U.S. Supreme Court’s Epic Decision Validates Class Action Waivers

On May 21 the U.S. Supreme Court resolved the question whether the National Labor Relations Act prevents an employer from enforcing an employee’s contractual waiver of the right to sue the employer on a class or collective basis. In a 5-4 decision, the Court held that arbitration agreements requiring the processing of claims one-by-one and prohibiting class actions must be enforced, and neither the Federal Arbitration Act’s saving clause nor the National Labor Relations Act “permits this Court to declare the parties’ agreements unlawful.”  Epic Systems Corp. v. Lewis; Ernst & Young v. Morris; NLRB v. Murphy Oil USA, Inc.

In each of these three cases, the employee signed a contract mandating the resolution of workplace disputes through arbitration on an individualized basis, and later brought collective action claims under the Fair Labor Standards Act for unpaid wages.  In seeking to void their class action waivers, the employees relied on the NLRB’s 2012 decision in D. R. Horton, Inc. and also argued that the FAA’s savings clause allowed the Court to deny enforcement of the arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”

In the D. R. Horton case, the NLRB ruled that the NLRA effectively nullified the FAA in cases where an employer seeks to compel arbitration of employee claims on an individual basis only, by expanding the definition of “concerted activity” to include the right to bring a class or collective action. The NLRB ruled that an agreement not to bring a class or collective action is unenforceable as violative of the NLRA, even though waivers of other NLRA rights are enforceable.

The Court majority rejected the NLRB’s holding and held that the NLRA focuses on the rights to organize unions and bargain collectively. The Court commented that it “has never read a right to class actions into the NLRA – and for three quarters of a century neither did the [NLRB].” Justice Gorsuch, writing for the majority, reasoned that it is “pretty unlikely” that the NLRA was intended to protect the right to bring class or collective actions, especially since the NLRA makes no mention of them, and as recently as 2010 the NLRB’s General Counsel opined that the NLRA does not protect these rights.

The Court also relied on the FAA’s policy favoring arbitration agreements and legal precedent acknowledging the “unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.” To hold all such provisions unenforceable, the Court stated, would cause arbitration to “wind up looking like the litigation it was meant to displace.”

This sweeping decision will likely eliminate some of the reservations and indecision that the employer community has had regarding including in their new employee orientation paperwork agreements requiring arbitration of employment-related claims on an individual basis only.

For more information regarding the value that mandatory arbitration agreements and class action waivers may add to your organization and how to design and roll out arbitration procedures that will survive legal challenge, please contact one of the Partners in the firm’s Labor Law Practice Group: James J. McGovern III, Esq., at jmcgovern@nullgenovaburns.com, Patrick W. McGovern, Esq., at pmcgovern@nullgenovaburns.com, Douglas E. Solomon, Esq. at dsolomon@nullgenovaburns.com, or John R. Vreeland, Esq., at jvreeland@nullgenovaburns.com  — or call us at 973.533.0777.

N.J. Governor Orders Fresh Focus On Worker Misclassification

On May 3, 2018 New Jersey Governor Phil Murphy signed Executive Order No. 25 which authorizes a 12-person task force to review misclassification of workers as independent contractors in New Jersey, with a focus on the construction industry.  The Employee Misclassification Task Force will be responsible for examining misclassification enforcement, developing practices to improve enforcement of current law, making recommendations to encourage compliance with the law, and reviewing existing state law and applicable procedures related to worker misclassification.

The reasons advanced by the Governor for launching the Task Force are that misclassification as an independent contractor results in workers’ losing legal rights and employment related benefits, harms the State’s economy by non-payment of State and federal payroll taxes, serves as a barrier to union organizing, and provides non-compliant employers with an unfair competitive advantage over employers that properly classify their workers.

The Task Force will include three representatives of the State Department of Labor and Workforce Development, three representatives of the Department of the Treasury, one representative each of the Departments of Law and Public Safety, Agriculture, Banking and Insurance, Human Services, and Transportation, and a representative of the Economic Development Authority. Notably, the Task Force will have no representation from the plaintiffs’ or defense bars, at least at the outset.

In light of the State’s renewed crackdown, employers must be cognizant that the designation of a worker as an independent contractor in New Jersey is not a matter of semantics but must be defensible under legal precedent. Specifically, New Jersey adheres to the “ABC” test in distinguishing an independent contractor from an employee. This test presumes that a worker is an employee of the service recipient and places the burden on the service recipient to establish otherwise.

To meet this burden, an employer must show that:

  • The worker has been and will continue to be free from control or direction of the performance of the service, both in the service contract and in fact;
  • The worker’s service is either outside the usual course of business for the service recipient, or is performed outside of all the places of the business of the service recipient; and
  • The worker is engaged in an independently established trade, occupation, profession or business.

If any of these three criteria is not met, the worker is properly classified as an employee.  Accordingly, a New Jersey employer must carefully assess the status of its workforce in light of the heightened attention to misclassification at the state level.

For more information about Executive Order No. 25 and guidance as to what your organization should be doing in anticipation of this new enforcement priority, please contact one of the partners in the firm’s Labor Law Practice GroupJames J. McGovern III, Esq., at jmcgovern@nullgenovaburns.com, Patrick W. McGovern, Esq., at pmcgovern@nullgenovaburns.com, Douglas E. Solomon, Esq. at dsolomon@nullgenovaburns.com, or John R. Vreeland, Esq., at jvreeland@nullgenovaburns.com  — or call us at 973-533-0777.