Amicus Curiae Brief — Epic Sys. Corp. v. Lewis, 138 S. Ct. 42 (2017) (No. 16-285)

-—

FILED

JUN 16 2017

N 16-285, 16-300, 16-307

———— meet 5G

IN THE

Supreme Court of the Anited States

EPIC SYSTEMS CORP.,

Vv.

JACOB LEWIS,

Petitioners,

Respondents.

ERNST & YOUNG LLP and ERNST & YOUNG U.S. LLP,

‘ Petitioners,

STEPHEN MORRIS ond KELLY MCDANIEL,

Respondents.

NATIONAL LABOR RELATIONS BOARD,

w. Petitioner,

MURPHY OIL USA, INC. et al.,

Respondents.

On Writs of Certiorari to the

U.S. Courts of Appeals for the

Fifth, Seventh, and Ninth Circuits

BRIEF OF WASHINGTON LEGAL FOUNDATION

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

IN NOS. 16-285 AND 16-300, AND IN SUPPORT OF

RESPONDENT MURPHY Or USA, INC. IN No. 16-307

Richard A. Samp

(Counsel of Record)

Mark 8S. Chenoweth

Washington Legal Foundation

2009 Massachusetts Ave., NW

Washington, DC 20036

202-588-0302

rsamp@wif.o

Date: June 16, 2017 ~

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D. C. 20002

QUESTION PRESENTED

Whether an agreement that requires an

employer and an employee to resolve employment-

related disputes through individual arbitration, and

waive class and collective proceedings, is enforceable

under the Federal Arbitration Act, notwithstanding the

provisions of the National Labor Relations Act.

Oe

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......2...cccceee. v

INTERESTS OF AMICUS CURIAE ............ 1

STATEMENT OF THE CASE ................. 2

SUMMARY OF ARGUMENT .................. 7

SE 6-666 dn ccewobeseneneeetndeeKees 11

I. THE FEDERAL ARBITRATION ACT REQUIRES

ENFORCEMENT OF THE ARBITRATION

AGREEMENTS AT ISSUE IN THESE

DPE. uss daceeeedesuenieaawas ll

A. Class Arbitration, Unless Agreed

to by the Parties, Is Inconsistent

IPCs ob cékescecseesess 12

B. The NLRA Contains No Express

Congressional Command that

IIE 6 oc ccccdccececs 15

C. The FAA’s Savings Clause Is

Inapplicable Because Arbitration

Opponents Can Point to No

Generally Applicable Rule of Law

as a Basis for Denying

PT icceesscneeeeeeedes 17

D.

1v

The Savings Clause Does Not

Apply to Potentially Conflicting

SR a ee

Il. THE NLRA Doers Nor CREATE A

SUBSTANTIVE RIGHT TO PURSUE

COLLECTIVE CLAIMS

A.

CONCLUSION

Congress Could Not Have Intended

to Grant a Right to a Procedure

that Did Not Exist in 1935 ......

Section 7 of the NLRA Protects

Employees from Employer

Retaliation for Engaging in

Concerted Activities ............

Collective-Action Rights Are

Procedural and Thus Waivable ...

If the Collective-Action Rights

Created by Rule 23 Were Deemed

“Substantive,” Rule 23 Would

Violate the Rules Enabling Act ...

Page

TABLE OF AUTHORITIES

Page(s)

Cases:

American Express Co. v. Italian Colors Rest.,

I passim

Arthur Andersen LLP v. Carlisle,

ER 1

AT&T Mobility LLC v. Concepcion,

re ec ok 4 ke ween passim

Bloomingdale’s. Inc. v. Vitolo,

No. 16-1110 (U.S., cert. petition

EE a rr 1

Boys Market, Inc. v. Retail Clerks Union,

es ede peveseeseees 27

CompuCredit v. Greenwood,

a 8, 15, 16

Deposit Guar. Nat Bank v. Roper,

ns . cccseesceses 26

D.H. Horton, Inc. v. NLRB,

737 F.3d 344 (5th Cir. 2013) ......... 3, 4, 15, 24

DIRECTV, Inc. v. Imburgia,

ns cov éeeewe ces veces 1

Eastex, Inc. v. NLRB,

TE 23

General Tel. Co. of Southwest v. Falcon,

ee ee Ce ee esc eee 26

Gilmer v. Interstate/Johnson Lane Corp.,

I so cacccceceones 13, 15, 16, 26

Hanna v. Plumer,

I ee ee 26

Kindred Nursing Centers L.P. v. Clark,

Er 18

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) ....... 13, 25

Moses H. Cone Mem Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983) ........... 6, 12

NLRB v. Alternative Entertainment, Inc.,

_ F.3d _, 2017 WL 2297620 (6th Cir. 2017) .. 20, 24

Ortiz v. Fibreboard Corp.,

Ge eee 21

Shady Grove Orthopedic Assocs., P.A. v. Allstate

Ins. Co., 559 U.S. 393 (2016) ............. 26, 27

Shearson/American Express Inc. v. McMahon,

sw cect ccconeseeees 15, 16

Southland Corp. v. Keating,

ee ee thi dceedeeeseeews 18

Wal-Mart Stores v. Dukes,

eS on eb cedbsbesccdecests 29

Yates v. United States,

195 S. Ct. 1074 (2015) ..................... 21

Statutes and Constitutional Provisions:

Age Discrimination in Employment Act (ADEA),

OES o cee cccccccucee 13, 16

Fair Labor Standards Act (FLSA),

29 U.S.C. §§ 201, et seg. ............... 2, 12, 25

Federal Arbitration Act (FAA),

IES, oo cccecccvccscosces passim

EE 4,7,2

National Labor Relations Act (NLRA),

oc ccccccectccee passim

Section 7, 29 U.S.C.§ 157 .......... passim

Page(s)

Racketeer Influenced and Corrupt Organizations

Act (RICO), 18 U.S.C. §§ 1961, et seq. ......... 13

Rules Enabling Act, 28 U.S.C. § 2072(b) .. 10, 28, 29

Securities Act of 1933,

Section 12(2), 15 U.S.C. § 77/(2) ............. 13

Securities Exchange Act of 1934,

Section 10(b), 15 U.S.C. § 78j(b) ...........-. 13

Sherman Act, 15 U.S.C. §§ 1-7 ................ 13

Miscellaneous:

ie oe a abled passim

Alan S. Kaplinsky and Mark J. Levin, CFPB’s

Proposed Arbitration Rule Benefits Class-Action

Lawyers at the Expense of Consumers,

WLF Legal Backgrounder (Oct. 14, 2016)....... 1

INTERESTS OF AMICUS CURIAE

Washington Legal Foundation (WLF) is a non-

profit public-interest law firm and policy center with

supporters in all 50 states.’ WLF devotes a substantial

portion of its resources to defending free enterprise,

individual rights, a limited and _ accountable

government, and the rule of law.

To that end, WLF has appeared frequently

before this and other courts to support the right of

private parties to enter into binding agreements to

arbitrate disputes arising between them, as a quicker

and more efficient alternative to civil litigation. See,

e.g., Bloomingdale’s. Inc. v. Vitolo, No. 16-1110 (U.S.,

cert. petition filed Mar. 9, 2017); DIRECTY, Inc. v.

Imburgia, 136 S. Ct. 463 (2015); Arthur Andersen LLP

v. Carlisle, 556 U.S. 624 (2009). Also, WLF’s

publishing arm frequently produces articles and other

educational materials related to arbitration. See, e.g.,

Alan S. Kaplinsky and Mark J. Levin, CFPB’s Proposed

Arbitration Rule Benefits Class-Action Lawyers at the

Expense of Consumers, WLF Legal Backgrounder (Oct.

14, 2016).

The Federal Arbitration Act (FAA) requires

courts to enforce arbitration agreements strictly

according to their terms. These petitions involve

several instances of lower courts yet again refusing to

follow the FAA’s directive requiring arbitration

‘ Pursuant to Supreme Court Rule 37.6, WLF states that

no counsel for a party authored this brief in whole or in part; and

that no person or entity, other than amicus and its counsel, made

a monetary contribution intended to fund the preparation and

submission of this brief. All parties have consented to the filing of

this brief; letters of consent have been lodged with the clerk.

2

contracts to be enforced as written.

The Seventh and Ninth Circuits, relying on the

National Labor Relations Act, declined to enforce

representative-action waivers in the parties’

arbitration agreements, citing an alleged need to

vindicate federal labor-law policy. Their refusal to do

so flouts the FAA and this Court’s decisions construing

that statute.

WLF seeks uniform application of the FAA

nationwide to ensure that arbitration achieves its basic

purpose: resolving disputes efficiently, predictably, and

cost-effectively. The Seventh and Ninth Circuits’

decisions thwart this goal. In the absence of federal

statutes that clearly express congressional intent to

override the policies of the FAA in specified

circumstances, WLF opposes efforts by some lower

courts to craft their own exceptions to the FAA’s goals.

STATEMENT OF THE CASE

These three consolidated petitions all address

the enforceability of agreements requiring an employee

to arbitrate claims against an employer on an

individual, rather than collective, basis.” In Nos. 16-

285 (“Epic Systems”) and 16-300 (“Ernst & Young”), the

Seventh Circuit and the Ninth Circuit held,

respectively, that such agreements are unenforceable

* In each of the three petitions, the substantive claim for

which the employer sought individualized arbitration was a claim

that the employer had improperly deprived employees of overtime

pay, in violation of the Fair Labor Standards Act (FLSA), 29 U.S.C.

§§ 201, et seq.

3

because they violate an employee’s right to engage in

collective action under Section 7 of the National Labor

Relations Act (NLRA). Epic Systems Pet. App. la-29a;

Ernst & Young Pet. App. la-42a.

In No. 16-307 (“Murphy Oil’), the National

Labor Relations Board (NLRB) had reached a similar

conclusion in connection with its decision in an unfair-

labor-practices proceeding. Murphy Oil Pet. App. 17a-

208a. The Fifth Circuit disagreed with the NLRB. It

granted the employer's petition for review in

substantial part, holding that the FAA requires

enforcement of such arbitration agreements. Jd. at la-

16a. It held that Murphy Oil did not commit an unfair

labor practice by requiring employees to sign

arbitration agreement or seeking to enforce them in

subsequent court proceedings. Jd. at 2a.

The Fifth Circuit also rejected the NLRB’s

analysis of arbitration agreements in a prior decision,

D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir.

2013). D.R. Horton concluded that nothing in the

NLRA “contains a congressional command to override

the FAA,” which, it noted, “establishes a ‘liberal federal

policy favoring arbitration.” Jd. at 360 (quoting AT&T

Mobility LLC v. Concepcion, 563 U.S. 333 (2011)). The

court held that an employer does not engage in an

unfair labor practice by maintaining and enforcing an

arbitration agreement that requires employment-

related claims to be resolved through individual

arbitration because: (1) the NLRA does not contain a

clear congressional command prohibiting such

agreements; and (2) “use of class action procedures ...

is not a substantive right” under Section 7 of the

NLRA. Id. at 357, 360-62. The Fifth Circuit’s August

4

2015 Murphy Oil decision re-affirmed D.R. Horton.

Murphy Oil Pet. App. 7a-8a.

In a May 2016 decision, the Seventh Circuit

disagreed with the Fifth Circuit’s analysis and affirmed

denial of a motion to compel arbitration. Epic Systems

Pet. App. la-23a. It concluded that “the phrase

‘concerted activities’ in Section 7 should be read

broadly to include resort to representative, joint,

collective, or class legal remedies.” Id. at 6a. The court

viewed collective-litigation rights as an essential aspect

of the NLRA because Congress’s “purpose” in enacting

the NLRA was “to equalize the bargaining power of the

employee with that of his employer by allowing

employees to band together in confronting an employer

regarding the terms and conditions of his employment”

and because “collective, representative, and class legal

remedies allow employees to band together and thereby

equalize bargaining power.” Ibid.

The Seventh Circuit discerned no conflict

between its interpretation of Section 7 and the FAA’s

endorsement of arbitration agreements. The court

concluded that the FAA’s “savings clause”® permits the

invalidation of any arbitration agreement that is

“unlawful” and that the agreement that Epic Systems

sought to enforce was unlawful because it “strip[ped]

away employees’ rights to engage in ‘concerted

activities,” in violation of Section 7 of the NLRA. 7d. at

15a. The court held that the Section 7 collective-action

° The FAA permits the invalidation of arbitration

agreements “upon such grounds as exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2.

5

right is a “substantive” right that (unlike a procedural

right) is not waivable. J/d. at 2la (stating that

“{ajrbitration agreements that act as a ‘prospective

waiver of a partys right to pursue statutory

remedies —that is, of a substantive right—are not

enforceable”) (quoting American Express Co. v. Italian

Colors Restaurant, 133 S. Ct. 2304, 2310 (2013).

In its August 2016 decision, a divided Ninth

Circuit panel agreed with the Seventh Circuit's

analysis (and explicitly disagreed with the Fifth Circuit

as well as decisions from the Second and Eighth

Circuits). Ernst & Young Pet. App. 24a n.16. The

majority stated:

Concerted activity—the right of

employees to act together—is_ the

essential, substantive right established

by [Section 7 of] the NLRA, 29 U.S.C.

§ 157. Ernst & Young interfered with

that right by requiring its employees to

resolve all of their claims in “separate

proceedings.” Accordingly, the concerted

action waiver violates the NLRA and

cannot be enforced.

Id. at 3a. The majority stated, “The problem with the

contract at issue is not that it requires arbitration; it is

that the contract term defeats a substantive federal

right to pursue concerted work-related legal claims.”

Id. at 14a. It held that the FAA does not require a

contrary result because “the FAA recognizes a general

contract defense of illegality” and the limitation on

“concerted work-related legal claims” is illegal under

Section 7. Jbid. It deemed the right to pursue such

6

claims a “substantive right”’—that is, one of “the

essential operative protections” of the NLRA—and thus

one that “cannot be waived in arbitration agreements.”

Id. at 15a.

Judge Ikuta dissented. Jd. at 25a-42a. She

contended that the majority erred by focusing on

whether the NLRA confers “substantive rights” and

that its decision conflicts with this Court's case law

regarding when a federal statute should be deemed to

override’s the FAA’s mandate. /d. at 29a. She

concluded that this Court’s analysis of the issue:

[Hjas focused primarily on a single

question: whether the text of the federal

statute at issue expressly precludes the

use of a predispute arbitration agreement

for the underlying claims at issue. If the

statute does not, the Court’s “healthy

regard for the federal policy favoring

arbitration” leads it to conclude that

there is no such contrary command, and

the Court reads the purportedly contrary

federal statute to allow the enforcement

of the agreement to arbitrate.

Id. at 33a-34a (quoting Moses H. Cone Mem’ Hosp. v.

Mercury Constr. Corp., 460 U.S. 1 (1983)). She

concluded that nothing in the NLRA “creates a

substantive right to the availability of class-wide

claims that might be contrary to the FAA’s mandate.”

Id. at 36a.

7

SUMMARY OF ARGUMENT

Section 2 of the FAA makes agreement to

arbitrate “valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. In its

landmark Concepcion decision in 2011, the Court held

that the FAA creates a nationwide policy unequivocally

favoring enforcement of arbitration agreements. The

Court sent a strong message to lower courts: cease your

hostility to arbitration agreements; you may not rely on

state or federal law to refuse to enforce such

agreements save in exceptional circumstances.

Concepcion, 563 U.S. at 341-51. In particular, the

Court concluded that the FAA prevents courts from

conditioning approval of a non-judicial forum on the

parties’ acceptance of class-wide arbitration. Jd. at 344

(stating that “requiring the availability of classwide

arbitration interferes with fundamental attributes of

arbitration and thus creates a scheme inconsistent

with the FAA.”).

The Seventh and Ninth Circuits’ refusals to

enforce arbitration agreements in the employment

context are simply the latest manifestations of judicial

hostility to arbitration agreements. Their refusals are

inconsistent with the Court’s arbitration case law and

should be reversed. The Fifth Circuit correctly

concluded that federal law permits employees to

voluntarily relinquish their rights to pursue class or

collective claims in all forums.

The Court’s Italian Colors decision is on all fours

with this case and requires enforcement of the

arbitration agreements at issue. /talian Colors held

8

that “courts must rigorously enforce arbitration

agreements according to their terms, ... including terms

that specify with whom the parties choose to arbitrate

their disputes, ... and the rules under which arbitration

will be conducted.” 133 S. Ct. at 2309 (emphasis in

original) (citations omitted). The Court added, “That

holds true for claims that allege violation of a federal

statute, unless the FAA’s mandate has been

‘overridden by a contrary congressional command.”

Ibid (quoting CompuCredit v. Greenwood, 565 U.S. 95,

98 (2012)). Just as in Jtalian Colors, enforcement is

required here because federal law contains no express

congressional command that overrides the FAA.

Section 7 of the NLRA, on which the Seventh

and Ninth Circuits relied, says nothing to suggest an

intent to override the FAA.* It protects the right of

workers “to engage in other concerted activities for the

purpose of ... other mutual aid or protection,” but it

does not state that the protected “concerted activities”

include the right to assert legal claims on a class-wide

basis. Even assuming that “concerted activities”

include the filing of legal claims (whether before a

court or an arbitrator), employees are quite capable of

* Section 7 states, in relevant part:

Employees shall have the right to self-organize, to

form, join, or assist labor organizations, to bargain

collectively through representatives of their own

choosing, and to engage in other concerted

activities for the purpose of collective bargaining

or other mutual aid or protection, and shall have

the right to refrain from any or all such activities.

29 U.S.C. § 157.

=

9

filing such claims in concert with one another without

resorting to representative actions—whereby one or

more employees purport to file suit on behalf of absent

class members.

It is particularly unlikely that Congress sought

to protect a class-action right when it adopted the

NLRA in 1935, given that modern class-action practice

did not emerge until the 1966 revision of Fed.R.Civ.P.

23. Moreover, Section 7 has long been understood as

protecting employees from retaliation for engaging in

protected concerted activities, not as ensuring the

success of any such activities. Section 7 may well bar

an employer from retaliating against an employee who

files a putative class action against it. But the statute

does not bar the employer from raising defenses

against certification of a class, including a defense

based on a pre-existing arbitration agreement.

Both the Seventh and Ninth Circuits relied on

the FAA’s savings clause as a rationale for overcoming

the FAA’s command that arbitration agreements be

enforced. That clause is inapplicable here. It permits

the invalidation of arbitration agreements “upon such

grounds as exist at law or in equity for the revocation

of any contract.” But Section 7 of the NLRA does not

articulate a generally applicable rule of contract law

that could be applied as a basis for revoking “any

contract.” Rather, the Seventh and Ninth Circuits

interpret Section 7 as permitting the revocation of a

small number of contracts entered into between

employers and employees. As this Court has

repeatedly held, such rules of law—by treating

arbitration agreements with particular disfavor—do

10

not qualify as generally applicable laws of the sort to

which the FAA’s savings clause applies.

Because the NLRA contains no “congressional

command” overriding the FAA, it is largely irrelevant

whether the collective-action right allegedly protected

by Section 7 should be deemed “substantive” or

“procedural.” In any event, the Seventh and Ninth

Circuits clearly erred in classifying that alleged right

as “substantive.” The class-action device created by

Rule 23 has long been understood by this and other

courts as a procedural mechanism that promotes

litigation efficiency, by enabling litigants to avoid the

time and expense of trying (and deciding) the same

claims repeatedly. It is not intended to bestow

substantive advantages to one side or the other of a

lawsuit.

Indeed, if the opportunity to seek class-wide

adjudication were deemed a “substantive” right, that

would call the legality of Rule 23 into serious question.

It is only by virtue of adoption of the modern Rule 23

that, according to the Seventh and Ninth Circuits, the

“substantive” protections of Section 7 were expanded to

include the right to adjudicate employee-related rights

on a class-wide basis. The Rules Enabling Act forbids

interpreting Rule 23 to “abridge, enlarge, or modify any

substantive right.” 28 U.S.C. § 2072(b). Yet, the

classification of the opportunity to seek class-wide

adjudication as a “substantive” right would accomplish

precisely what the Rules Enabling Act forbids: it would

utilize Rule 23 to “enlarge” the “substantive right[s]” of

employees in pressing legal claims against their

employers.

11

ARGUMENT

I. THE FEDERAL ARBITRATION ACT REQUIRES

ENFORCEMENT OF THE ARBITRATION

AGREEMENTS AT ISSUE IN THESE PETITIONS

Enacted “in response to widespread judicial

hostility to arbitration, the FAA requires courts to

“rigorously enforce arbitration agreements according to

their terms,” including terms “under which that

arbitration will be conducted.” Jtalian Colors, 133 S.

Ct. at 2308-09 (citations omitted). Since the FAA’s

enactment, this hostility has continued to manifest

itself through “a great variety of devices and formulas”

to avoid enforcing arbitration agreements as written.

Concepcion, 563 U.S. at 342.

One such device is an inappropriately broad

interpretation of the FAA’s savings clause, which

permits courts to invalidate arbitration provisions on

grounds that would apply equally to all contracts. Jd.

at 339-44. Some courts invoke this clause to cloak a

hostility to arbitration by declaring that arbitration

procedures need not be enfcrced based on policy

concerns for the vindication of a federal statute.

The Seventh and Ninth Circuits employed that

device here. They asserted that by invoking the FAA’s

savings clause as a means of invalidating arbitration

agreements whose enforcement would otherwise be

mandated by the FAA, they can avoid an alleged

conflict between two federal statutes—the FAA and the

NLRA. Epic Systems Pet. App. 15a; Ernst & Young

Pet. App. at 14a. Those courts misinterpreted the

savings clause and failed to follow this Court's

12

prescribed method for determining whether, despite

the FAA’s mandate, federal law prevents enforcement

of an arbitratior agreement.

A. Class Arbitration, Unless Agreed to

by the Parties, Is Inconsistent with

the FAA

The FAA makes arbitration agreements “valid,

irrevocable, and enforceable, save upon such grounds

as exist at law or in equity for the revocation of any

contract.” 9 U.S.C. § 2. This provision establishes a

“liberal policy favoring arbitration agreements.” Moses

H. Cone, 460 U.S. at 24. Indeed, “the principal purpose

of the FAA is to ensure that private arbitration

agreements are enforced according to their terms.”

Concepcion, 563 U.S. at 344.

The underlying employee claims in the three

petitions are substantially similar; each involves

alleged failure to pay overtime wages, in violation of

the FLSA. Prior to asserting those claims, each of the

employees had entered into an arbitration agreement

with his employer. Those agreements each provided

that: (1) any employment-related disputes would be

resolved by arbitration rather than in a court

proceeding; and (2) the arbitration would proceed on an

individualized, not a class-wide, basis. When, despite

those agreements, the employees filed lawsuits

asserting FLSA claims on behalf of themselves and

similarly situated employees, the employers moved to

compel arbitration.

As each of the appeals courts recognized, this

Court has routinely enforced arbitration agreements

13

when the underlying claim alleges violation of a federal

statute. More than 25 years ago, in the context of a

suit for violations of the Age Discrimination in

Employment Act (ADEA), 29 U.S.C. §§ 621 et seq., this

Court stated:

It is by now clear that statutory claims

may be subject to an _ arbitration

agreement, enforceable pursuant to the

FAA. Indeed, in recent years, we have

held enforceable arbitration agreements

relating to claims arising under the

Sherman Act, 15 U.S.C. §§ 1-7; § 10(b) of

the Securities Exchange Act of 1934, 15

U.S.C. § 78j(b); the civil provisions of the

Racketeer Influenced and Corrupt

Organizations Act (RICO), 18 U.S.C.

§ 1961 et. seq; and § 12(2) of the

Securities Act of 1933, 15 U.S.C. § 77/(2).

... In these cases we recognized that “[bly

agreeing to arbitrate a statutory claim, a

party does not forgo the substantive

rights afforded by the statute; it only

submits to their resolution in an arbitral,

rather than a judicial forum.”

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

26 (1991) (quoting Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).

In light of Gilmer, there is no plausible

argument that the arbitration agreements at issue here

are unenforceable insofar as they require that the

FLSA claims be heard by an arbitrator instead of a

court. Indeed, neither the Seventh nor the Ninth

14

Circuit made that argument. Instead, they challenged

the enforceability of the requirement that arbitration

proceed on an individual basis, not on a collective basis.

See, e.g., Ernst & Young Pet. App. at 14a (stating that

“(t]he problem with the contract at issue is not that it

is requiring arbitration; it is that the contract term

defeats a substantive federal right to pursue concerted

work-related legal claims”).

Any effort to mandate that arbitration proceed

on a collective basis runs headlong into Concepcion,

which held unequivocally that “class arbitration, to the

extent it is manufactured by [judicial decree] rather

than consensual, is inconsistent with the FAA.”

Concepcion, 563 U.S. at 348. The Court noted, for

example, that conducting arbitration on a class-wide

basis sacrifices many of the advantages of arbitration

that likely prompted the parties to agree to arbitration

in the first instance. Jd. at 348-51. In particular, “the

switch from bilateral to class arbitration sacrifices the

principal advantages of arbitration—its

informality—and makes the process slower, more

costly, and more likely to generate procedural morass

than final judgment.” Jd. at 348.

It is disingenuous for the Seventh and Ninth

Circuits to assert that they are willing to abide the

parties’ choice of an arbitral forum and are declining to

enforce the arbitration agreements only with respect to

the requirement that disputes be resolved on an

individual basis. As Concepcion makes plain, no

employer would agree to arbitrate claims if it knew

that arbitration would proceed on a class-wide basis.

Accordingly, the Seventh and Ninth Circuit decisions

must be evaluated on the basis of their inevitable

15

effect: the abolition of mandatory arbitration

agreements between employers and employees.

B. The NLRA Contains No Express

Congressional Command that

Overrides the FAA

In light of the FAA’s strong endorsement of the

enforceability of arbitration agreements, the Court has

placed on the party opposing enforcement the burden

of demonstrating why the FAA should be overridden.

Gilmer, 500 U.S. at 26 (“the burden is on Gilmer to

show that Congress intended to preclude a waiver of a

judicial forum for” a federal statutory claim.). In a

series of cases involving federal statutory claims, the

Court has made clear precisely what that burden

entails. The party opposing enforcement must

demonstrate that “the FAA’s mandate has been

overridden by a contrary congressional command.”

Italian Colors, 133 S. Ct. at 2309; CompuCredit, 565

U.S. at 98; Shearson/American Express Inc. v.

McMahon, 482 U.S. 220, 226 (1987). If such a

command exists, it “will be discoverable in the text,”

the statute’s “legislative history,” or “an inherent

conflict between arbitration and the [statute’s]

underlying purposes.” Gilmer, 500 U.S. at 26. As the

Fifth Circuit correctly determined, the NLRA does nct

include a “congressional command” that the FAA’s

mandate (to enforce arbitration agreements according

to their terms) is overridden by Section 7’s protection

of employees’ right to engage in “concerted activities.”

D.R. Horton, 737 F.3d at 360-62.

Nothing in the text of Section 7 comes anywhere

near to qualifying as a “congressional command” that

16

overrides the FAA’s mandate. In addition to granting

employees the right to engage in several specific

collective activities (e.g., to form a union and to bargain

collectively through representatives of their own

choosing), Section 7 includes a residual grant: “to

engage in other concerted activities for the purpose of

... other mutual aid or protection.” Nothing in that

generalized language (or in the NLRA’s legislative

history) suggests that Congress had class-wide

adjudication in mind when it referred to “other

concerted activity,” let alone that it intended to

override the FAA’s mandate so as to bar the

enforcement of arbitration agreements that preclude

class-wide adjudication.

In each of the cases cited above, the Court

concluded that those opposing enforcement failed to

demonstrate a “congressional command” to override

the FAA’s mandate. Italian Colors, 133 S. Ct. at 2309-

10; CompuCredit, 565 U.S. at 98-102; Gilmer, 500 U.S.

at 27-29; McMahon, 482 U.S. at 240. It so held, even

though several of the federal statutes in question

included provisions expressly permitting collective

actions in federal court. See, e.g., Gilmer, 500 U.S. at

32 (that the text of the ADEA “provides for the

bringing of a collective action” to enforce statutory

rights held insufficient to establish the existence of a

congressional command to override the FAA’s

mandate). Given those prior decisions, there is no

plausible basis for concluding that the Court should

reach a contrary result with respect to the NLRA, a

statute that is silent on the subject of collective actions.

Importantly, the Court has been explicit that

any “override” of the FAA must be a congressional

17

override. The NLRB held for the first time in D.R.

Horton that Section 7 creates a substantive right for

employees to assert legal claims (alleging FLSA

violations) on a class-wide basis. It confirmed that

holding in Murphy Oil. Murphy Oil Pet. App. 17a-

208a. But because those administrative holdings do

not constitute congressional action, they are irrelevant

to this Court’s determination of whether the FAA’s pro-

arbitration mandate should be enforced in this

instance.

In sum, those seeking to avoid enforcement of

the arbitration agreements at issue here have failed to

demonstrate that a contrary congressional command

has overridden the FAA’s mandate. Under the Court’s

case law, that failure requires that the arbitration

agreements be fully enforced.

C. The FAA’s Savings Clause Is

Inapplicable Because Arbitration

Opponents Can Point to No

Generally Applicable Rule of Law as

a Basis for Denying Enforcement

Neither the Seventh nor the Ninth Circuit

undertook the “contrary congressional command”

analysis mandated by this Court’s case law. Instead

they each purported to harmonize the FAA and the

NLRA by determining that the FAA’s savings clause

renders the FAA’s pro-arbitration mandate

inapplicable. See Epic Systems Pet. App. at 18a (“If

these statutes are to be harmonized—and according to

all the traditional rules of statutory construction they

must be—it is through the FAA’s savings clause, which

provides for the very situation at hand. Because the

18

NLRA renders Epic’s arbitration provision illegal, the

FAA does not mandate its enforcement”); Ernst &

Young Pet. App. at 16a (“[W]hen an arbitration

contract professes the waiver of a substantive federal

right, the FAA’s savings clause prevents a conflict

between the statutes by causing the FAA’s enforcement

mandate to yield.”).

The Seventh and Ninth Circuits have not simply

ignored the “contrary congressional command” analysis

mandated by this Court. They have also badly

misinterpreted the FAA’s savings clause, which is

inapplicable here. That clause permits the invalidation

of arbitration agreements “upon such grounds as exist

at law or in equity for the revocation of any contract.”

By its terms, the clause is irrelevant when the alleged

“ground” for revocation (here, Section 7 of the NLRA)

is not one that can be invoked to revoke “any” contract.

Instead, as interpreted by the Seventh and Ninth

Circuits, Section 7 invalidates only a very small

number of contracts: those that directly interfere with

employees’ Section 7 rights to form unions, collectively

bargain, or engage in other “concerted activities”

protected by Section 7.

This Court has repeatedly rejected efforts to

invoke the FAA savings clause on a ground that could

not serve as a basis for invalidating any contract. See,

e.g., Kindred Nursing Centers L.P. v. Clerk, 137 S. Ct.

1421 (2017); Southland Corp. v. Keating, 465 U.S. 1, 16

n.ll (1984); Concepcion, 563 U.S. at 341-344.

Concepcion explained that while the FAA’s savings

clause “preserves generally applicable contract

defenses,” it does not preserve rules that interfere with

the FAA’s objectives, id. at 341, and that would have “a

19

disproportionate impact on arbitration agreements.”

Id. at 342.

The Seventh and Ninth Circuits seek to avoid

that savings-clause case law by contending that Section

7 renders “unlawful” arbitration agreements that ban

assertions of claims on a class-wide basis, and that a

“general contract defense of illegality” permits

invalidation of such agreements. Ernst & Young Pet.

App. at 14a; Epic Systems Pet. App. 15a.° But that

rationale would allow the savings-clause exception to

swallow the rule. Whenever a party alleges that

enforcing an arbitration agreement is inconsistent with

some federal-law policy, it can allege “illegality” and

(according to the Seventh and Ninth Circuits) avoid the

FAA’s mandate by invoking the savings clause.

Concepcion explicitly rejected such a broad reading of

the savings clause, stating that the FAA “cannot be

held to destroy itself.” 563 U.S. at 343.

D. The Savings Clause Does Not Apply

to Potentially Conflicting Federal

Statutes

The savings clause is also inapplicable because

the policy to be “saved” derives from another federal

statute, not state law. As Sixth Circuit Judge Sutton

has explained, “Savings clauses save state laws from

preemption; they don’t save other federal statutes

enacted by the same sovereign. Federal statutes do not

° The NLRB has interpreted the savings clause in similar

manner. Murphy Oil Pet. App. 17a-88a. Because the NLRB bears

no responsibility for administering the FAA, its interpretation of

that statute is not entitled to deference.

20

need to be ‘saved’ by a coequal statute in order to have

effect.” NLRB v. Alternative Entertainment, Inc., __

F.3d ___, 2017 WL 2297620 at *18 (6th Cir. 2017)

(Sutton, J., dissenting) (citations omitted). This Court

has held that any potential conflicts between the FAA

and another federal statute are to resolved by imposing

on the party opposing arbitration the burden of

demonstrating a “contrary congressional

command’—not by invoking the FAA’s savings clause.

II. THE NLRA DOES NOT CREATE A SUBSTANTIVE

RIGHT TO PURSUE COLLECTIVE CLAIMS

A. Congress Could Not Have Intended

to Grant a Right to a Procedure that

Did Not Exist in 1935

In concluding that the arbitration agreements at

issue here should not be enforced as written, both the

Seventh and Ninth Circuits placed particular emphasis

on their findings that the rights created by Section 7 of

the NLRB are “substantive” rights, not procedural

rights. Indeed, the Ninth Circuit deemed its conclusion

that Section 7 rights are “substantive” to be “crucial” to

its determination that the arbitration agreements at

issue should not be enforced. Ernst & Young Pet. App.

at 14a.

WLF notes initially that whether Section 7

rights should be deemed substantive or procedural is

largely irrelevant to the key issue before the Court:

whether the NLRA includes a “congressional

command” overriding the FAA. As Judge Ikuta pointed

out in dissent, “In every case considering a party's

claim that a federal statute precludes enforcement of

21

an arbitration agreement, the Supreme Court begins

by considering whether the statute contains an express

‘contrary congressional command’ that overrides the

FAA.” Id. at 29a (Ikuta, J., dissenting). In any event,

there is little or no evidence to suggest that Section 7

confers a substantive right of the sort that the Ninth

Circuit deemed “crucial” to its determination.

Section 7 of the NLRA grants employees several

specified rights (including the right to form a union

and to bargain collectively) as well as a residual right

“to engage in other concerted activities for the purpose

of collective bargaining or other mutual aid or

protection.” 29 U.S.C. § 157. Under a well-known

canon of statutory construction, ejusdem generis,® the

term “concerted activities” most logically refers to

activities similar in nature to forming a union or

collectively bargaining with one’s employer. It is quite

a stretch to suggest that the term also applies to the

assertion of class-based legal claims, an activity very

dissimilar to forming a union and engaging in collective

bargaining.

Moreover, Congress adopted the NLRA in 1935.

As this Court has recognized, “modern class action

practice emerged in the 1966 revision of Rule 23.”

Ortiz v. Fibreboard Corp., 527 U.S. 815, 832-33 (2001).

At the time of the NLRA’s enactment, employees

seeking to vindicate their rights under federal labor

®° That canon counsels, “Where general words follow

specific words in a statutory enumeration, the general words are

usually construed to embrace only objects similar in nature to

those objects enumerated by the preceding specific words.” Yates

v. United States, 135 S.Ct. 1074, 2015 (2015).

22

law would have had no means of doing so on a

collective basis. Because class actions as we know

them today did not exist in 1935, it is illogical to read

into Section 7 an intent to grant employees a

“substantive” right to engage in collective litigation.

The Seventh Circuit dismissed those concerns.

It asserted that even though employees could not have

filed a collective action in 1935 seeking a monetary

award for an alleged violations of a federal statutory

right, Congress in 1935 was “aware” that some courts

had in some limited instances authorized “class,

representative, and collective legal proceedings.” Epic

Systems Pet. App. at 8a-9a. That assertion makes little

sense. Awareness of the existence of some forms of

collective legal proceedings provides no support for a

conclusion that Congress intended to create a right to

engage in other forms of collective legal proceedings

that did not exist at the time it enacted legislation.

B. Section 7 of the NLRA Protects

Employees from Employer

Retaliation for Engaging in

Concerted Activities

The Seventh and Ninth Circuits construed

Section 7 as providing employees with a sword: it

allegedly grants them a substantive right to assert

legal claims in a specified manner. That construction

misrea‘ls Section 7, which is more properly read as a

shield against adverse employment actions taken in

response to specified concerted activities.

The assertion that protected “concerted

activities” include the filing of legal claims is based

23

entirely on dicta in a single decision of this Court:

Eastex, Inc. v. NLRB, 437 U.S. 556 (1978). Eastex held

that concerted activities protected by Section 7 include

the distribution of literature in non-working areas of

the employer's property—even though the literature

discussed political issues of interest to union members,

and was not limited solely to issues directly relevant to

working conditions in the plant. 437 U.S. at 570. The

Court upheld an NLRB determination that the

employer committed an unfair labor practice by

refusing to permit distribution of the literature and

threatening retaliation against employees who did so.

Id. at 574-75.

In discussing the types of concerted activities

that are protected by Section 7, the Court explained

that the statute’s coverage is not limited to “the

narrower purposes of ‘self-organization’ and ‘collective

bargaining.” Id. at 565. It then observed, “it has been

held {by other tribunals] that the ‘mutual aid and

protection’ clause protects employees from retaliation

by their employers when they seek to improve working

conditions through resort to administrative and judicial

forums.” Id. at 565-66 (citing several appeals court and

NLRB decisions). The Court never stated whether it

agreed witi: those holdings.

More importantly, nothing in Eastex lends

support to the view that Section 7 protects the right to

file specific types of legal claims (such as class actions)

without regard to whether employees have signed

contracts agreeing not to pursue legal claims on a

collective basis. Every one of the NLRB and appeals

court cases cited by Eastex involved employees who

were retaliated against by the employer for filing an

24

employment-related lawsuit. Jd. at 566 n.15. Indeed,

when the NLRB announced its expanded interpretation

of Section 7 in 2012 in D.R. Horton, every case cited by

the Board in support of that new interpretation was

likewise a retaliation case. See Murphy Oil Pet. App.

at 178 & n.78 (views of Member Johnson, dissenting).

In other words, even if Section 7 prohibits retaliation

against employees who pursue legal claims on a

collective basis, that is a far cry from interpreting

Section 7 as barring employers from raising

arbitration-agreement defenses to such claims. As

Judge Sutton explained:

[T]he pursuit of collective litigation is a

different activity from collective litigation

itself. And if the protected activity is the

pursuit of collective litigation, then the

Board’s interpretation accomplished

nothing. Waivers do not inhibit the right

to pursue a goal; they inhibit the ability

to obtain it. In this case, employees who

signed the class-action waiver can band

together to lobby their employer to

remove the waiver from the contract, or

they can ask a court to declare the waiver

invalid on some generally applicable

ground. The employees’ pursuit of

collective procedures may or may not bear

fruit, but the pursuit will nonetheless be

protected from retaliation.

Alternative Entertainment, 2017 WL 2297620 at *16

(Sutton, J., dissenting).

25

C. Collective-Action Rights Are

Procedural and Thus Waivable

In a number of cases, the Court has suggested

that an employer may not require an employee to

waive a substantive legal claim as a condition of

employment. Thus, after reviewing decisions in which

it had enforced agreements requiring employees to

arbitrate a federal statutory claim, the Gilmer Court

noted that requiring an employee to submit his

statutory claim to arbitration does nothing to impair

the claim itself:

In these cases we recognized that “[bly

agreeing to arbitrate a statutory claim, a

party does not forgo the substantive

rights afforded by the statute; it only

submits to their resolution in an arbitral,

rather than a judicial forum.”

Gilmer, 500 U.S. at 26 (quoting Mitsubishi Motors, 473

U.S. at 628). Gilmer does nothing to advance the anti-

arbitration position in this case. That decision makes

clear that the relevant substantive right is the

underlying legal claim at issue—in these cases, the

alleged failures to pay overtime wages, in violation of

the FLSA. Adhering to the FAA by enforcing the

arbitration agreements at issue will do nothing to

prevent employees from pursuing their FLSA

grievances. Indeed, they will be permitted to pursue

those claims in a “concerted” manner by assisting each

other with the filing of individual arbitration claims.

The only relevant thing that enforcement of the

agreements will do is to prevent employees from

pursuing their arbitrations using class-based

26

procedures.

The Seventh and Ninth Circuits held that

Section 7 creates a substantive right to pursue class-

wide arbitration and is thus non-waivable. But that

holding cuts against the understanding of this Court,

which has regularly characterized the collective-action

rights created by Fed.R.Civ.P. 23 as procedural in

nature. See, e.g., Deposit Guar. Natl Bank v. Roper,

445 U.S. 326, 332 (1980) (stating that Rule 23 creates

“procedural right[s]” that are “ancillary to the litigation

of substantive claims”). Indeed, Rule 23 was designed

solely for the purpose of improving litigation efficiency,

by enabling litigants to avoid the time and expense of

trying (and deciding) the same claims repeatedly.

General Tel. Co. of Southwest v. Falcon, 457 U.S. 147,

156 (1982) (stating that “the class-action device saves

the resources of both the courts and the parties by

permitting an issue potentially affecting every [class

member] to be litigated in an economical fashion under

Rule 23.”)

The Court has carefully § distinguished

substantive from procedural rules, in order to ensure

that federal courts do not violate the Erie doctrine,

which limits the power of federal courts to supplant

state law with judge-made rules. In general, federal

courts must follow state law unless the contrary rule it

seeks to impose can reasonably be classified as

“procedural.” Hanna v. Plumer, 380 U.S. 460, 472

(1965). In cases raising state-law issues, federal courts

are permitted to employ the class-action rules specified

in Rule 23 only because that rule is deemed procedural,

not substantive. Shady Grove Orthopedic Assocs., PA.

v. Allstate Ins. Co., 559 U.S. 393, 407 (2016) (plurality

27

opinion). And, as the Seventh and Ninth Circuits

concede, a procedural right is waivable.

The assertion by those courts that Section 7

creates non-waivable, substantive rights cuts against

a long history of judicial acceptance that Section 7

rights may be waived. Indeed, it is a well-accepted and

common practice for a union to waive all of its

members’ Section 7 rights—including the right to

strike—in return for an employers acceptance of a

collective-bargaining agreement (CBA) that mandates

arbitration of all issues arising under the CBA. That

practice is so well accepted that the Court has upheld

an employer’s right to an injunction against a strike

(over an issue subject to arbitration) undertaken in

violation of a CBA’s no-strike clause. Boys Markets,

Inc. v. Retail Clerks Union, 398 U.S. 235 (1970). Ifa

union is permitted to waive Section 7 rights of all

employees within its bargaining unit—even employees

who are not members of the union—there can be little

justification for refusing to grant individual employees

a similar waiver right.

In sum, any Section 7 rights to file class-based

claims are procedural rights which, even if they are

deemed waived by virtue of an arbitration agreement,

do not compromise an employee’s right to vindicate his

substantive claim under federal law. As the Court

observed in Shady Grove, there is no substantive

distinction between a class action filed on behalf of 999

absent class members and 1,000 separate lawsuits

asserting the identical claims; the defendant’s potential

“aggregate liability ... does not depend on whether the

suit proceeds as a class action.” 559 U.S. at 408

(plurality opinion).

28

D. If the Collective-Action Rights

Created by Rule 23 Were Deemed

“Substantive,” Rule 23 Would Violate

the Rules Enabling Act

The Rules Enabling Act, 28 U.S.C. 2072(b),

provides an additional reason for interpreting the

collective-action right being asserted in these petitions

as a procedural right. If that right were determined to

be a substantive, non-waivable right, it would raise

serious questions regarding the validity of Rule 23. As

the Court recently explained:

[C]ongressional approval of Rule 23 [does

not] establish an entitlement to class

proceedings for the vindication of

statutory rights. ... [I]t is likely that such

an entitlement, invalidating private

arbitration agreements denying class

adjudication, would be an “abridg[ment]”

or “modiffication]” of a “substantive right”

forbidden to the Rules, see 28 U.S.C.

§ 2072(b).

Italian Colors, 133 S. Ct. at 2309-10.

It bears repeating that class actions as we know

them today did not exist when Congress adopted the

NLRA in 1935. Accordingly, no party to this cases

asserts that employees in 1935 and subsequent decades

had a right to insist that any arbitrations concerning

employment issues be conducted on a class-wide basis.

Rather, according to the NLRB, that right did not

spring into existence until 1966 with the adoption of

modern-day Rule 23. In light of that history, it is fair

29

to conclude that the substantive collective-action rights

recognized by the Seventh and Ninth Circuits owe their

existence to the adoption of the 1966 amendments to

Rule 23.

Yet, “the Rules Enabling Act forbids interpreting

Rule 23 to ‘abridge, enlarge, or modify any substantive

rights.” Wal-Mart Stores v. Dukes, 564 U.S. 338, 367

(2011) (citing 28 U.S.C. § 2072(b)). If Rule 23 (in

conjunction with Section 7) were interpreted as

creating the “substantive” rights recognized by the

Seventh and Ninth Circuits, it would undoubtedly be

“enlargling]” substantive rights, in violation of the

Rules Enabling Act. In order to avoid any questions

regarding the validity of Rule 23, the collective-action

rights asserted in these petition should be deemed

merely procedural—and thus waivable. See Murphy

Oil Pet. App. 187a (views of Member Johnson,

dissenting) (“Overriding the FAA certainly is an

abridgement of a party’s rights—both under the FAA

and under that party’s contract—to have its arbitration

agreement enforced. Simply put, Section 7 cannot

enlarge Rule 23 beyond the ability of Rule 23’s own

authorizing statute.”).

Moreover, in light of the fact that modern-day

class actions developed decades after adoption of the

NLRA, there can be no plausible claim that

enforcement of arbitration agreements prevents the

effective vindication of employees’ rights. As the Court

explained, in denying an _ effective-vindication

argument raised by antitrust plaintiffs:

The class-action waiver merely limits

arbitration to the two contracting parties.

30

It no more eliminates those parties’ right

to pursue their statutory remedy than did

federal law before its adoption of the class

action for legal relief .... Or, to put it

differently, the individual suit that was

considered adequate to assure “effective

vindication” of a federal right before

adoption of class-action procedures did

not suddenly become “ineffective

vindication” upon their adoption.

Italian Colors, 133 S. Ct. at 2311.

In sum, nothing in the language or history of the

NLRA supports a claim that Section 7 creates the

“substantive” right asserted by the Seventh and Ninth

Circuits: a non-waivable right to pursue employment-

related legal claims on a collective basis.

CONCLUSION

The Court should reverse the judgments of the

courts of appeals in Nos. 16-285 and 16-300, and affirm

the judgment of the court of appeals in No. 16-307.

Respectfully submitted,

Richard A. Samp

(Counsel of Record)

Mark S. Chenoweth

Washington Legal Found.

2009 Massachusetts Ave., NW

Washington, DC 20036

202-588-0302

June 16, 2017 rsamp@wlf.org