United States: Following Precedent: Second Circuit Reaffirms Position Upholding Arbitration Agreements With Class Action Waivers

Amid contrary decisions by the Seventh and Ninth Circuits, the Second Circuit followed its earlier precedent in Patterson v. Raymours Furniture Co., No. 15-2820 (Sept. 2, 2016), enforcing an Employment Arbitration Program (EAP) that requires employees to submit their employment and compensation claims to individual arbitration.

The EAP, however, permits employees to file charges and participate in investigations before the Equal Employment Opportunity Commission and state or local anti-discrimination agencies, and did not compel employees to waive any rights they had under the National Labor Relations Act (NLRA) or prevent employees from filing unfair labor practice charges with the National Labor Relations Board (NLRB).

The Case History

A Raymours Furniture Company Inc. (Raymours) employee, Connie Patterson, filed a putative collective and class action raising claims under the Fair Labor Standards Act (FLSA) and New York labor law. In response, Raymours moved to compel arbitration under the EAP. The district court granted the motion, holding that the class action waiver in the agreement was enforceable. Patterson v. Raymours Furniture Co., 96 F.Supp. 3d 71 (S.D.N.Y. 2015).

Patterson maintained that the EAP's prohibition of class or collective actions violated the employees' right to engage in "concerted activities" under the NLRA. See Section 7 of the NLRA, 29 U.S.C. § 157. But the lower court rejected the assertion, holding that the Federal Arbitration Act (FAA) required arbitration of Patterson's claims because the plaintiffs had agreed to arbitrate their claims based on the EAP's terms.

The Appeal

The issue on appeal was "whether the EAP's prohibition of class or collective adjudication of work-related claims illegally restricts employees' substantive rights under the NLRA and the Norris-La Guardia Act (NLGA) and is unenforceable under the FAA." The Second Circuit noted that the NLRB had previously determined that Sections 7 and 8(a)(1) of the NLRA prevent enforcement of arbitration agreements that prospectively waive an employee's right to pursue legal claims in any forum on a collective basis. See, e.g., D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (2012), and Murphy Oil USA, Inc., 361 NLRB No. 72, 2014 WL 546554 (2014).

But, the NLRB's position had been rejected previously by both the Fifth and Eighth Circuits. See e.g., D.R. Horton v. NLRB, 737 F.3d 344 (5th Cir. 2013), Murphy Oil USA, Inc. v. NLRB., 808 F.3d 1013, 1015 (5th Cir. 2015), and Cellular Sales of Missouri, LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016), (these decisions have been the subject of blog articles here). As referenced above, the Seventh and Ninth Circuits have recently taken a different course, agreeing with the Board's position. See Morris v. Ernst & Young, LLP, No. 13-16599, 2016 WL 4433080 (9th Cir. Aug. 22, 2016), and Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016). (The Morris and Lewis opinions have been discussed in blog articles here.)

The Second Circuit, however, found it was bound by precedent to follow its earlier decision in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013), which "decline[d] to follow the [NLRB's] decision" in D.R. Horton "that a waiver of the right to pursue a FLSA claim collectively in any forum violates the [NLRA]." 726 F.3d at 297 n. 8.

That said, the Court mused: "If we were writing on a clean slate we might well be persuaded, for the reasons forcefully stated in Chief Judge Wood's and Chief Judge Thomas's opinions in Lewis and Morris, to join the Seventh and Ninth Circuits and hold that the EAP's waiver of collective action is unenforceable." But, the Court was not writing on a clean slate and thus followed its Sutherland opinion, which "clearly presented" and "rejected [the] appellant's position." Indeed, in Sutherland the parties "extensively briefed their arguments under the NLRA and the NLGA, and the panel's rejection of those arguments was necessary to its judgment." That will remain the Court's position until overruled by an en banc panel or the Supreme Court.

BOTTOM LINE:

The Second Circuit's latest decision in Patterson simply underscores the Circuit split and the compelling need for decisive Supreme Court review.

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