Los Angeles labor and employment litigators Michael Mandel and Amy Beverlin bring us perspective on three class-action waiver cases currently awaiting decision by the Supreme Court, as well as a potential path forward for class-action waivers in employment contracts.

Everyone is talking about the future of class-action waivers in employment arbitration agreements after the Supreme Court launched its new term this month with oral argument in three closely-watched cases—National Labor Relations Board v. Murphy Oil USA, Inc. (5th Circuit), Epic Systems Corp. v. Lewis (7th Circuit), and Ernst & Young LLP v. Morris (9th Circuit).  In its impending decision, the Court is poised to resolve a fierce debate over whether class-action waivers in arbitration agreements must be enforced under the Federal Arbitration Act (as the Court previously held in the consumer context in its landmark 2011 decision, AT&T Mobility v. Concepcion, 563 U.S. 333 (2011)), or whether such waivers in the employment context violate another federal statute, the National Labor Relations Act (NLRA), as seeded by the National Labor Relations Board (NLRB) in its controversial decision in D.R. Horton (357 NLRB No. 184 (2012)).

In D.R. Horton, the NLRB upended the world of employment litigation in holding that the NLRA prohibits class-action waivers in mandatory employment arbitration agreements.  The Fifth Circuit refused to enforce the NLRB’s decision on appeal.  But with the NLRB consistently holding to its position in subsequent cases, a circuit split soon developed.  The Sixth, Seventh, and Ninth Circuits have sided with the NLRB, represented before the Court by Lewis and Morris.  The Second and Eighth Circuits have rejected the NLRB’s position, and the Fifth Circuit reasserted its early rejection of the NLRB’s position in Murphy Oil.

Predictably, court watchers have pored over the transcript of the oral argument before the high court on the consolidated cases, and dissected the Justices’ questions to foretell how the Court will rule.  But even against the backdrop of a bench tilted towards the conservative, there is no way to know for sure how the Court will come down.  Regardless of the Court’s ultimate decision, however, there is one simple way for employers to “opt out” of a pro-NLRB ruling, and any NLRA issues for that matter:  the inclusion of an “opt out” provision in the employment arbitration agreement.

Even in California, with its reliably anti-arbitration courts and rulings, the cases imposing strict limitations on arbitration agreements all arise in the context of “mandatory” arbitration agreements—that is, agreements that employers impose as a condition of employment.  Indeed, that the class action waiver at issue in Morris was imposed as a condition of the plaintiffs’ employment was the fact that sealed its fate.

Two years earlier, in Johnmohammadi v. Bloomingdale’s, 834 F.3d 975 (9th Cir. 2014), the Ninth Circuit upheld the enforceability of a class-action waiver contained in an arbitration agreement against a challenge that it violated the NLRA.  The court emphasized that Bloomingdale’s had not required the plaintiff to accept the class-action waiver as a condition of employment; instead, in contrast to the waiver at issue in D.R. Horton, Bloomingdale’s “gave her the option of participating in its dispute resolution program.”  Only if she decided not to opt out of the arbitration agreement did she waive her right to pursue employment-related claims on a collective basis.  Because the plaintiff in Johnmohammadi chose not to opt out of the program, she had “freely elected to arbitrate employment-related disputes on an individual basis.”

The Ninth Circuit reaffirmed this distinction in Morris, stating:

In contrast [to an employer conditioning employment on signing a concerted action waiver], there was no § 8 violation in Johnmohammadi . . . because the employee there could have opted out of the individual dispute resolution agreement and chose not to.

The waiver in Morris was more akin to that in D.R. Horton because the employer had required the plaintiffs to sign the agreement—and thereby waive their right to bring a concerted action against the company—as a condition of their employment.  Thus, the court found that the agreement violated § 8 of the NLRA.  Still, in so finding, the Ninth Circuit explicitly distinguished between permissive class-action waivers and mandatory class-action waivers, and did nothing to stamp out the propriety of the former under the NLRA.

In Lewis, the Seventh Circuit touched upon the “opt out” issue in dicta.  In that case, the subject arbitration agreement did not allow employees to opt out, and instead provided that employees were “deemed to have accepted [the] Agreement” by virtue of their continued employment.  The court noted that other circuits had found that an arbitration agreement mandating individual arbitration may be enforceable where the employee had the right to opt out of the agreement without penalty.  In the same breath, though, it noted that such a holding might conflict with the NLRB’s interpretation of the NLRA, thereby suggesting that an “opt out” provision may not ameliorate NLRA issues presented by class-action waivers.  In the end, however, the Seventh Circuit declined to resolve the issue given that it was undisputed that “assent to Epic’s arbitration provision was a condition of continued employment.”

Even if the Supreme Court’s sure-to-be-landmark ruling strikes down class-action waivers in mandatory arbitration agreements as violating the NLRA, that will not be the end of arbitration agreements and class-action waivers.  Instead, employers will still be able to stave off challenges to class-action waivers under the NLRA by including an “opt out” provision in the agreement that provides employees with a meaningful opportunity to “opt out” of the agreement or the waiver provision.