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As the Sixth Circuit Makes an Even Circuit Split on Class Action Waivers in Arbitration Agreements, the DOJ Reverses Course

The conventional wisdom by which many employers abide is to limit the cost of resolving employment disputes by requiring that employees arbitrate their employment disputes individually, rather than as a class. Generally, arbitration is more convenient, cheaper, faster, and less burdensome than traditional litigation. However, many of these benefits may be lost with class actions. Class actions bring procedural complications in addition to potential significant liability. To avoid this, many employers incorporate class action waivers into their employment arbitration agreements.

The National Labor Relations Board (the “Board”), however,  has been routinely invalidating such agreements for the past several years. The Board has taken the position that barring employees from proceeding as a class violates the National Labor Relations Act (the “Act”). Section 7 of the Act gives employees the right to act in concert with other employees for their mutual aid and protection (concerted activity).  Section 8 makes it illegal to restrain employees in the exercise of this right (protection for that concerted activity). Employees have the right to act in concert with one another, i.e. proceed as a group in a class action. Thus, a class action, according to the Board, is concerted activity and the Act provides protection for that concerted activity. As a result, the Board takes the position that class action waivers in arbitration agreements violate the Act.

The federal Courts of Appeals are divided on this issue. The 2nd, 5th, and 8th Circuit Courts of Appeals were the first to review the Board’s decisions invalidating class action waivers in arbitration agreements. They unanimously disagreed with the Board. But the tide began to shift in 2016 when the 7th and 9th Circuits agreed with the Board that class action waivers impermissibly restricted employees’ rights to engage in protected concerted activity and to proceed as a class. With the federal Courts of Appeals in disagreement, the U.S. Supreme Court agreed to hear the issue in a consolidated case (Epic Systems Corporation v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA, Inc.)

With the Epic Systems, Ernst & Young, and Murphy Oil cases pending, the federal Court of Appeals with jurisdiction over Michigan (the 6th Circuit) jumped into the fray with  NLRB v. Alternative Entertainment Inc. Like the 7th and 9th Circuits before it, the 6th Circuit found that arbitration provisions requiring employees to individually arbitrate all employment-related claims is not permitted under the Act. In other words, the 6th Circuit found employees should be allowed to arbitrate class action claims and waivers of such claims violated the Act.

There has been only one other federal Court of Appeals presented with this issue (the D.C. Circuit), but it has not yet ruled. The D.C. Circuit decided to hold in abeyance its case presenting the class action arbitration waiver issue, pending a decision by the Supreme Court.

Even more recently, on June 16, 2017, the Department of Justice (“DOJ”) reversed its position on this issue. Under the Obama Administration, the DOJ defended the Board’s position that class action waivers in arbitration agreements were unlawful. Now, according to the DOJ: “After the change in administration, the [DOJ] has reconsidered the issue and reached the opposite conclusion.” Last week, the DOJ filed a brief with the Supreme Court on behalf of the United States, arguing that class action waivers in arbitration agreements do not violate the Act. Thus, the DOJ now takes the position employees cannot proceed with class action arbitrations and should be required to individually arbitrate all employment-related claims.

Until the Supreme Court settles this question, private employers in Michigan should be cautious about maintaining employment arbitration agreements with class action waivers. The Board takes the position such class action waivers are unlawful. The 6th Circuit Court of Appeals takes the same position (NLRB v. Alternative Entertainment, Inc.). The only other avenue for appeal would be to the Court of Appeals for the D.C. Circuit in Washington, D.C. (where the Board is officially located), which has not yet ruled on the merits of the issue. Currently, the DOJ is taking the opposite position from the 6th Circuit and the Board. In the meantime, we await the Supreme Court’s decision by the Supreme Court and will keep you posted.

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