme Court began its fall 2017 term with three consolidated cases concerning Epic Systems Corp., Ernst & Young, and Murphy Oil USA Inc. (collectively, "the Companies"). The Companies require pre-employment agreements forcing employees to waive their right to pursue class action relief. Several justices are questioning the legality of this practice, worried that it contradicts the spirit of federal labor law.

The first case, National Labor Relations Board v. Murphy Oil USA Inc., alleged that four workers at an Alabama gas station run by Murphy Oil were underpaid, and the National Labor Relations Board ("NLRB") found that Murphy Oil's refusal to permit the workers to pursue their claims collectively was an unfair labor practice. However, when appealed to the Fifth Circuit, the court held that Murphy Oil's arbitration clause did not violate worker rights.

The second case is an appeal of Epic Systems Corp. v. Lewis, in which Jacob Lewis alleged Epic Systems Corp. misclassified him and other employees in order to make them ineligible for overtime. The third case, Ernst & Young, LLP v. Morris, et al., concerns similar allegations of misclassifying employees to avoid paying overtime. These cases, which do not directly involve the NLRB, were heard by the Seventh and Ninth Circuits, both of which found the class action waivers at issue to be illegal.

The Second and Eighth Circuits have sided with the Fifth Circuit, while the Sixth Circuit agrees with the Seventh and Ninth Circuits.

Counsel for the Companies argued that arbitration agreements are not mentioned in the National Labor Relations Act ("NLRA") and, according to the Federal Arbitration Act ("FAA"), must be enforced as written. In response, Justice Breyer opined that class waiver agreements cannot be enforced without undercutting decades-old federal labor law.

The U.S. Department of Justice ("DOJ") has changed its position in these cases following the recent change in administration. Initially, the DOJ took the position that class action waivers were indeed a violation of the NLRA. Now, the DOJ has taken the position that class waiver arbitration agreements cannot be precluded by the NLRA and must be covered by the FAA.

According to the amicus brief in which the DOJ reversed its position, "Courts must enforce agreements to arbitrate federal claims unless the FAA's mandate has been overridden by a contrary congressional command or unless enforcing the parties' agreement would deprive the plaintiff of a substantive federal right. Neither of those justifications for non-enforcement is applicable here."

At oral argument, Justices Sotomayor, Kagan, and Ginsburg seemed to be of the opinion that forcing employees to sign away their right to a class action does indeed unduly restrict the rights guaranteed under Section 7 of the NLRA, siding with the NLRB. Chief Justice Roberts and Justices Alito and Kennedy, however, did not appear convinced by the argument.

If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

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Daniels, Melissa. "DOJ Reverses Obama-Era Stance In Class Waiver Suit." Law 360. Last modified on June 16, 2017.

Gurrieri, Vin. "Supreme Court Seems Split As It Mulls Class Waiver Ban." Law 360. Last modified on October 2, 2017.

Stohr, Greg. "Supreme Court Justices Suggest They'll Split on Workers' Class-Action Rights." Bloomberg. Last modified on October 2, 2017.

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