October 03, 2017

First Monday in October

By law, since 1917, the Supreme Court has opened its single annual term on the first Monday in October. This came about by an act of Congress, modifying the federal Judicial Code, on September 6, 1916 (see article at www.constitutioncenter.org). Sixty-five years later, in 1981, Paramount Pictures released a film feature entitled First Monday in October, starring Jill Clayburgh as the Court’s first woman Justice, a conservative, who enters into a romantic relationship with her liberal colleague and mentor played by Walter Matthau.

Fast forward 36 years.

On the first Monday in October 2017, at 10:00 a.m., the Supreme Court of the United States opened the new Term of the Court with oral argument in a much-anticipated and discussed case at intersection of federal arbitration law and employment law. Following the oral argument on Monday October 2 in National Labor Relations Board v. Murphy Oil Co. and two consolidated cases, we have opportunity to consider the mood of the Court, at full strength with the seating of Justice Neil Gorsuch, on another aspect of a provocative law-and-social policy issue of the last decade: the ability of American businesses to use arbitration agreements to inhibit prosecution of claims by imposing unacceptable costs of prosecution. In the cases argued October 2, that issue arises in the context of employers contracting for arbitration directly with employees who are not represented by unions. The contracts require arbitration, and require the employee to bring any claim individually and not jointly or on behalf of any others. In short, they provide for a collective action waiver.

From the oral argument (the transcript of which is now widely available on the Internet) one can say with confidence that the position of the four “liberal” Justices on the Court (Ginsburg, Sotomayor, Kagan, Breyer) is clear:  Section 7 of the National Labor Relations Act (NLRA) guarantees to employees the right to engage in “concerted activity for … mutual aid or protection”; that the prosecution of claims against employers concerning working conditions by employees on a joint or collective basis is such concerted activity; that an employment contract by which the employer insists that the employee relinquish the right to engage in such concerted activity by arbitrating working conditions claims individually is an “unfair labor practice” under Section 8(a)(1) of the NLRA; that Sections 7 and 8(a)(1) in combination render the arbitration clause containing a collective action waiver unlawful under federal labor law; and the illegality of this arbitration agreement under federal labor law disqualifies the agreement from enforcement under Section 2 of the FAA because the illegality is a “ground that exist[s] at law … for the revocation of any contract.”

So a question to ponder while the decision is awaited is whether this framework can be accepted by one of the five “conservative” Justices on the Court (Roberts, Kennedy, Alito, Thomas, Gorsuch), and if not, on which branch[es] of the analysis will the liberals’ view falter for all five conservative Justices?

From the oral argument we can discern that the conservative Justices (at least the three of the five conservative Justices who were active in the interchange with counsel) offered little resistance to the conclusion that an arbitration agreement that is rendered unlawful by the NLRA is unenforceable under the FAA, such that any purported conflict of federal statutory commands is illusory. The conservative Justices active in the argument – Chief Justice Roberts and Justices Alito and Kennedy – appeared to be focused on the question of whether there is indeed illegality under the NLRA.

We can also discern that not one of the three actively-participating conservative Justices warmed openly to the employers’ argument that the concerted activity protected by the NLRA is limited to activity taking place, physically or otherwise, within the workplace.

Chief Justice Roberts posed a question that engaged considerable discussion: Suppose an arbitral institution has a rule that collective action may only be brought by a group of at least 50 persons, failing which the matter must proceed individually. Does Section 7 of the NLRA create a right to collective adjudication that includes the right to be free of such limitations in arbitration forum rules—or indeed to be free from FRCP 23’s requirement of numerosity for class certification?  And if the employer insists on arbitration under the rules of that arbitral forum, has the employer committed an unfair labor practice such that the contract is unenforceable? The employees’ counsel answered as follows: The right to engage in concerted activity under NLRA Section 7 is, by necessary implication, subject to other generally applicable laws and rules – a point driven home by Justice Kagan’s remark that employees who elect to riot in support of higher wages are subject to prosecution and punishment under anti-riot laws.  Thus if the employees, under their employment agreements, are permitted a choice of adjudicative forums, they are subject to the rules of the forum they select that regulate collective (or class) adjudication. But if the employer excludes any judicial forum because all or most of them permit multi-Plaintiff and class actions, and the employer instead insists on an arbitral forum whose rules embody Justice Roberts’ 50-or-One equation, then the employer-imposed interference with concerted activity violates the NLRA.

It is interesting that neither Chief Justice Roberts nor any of the other conservative Justices insisted that this response was insufficient or stated reasons to reject it. There are many possibilities. One is that one or more of the conservative Justices, perhaps the Chief Justice himself, is seeking to carve out a limitation on an envisioned pro-employee holding of the Court in these cases: that the holding pertains only to the categorical collective action waiver at issue, and leaves open for another day whether the adoption in an arbitration agreement between employer and employee – directly, or by reference to the rules of an arbitral forum – of rules regulating the procedure in collective or class actions, would result in illegality under the NLRA.

 

 

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