Second Circuit Upholds Employment-Related Class-Action Waiver Requiring Individual Arbitration

On September 2nd, a panel for the Second Circuit Court of Appeals ruled in a summary order that an employer’s mandatory class action waiver requiring workers to engage in individual arbitration is enforceable and does not violate the National Labor Relations Act (“NLRA”).  In Patterson v. Raymours Furniture, No. 15-2820 (2d Cir. Sept. 2, 2016 [and corrected on September 7, 2016]), Raymours Furniture Company (“Raymours”) required each of its employees to agree to participate in the company’s Employment Arbitration Program (“EAP”) as a condition of employment.  Under the terms of the EAP, all workers must waive their right to engage in collective action against the company and instead submit any employment-related disputes to individual arbitration.

Despite signing the EAP, one worker, Patterson, filed a putative class action lawsuit against Raymours in a New York federal court.  According to Patterson, the company violated both the Fair Labor Standards Act and New York Law.  In response, Raymours filed a motion to compel arbitration.  The district court granted the employer’s motion and Patterson appealed the order.

On appeal, the Second Circuit first stated, “The only question presented on appeal is 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.”  After that, the appellate court addressed prior legal precedent regarding the issue:

The National Labor Relations Board (the “Board”) has squarely addressed the issue on appeal and repeatedly concluded that Sections 7 and 8(a)(1) of the NLRA and Sections 2 and 3 of the NLGA foreclose enforcement of arbitration agreements that waive an employee’s right to pursue legal claims in any judicial or arbitral forum on a collective action basis. See, e.g., D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (2012) (“Horton I”); Murphy Oil USA, Inc., 361 NLRB No. 72, 2014 WL 5465454 (2014) (“Murphy Oil I”). The circuit courts, however, are irreconcilably split on the question. The Fifth and Eighth Circuits have reversed the Board’s rulings on three separate occasions. See D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013) (“Horton II”) (reversing Horton I); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013, 1015 (5th Cir. 2015) (reversing Murphy Oil I and noting that the “Board will not be surprised that we adhere, as we must, to [Horton II]”); Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772 (8th Cir. 2016); see also Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013). The Seventh and Ninth Circuits, on the other hand, have agreed with the Board that clauses precluding employees from bringing, in any forum, a concerted legal claim violate the NLRA, and have further held that such agreements are unenforceable under the FAA. See Morris v. Ernst & Young, LLP, No. 13-16599, 2016WL 4433080 (9th Cir. August 22, 2016); Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016).

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 we are bound by our Court’s decision in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013), which aligns our Circuit on the other side of the split. In considering an alternative argument made by the plaintiff in that case, Sutherland “decline[d] to follow the [NLRB’s] decision” in Horton I “that a waiver of the right to pursue a FLSA claim collectively in any forum violates the [NLRA].” Id. at 297 n.8. We are bound by that holding “until such time as [it is] overruled either by an en banc panel of our Court or by the Supreme Court.” United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir. 2004).

The Second Circuit panel then dismissed Patterson’s claim that the court was not bound by Sutherland before ultimately affirming the lower court’s order.

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