As many of our readers know, the Supreme Court will hear arguments next term in a trio of cases examining whether class waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act. Many observers—including the two of us—believed that the issue had been settled by the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion (2011) and American Express Co. v. Italian Colors Restaurant (2013). But—as detailed on our blog—in 2012 the National Labor Relations Board concluded in the D.R. Horton case that Section 7 of the National Labor Relations Act (NLRA), which protects the ability of employees to engage in “concerted activities” (for example, union organizing), supersedes Concepcion (and by extension, American Express) and requires that employees be allowed to bring class actions (either in court or in arbitration).

Over the past several years, a circuit split has developed over whether the Board’s approach in D.R. Horton rests on correct interpretations of the FAA and NLRA, with the majority of courts rejecting the Board’s position. In January, the Supreme Court granted review in three cases—NLRB v. Murphy Oil USA, Inc., Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris—to resolve the split. Briefing on the merits is now underway. We filed our amicus brief on behalf of the U.S. Chamber last Friday, and—while we believe our brief makes compelling arguments (which we discuss below)—the big development in these cases was the amicus brief that the United States filed on Friday.

Significantly, the United States has changed its position since last October, when the DOJ represented the NLRB in filing the petition for certiorari in Murphy Oil. That petition was a full-throated defense of the D.R. Horton rule, consistent with efforts by a number of federal agencies during the Obama Administration to circumvent Concepcion by banning class waivers or banning predispute arbitration entirely. Last Friday, however, the United States broke with the Board’s position, filing an amicus brief in support of Murphy Oil and the other two companies.

As the government explained in its brief on Friday, the Solicitor General’s office has concluded that its earlier briefs got the issue wrong:

In Murphy Oil, this Office previously filed a petition for a writ of certiorari on behalf of the NLRB, defending the Board’s view that agreements of the sort at issue here are unenforceable. After the change in administration, the Office reconsidered the issue and has reached the opposite conclusion. Although the Board’s interpretation of ambiguous NLRA language is ordinarily entitled to judicial deference, courts do not defer to the Board’s conclusion as to the interplay between the NLRA and other federal statutes. We do not believe that the Board in its prior unfair-labor-practice proceedings, or the government’s certiorari petition in Murphy Oil, gave adequate weight to the congressional policy favoring enforcement of arbitration agreements that is reflected in the FAA.

While the United States’ brief is worth reading in full, here are some highlights:

  • “[T]he Court has made clear that statutory authorizations to pursue class actions in court for violations of particular federal laws is insufficient to override the FAA’s directive that agreements to arbitrate must be enforced.”
  • No one contends that the Fair Labor Standards Act—which is the basis for plaintiffs’ underlying claims—“overrides the FAA’s directive that their arbitration agreements should be enforced.”
  • “None of the specific rights enumerated in” Section 7 of the NLRA, which describes “concerted activities for the purpose of collective bargaining or other mutual aid and protection, “involves the conduct of litigation.”
  • “In no other context … has [Section 7] been construed to expand the availability of class or collective remedies beyond those that are authorized by the laws that directly address those issues.”
  • “Because the question is whether the NLRA contains a specific command from Congress precluding bilateral arbitration, the Board cannot supply the requisite clarity” needed to override the FAA “by gap-filling.”
  • “The Court’s decisions also make clear that, for purposes of determining the enforceability of the arbitration agreements at issue here, the right to pursue a collective action under [the FLSA] is a procedural rather than a substantive FLSA right.”
  • Even if it were permissible for the Board to interpret “residual language” (referring to “other concerted activities”) in Section 7 of the NLRA “to cover litigation conduct,” “it does not follow that the right to prosecute a collective action is a substantive NLRA right … if the Board’s reading is permissible, it is because the residual phrase can reasonably be construed to cover procedural matters as well as substantive ones.”
  • The “savings clause” contained in Section 2 of the FAA, which “permits courts to invalidate an arbitration agreement based on generally applicable contract defenses,” does not support using the Board’s interpretation of the NLRA to strike down arbitration agreements.
  • “Just as the savings clause was held not to encompass the state-law rule at issue in Concepcion”—which had held preempted the California rule declaring “class-action waivers contained in certain consumer contracts” unenforceable—“it does not encompass the analogous federal-law rule that the Seventh and Ninth Circuits derived from the NLRA” in Epic and Ernst & Young.

The United States’ brief, in short, endorses the view that Concepcion requires rejection of the D.R. Horton rule.

By contrast, the NLRB is expected to take a different approach. The Board’s brief is due on August 9. Unless the Board’s composition changes by that date, and the newly-constituted Board repudiates D.R. Horton in time—which is possible but not likely—the Board presumably will defend its current position.

This internecine disagreement is certain to garner attention; in fact, it already has.

But it is worth noting that disagreements between the Executive Branch and independent agencies in the Supreme Court are not unprecedented—particularly at the time of a change in Administrations. Two high-profile examples: in the “seven dirty words” case, FCC v. Pacifica Foundation, the Ford Administration had supported the FCC in the court of appeals, but filed an amicus brief in the Supreme Court arguing the FCC’s order violated the First Amendment. And in Dirks v. SEC, which set the rules for insider trading prosecutions, the Reagan Administration filed an amicus brief opposing the SEC’s position.

Most importantly, for the reasons we explain in our brief on behalf of the U.S. Chamber, the position taken by the United States in its amicus brief rests firmly on the Supreme Court’s precedents interpreting the FAA.

First, the Court has repeatedly held that any asserted conflict between one federal statute and the FAA exists only when the other federal statute contains a “contrary congressional command” overriding the FAA’s mandate that arbitration agreements be enforced according to their terms. Section 7 of the NLRA doesn’t mention arbitration at all; indeed, it doesn’t even mention class actions or joint litigation. That statute accordingly doesn’t include the requisite “contrary congressional command” needed to support the Board’s D.R. Horton rule.

Second, the “effective vindication” exception to the FAA’s requirement that arbitration agreements be enforced—most recently addressed by the Court in American Express—provides the Board’s rule with no support either. The arbitration agreements don’t bar claimants from bringing claims under the FLSA. Moreover, class and collective actions are a procedural mechanism, not a substantive right, and in any event, the NLRA does not confer a right to engage in class or collective actions.

Third, the FAA’s “savings clause” (discussed above) does not apply. The savings clause saves state contract laws of general applicability from FAA preemption; it does not apply to federal laws, which are subject to the Court’s “contrary congressional command” test. In any event, as noted above, Concepcion held that the savings clause does not “save” rules prohibiting waivers of class procedures, because such rules interfere with the bilateral nature of arbitration and thus “create[] a scheme inconsistent with the FAA.”

Fourth, there are powerful policy justifications for preserving employment arbitration agreements. Most workplace grievances are individualized and therefore could not be pursued as part of a class or collective action. Indeed, without individual arbitration, most of those claims could not be pursued at all, because litigation in court is frequently too expensive to serve as a realistic option for employees seeking to vindicate their rights.

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