Article Summary

In arguments Monday at the U.S. Supreme Court, the conservative justices didn't seem hungry to kill employees' long-standing right to concerted action under the National Labor Relations Act — not even by enforcing one-sided agreements via the Federal Arbitration Act, a favored trick lately for increasing corporate power. While the outcome in Epic Systems Corp. v. Lewis still may be a 5-4 decision to allow odious "class waivers," a more balanced result seems within reach.

This expert analysis by TELG managing principal R. Scott Oswald was published by Law360 on October 3, 2017.

Originally published in:

Class Waiver Oral Arguments Show Room For Compromise

By R. Scott Oswald

In arguments Monday at the U.S. Supreme Court, the four most liberal justices lined up strongly against so-called “class waivers” in employment contracts — and even stepped in, on occasion, to offer better logic than the advocates at the lectern could muster.

The court’s conservative wing, on the other hand, was both low-key and opaque; Justice Neil Gorsuch didn’t talk at all. The conservatives who did speak, including Chief Justice John Roberts, engaged fully with the anti-waiver side, exploring its position without evident hostility.

None of the justices, meanwhile, seemed 100 percent behind attorneys for employers and the U.S. Department of Justice, who claimed to have no qualms about what Justice Ruth Bader Ginsburg reviled as “yellow dog contracts,” take-it-or-leave-it agreements that require millions of employees to yield their right to act collectively — even in arbitration.

The outcome of Epic Systems Corp. v. Lewis and its two consolidated cases, therefore, is a toss-up. A 5-4 pro-employer decision may be the safe bet, but the court showed tantalizing signs that it could reach a broader consensus that sets an outer limit, finally, on what may be pushed into arbitration under the Federal Arbitration Act (FAA).

One viable framework, based on Monday’s arguments: If a waiver is imposed on an employee and is so limiting as to deprive the employee of any effective right to coordinate with other workers under the National Labor Relations Act (NLRA), then it can’t be enforced via the FAA.

How would the actual contracts in these three cases fare against such a standard? It would be tempting for the justices to preserve their comity on the law and push the matter back to lower courts — and possibly to the wisdom of a National Labor Relations Board (NLRB) that argued on Monday in favor of employees, in opposition to the Justice Department, but that’ll likely shift its perspective with a new majority under President Trump.

The New Deal at Stake?

Monday’s arguments, the first of the court’s October 2017 term, were kicked off by Paul D. Clement of Kirkland & Ellis, a former U.S. Solicitor General who spoke for the three employers — Epic Systems, Murphy Oil USA, Inc., and Ernst & Young LLP.

Mr. Clement attempted to portray his argument for waivers as a routine extension of “well-trod” law. Employees sacrifice no substantive rights under the NLRA by agreeing to settle disputes via individualized, case-by-case arbitration, he said — they still can act together in the workplace, as the act requires, and are limited only when they get to an arbitral forum, where the NLRA doesn’t prescribe procedures.

Nonsense on all counts, said the liberal justices. In fact, said Justice Stephen Breyer, the matter is far from routine: If Mr. Clement were to win, it would undermine the “entire heart of the New Deal,” which rebalanced rights toward justice for workers. Justice Elena Kagan strongly denied that the NLRA, passed in 1935, covers only workplace coordination, while Justice Ginsburg denied that employees had “true liberty” to contract anyhow — employment agreements are coercive affairs, which is why the NLRA backstops certain employee rights.

In sum, they argued, the employers here effectively required a waiver of any coordinated action by employees — and therefore violated the NLRA. And while the FAA may demand enforcement of many agreements, it doesn’t stretch to illegal agreements.

Justice Anthony Kennedy, often a swing vote, provided the most vigorous counterpoint. Even if employees must proceed via individual arbitration actions, he said, they still can coordinate some actions: They can share a lawyer, for instance, as they pursue related arguments. Earlier Supreme Court decisions — including American Express Co. v. Italian Colors Restaurant, for which Justice Kennedy was in a 5-3 majority — have enforced arbitration agreements even if they don’t offer the same benefits (or likelihood of justice) as regular litigation.

Justice Ginsburg noted that any coordination under Justice Kennedy’s scenario would be scant, however: Confidentiality requirements would ensure that. Plus the “core idea” of the NLRA, she noted a few minutes later, was to even the odds for employees by allowing them to act collectively. And as Justice Sonia Sotomayor would add at rebuttal, certain arguments are difficult to assert in individual actions — showing a common pattern of behavior against multiple plaintiffs, for instance.

Governmental Split

Mr. Clement was seconded and echoed by Deputy Solicitor General Jeffrey B. Wall, who had the strange task of arguing against the NLRB — another part of the same U.S. government, which brought the case against Murphy Oil. Such dissonance isn’t unheard of as the Trump administration repudiates Obama-era positions, but it’s unusual to allow government lawyers to argue both sides of a case at the Supreme Court.

Unlike a case heard last month at the U.S. Court of Appeals for the Second Circuit, none of the justices even mentioned the historical curiosity, much less penalized Mr. Wall for it.

Just like Mr. Clement, however, Mr. Wall came under fire from the liberal justices, especially Justice Kagan. No conservative justice intervened — a notable contrast to the following performance by the NLRB’s Obama-appointed general counsel, Richard F. Griffin, Jr., who painted himself into several corners but was kindly rescued by both Justice Kagan and Justice Sotomayor.

Mr. Griffin delivered complex and wandering answers where both Mr. Clement and Mr. Wall had been concise. Facing technical questions from Justice Alito, who seemed genuinely to seek clarity in the employees’ position, Mr. Griffin failed to make sharp distinctions and received a blunt “I don’t understand your answer.”

“Is this one way to think about the question?” offered Justice Kagan, jumping in to address Justice Alito’s concern with a few cogent sentences.

“… And that’s all you’re saying here?”

“That’s — that’s entirely correct, your honor,” Mr. Griffin said in relief.

Mr. Griffin also was thrown by a hypothetical from Chief Justice Roberts, who asked him to compare an agreement that forbade class arbitration with an agreement that allowed class arbitration — but only in a forum that required a class of at least 51 employees, and that made no other provision for joint action.

Were both agreements unlawful?

Obviously, from an employee’s point of view, the scenarios should be equally disallowed in at least some circumstances, since they have the same effect, yet Mr. Griffin said the second scenario was lawful under the NLRA — and therefore could be enforced under the FAA. Several justices seemed surprised at the concession. Chief Justice Roberts even ran through it again, but the answer remained the same. The NLRA addresses only employer prohibitions, said Mr. Griffin, and doesn’t reach forum rules.

The upshot, as Justice Alito noted somewhat incredulously, seemed to be that employers would have a simple workaround even if they lost Epic Systems: They’d just need to find arbitration forums with favorable rules.

A Little Help from Friends

After the final advocate reached the lectern, Justice Sotomayor tried to undo the damage.

Daniel Ortiz, a law professor at the University of Virginia, spoke on behalf of the employees in the non-NLRB cases. He quickly established the stakes of the debate: About 25 million employees are currently restrained by the type of waiver at issue, he said — with many more to follow, presumably, if the court were to rule against his clients.

Mr. Ortiz played mostly to the liberal justices, invoking the late Justice Benjamin Cardozo and the pro-labor history mentioned by Justices Breyer and Ginsburg. But he also jumped on a chance from Chief Justice Roberts to revisit the 51-employee hypothetical, effectively distinguishing himself from Mr. Griffin.

Justice Sotomayor then helped with her own distinctions, noting that a 51-employee requirement for a class action would clearly raise problems if a company had only 49 employees. Further discussion sharpened the issue, as the justices seemed to converge on the pivot point in these cases: Does the agreement foreclose any effective joint recourse by employees?

Even for the conservative justices, it seemed, a complete shutdown of all concerted legal action, in all forums, would be too much — although this was a vibe rather than a statement. Maybe the wan benefit in Justice Kennedy’s scenario (employees share a lawyer, but not much else) will suffice for five justices as a fig leaf of “concerted” action that allows enforcement of the FAA.

But given the fairly generous tone of their questioning on Monday, it seems possible that a modest opinion from the left could reel in Chief Justice Roberts, Justice Alito, and possibly more.


R. Scott Oswald represents employees in disputes with their employers. He is managing principal of The Employment Law Group, P.C., a law firm based in Washington, D.C.

(Note: This version has been slightly edited from the version published by Law360.)