On The Case

DOJ walks narrow path on agency deference in big SCOTUS employment case

(Reuters) - The Trump administration, as Reuters was the first to report on Friday, has ditched the National Labor Relations Board in one of the biggest business cases the U.S. Supreme Court will hear in its next term. Instead of backing the NRLB, which asserts that the National Labor Relations Act bars employers from forcing employees to give up their right to bring classwide actions, the solicitor general’s office filed an amicus brief supporting Ernst & Young, Epic Systems and Murphy Oil, all of which require employees to arbitrate disputes individually.

But the SG’s office does not want the Supreme Court to curtail the deference courts pay to federal agencies under the court’s 1984 decision in Chevron v. Natural Resources Defense Council.

As you doubtless recall, the newest justice, Neil Gorsuch, posited when he was a federal circuit court judge that such deference may violate constitutional separation-of-powers doctrine. The Trump Justice Department’s amicus brief makes no such argument. In fact, the SG emphasized that the NLRB’s interpretation of the National Labor Relations Act is entitled to deference – but the agency’s interpretation of the interplay between that law and the Federal Arbitration Act is not.

That’s a much more moderate view of the deference owed to the NLRB than arguments offered by E&Y, Epic and Murphy Oil. Like the SG’s office, Ernst & Young counsel Kannon Shanmugam of Williams & Connolly said in the accounting firm’s merits brief that the NLRB is not entitled to deference on the interplay between the NLRA and the Federal Arbitration Act. E&Y also argued, however, that the NLRB’s interpretation of the federal law protecting employees is too deeply flawed to warrant deference.

Murphy Oil and Epic Systems, which are both represented by Neal Katyal of Hogan Lovells, took an even more aggressive position. In the companies’ joint merits brief, Murphy and Epic said the National Labor Relations Act is not ambiguous about classwide arbitration because the law, on its face, does not prohibit classwide waivers. As a result, according to the companies, the NLRB can’t satisfy the initial step in the Chevron test for deference, which requires statutory ambiguity. Since the law is clear, Murphy and Epic said, the courts owe the NLRB no deference.

The three cases, which the Supreme Court will hear jointly, are likely to affect thousands of employers and millions of employees. They will determine whether, in the future, workers can leverage the power of classwide proceedings to force concessions from employers. If the Supreme Court sides with the companies, mandatory arbitration provisions barring classwide claims will become standard practice for employers.

In that context, the issue of Chevron deference is a bit of a legal nerd’s lagniappe. On the other hand, these cases only exist because of how the NLRB interpreted the law it administers. So the Supreme Court’s analysis of how much leeway to grant the bureau – especially when the conservative wing of the court is increasingly restive about deferring to federal agencies – is an issue to watch. And the SG’s institutional interest in protecting deference to executive branch agencies, even as it argues that the agency in this case doesn’t deserve it, puts the Justice Department on a narrow road.

The NLRB changed its own interpretation of classwide arbitration waivers in 2012, according to Ernst & Young. As recently as 2010, E&Y’s brief said, the NLRB’s general counsel advised in a guidance memo that mandatory arbitration provisions were in line with federal law as long as employers only require employees to waive individual rights and did not prohibit employees from challenging the agreements though concerted action. But then in the NLRB’s 2012 ruling in a case called D.R. Horton, the bureau tightened its position. D.R. Horton concluded that employers may not mandate arbitration agreements barring employees from banding together in actions involving their wages or working conditions.

The bureau’s key holding is that classwide legal proceedings are covered in the NLRA section guaranteeing workers’ “right to engage in concerted action for mutual aid or protection.” E&Y, Epic and Murphy Oil all contend in their Supreme Court briefs that the NLRB was wrong on this point: The statute, they said, simply does not create what E&Y calls “a nonwaivable right to class or other collective procedures in employment-related disputes.” (Epic and Murphy Oil put it more simply: “The NLRA unambiguously does not prohibit class waivers.”)

The DOJ, in its amicus brief, agreed with the private companies that Congress does not seem to have intended the National Labor Relation Act to bar employers from enforcing arbitration agreements that prohibit classwide proceedings. Without that Congressional mandate, the SG’s office said, the NLRB “cannot supply the requisite clarity by gap-filling.”

But the SG’s office, unlike the private employers, said deference to the NLRB is restricted only because the federal agency exceeded its authority when it found the NLRA trumps the FAA. The board has the power under Chevron to determine how to read the National Labor Relations Act, which it is responsible for enforcing, but not the Federal Arbitration Act.

“The board is not entitled to deference when it determines how the NLRA should be harmonized with other federal statutes, the brief said. “The board’s approach fails to respect the FAA’s directive that arbitration agreements should be enforced unless they run afoul of arbitration-neutral rules of contract validity.”

Interestingly, the SG’s office disagreed with E&Y, Epic and Murphy Oil on whether the NLRB’s interpretation of the scope of the NLRA’s protection of joint legal proceedings could be correct. The private companies said not only that the NLRB is not entitled to deference but that it is flat wrong. The Justice Department brief said the NLRB may have been right in its reading the phrase “other concerted activities” - except when it comes to arbitration.

“The board’s view that the phrase … encompasses participation in collective or class litigation may reflect a permissible interpretation of that language, such that an employer might commit an unfair labor practice by discharging employees who initiated or joined such suits in accordance with other provisions of law,” the SG’s brief said. “Its reading … may govern in contexts where the FAA does not apply.”

That position will be of small comfort to employees, of course, if employers across the land win the right to impose arbitration agreements barring them from initiating collective litigation. We’ll see in August what the NLRB and employees have to say about that in their Supreme Court merits briefs.