Happy Thanksgiving! We have been exploring pitfalls encountered when employers require employees to submit employment-related disputes to binding arbitration rather than filing a lawsuit. This week, The Emplawyerologist focuses on the National Labor Relations Board (NLRB)’s attempt to limit this practice by employers.
If you are just joining us and your workplace is not unionized, you may think that the NLRB stand on mandatory arbitration is irrelevant to you. That is not so. Section 7 of the National Labor Relations Act (NLRA) allows all employees to engage in protected, concerted activity designed to improve working conditions. Actions by employers that may infringe on that right are an unfair labor practice under Section 8(a)(1) of the NLRA. I recently defined and discussed these concepts in a prior post, which you can access here. You can also hear more from the NLRB on protected concerted activity by clicking here.
You may be aware of AT&T Mobility v. Concepcion 131 S.Ct. 1740, a US Supreme Court case that upheld a requirement that consumers resolve all disputes through binding arbitration. The Court also ruled that such provisions prohibited consumers from suing collectively as a class of similarly situated people. Speculation arose as to whether Concepcion would apply in the employment arena.
Moving right along…how many of you have heard about the recent NLRB case, DR Horton, Inc. 357 NLRB No. 184? No, I am not referring to an update of the famous Dr. Seuss classic. I am talking about a case decided by the NLRB on January 3, 2012. DR Horton, Inc is a homebuilding company that required its employees, as a condition of employment, to resolve employment-related disputes through mutually binding individual arbitration. This requirement meant that employees could not sue, and could not bring proceedings involving a large group of similarly situated people (i.e. a “class”). The underlying case involved allegations that a supervisor was misclassified as exempt from overtime pay. The charging party, Michael Cuda, sought to bring a class arbitration proceeding, seeking overtime pay and damages for himself and other similarly situated employees. When DR Horton invoked the agreement to submit to binding arbitration, Cuda filed an Unfair Labor Practice charge with the NLRB. While an administrative law judge determined that the class action waiver was not an unfair labor practice, the NLRB reversed that finding. DR Horton therefore stands for the proposition that class action waivers, whether of lawsuits or arbitrations violate the NLRA and are unenforceable. For what it is worth however, DR Horton does not actually overrule all arbitration provisions; it does allow for the possibility of collective arbitration.
So how does DR Horton impact an employer’s right to require agreements to arbitrate employment-related disputes as a condition of employment? DR Horton is one administrative agency case, originating from one regional office, and therefore is not the law of the land. It has however set a precedent that two other administrative law judges in two other NLRB cases have chosen to follow.
Advanced Services, Inc. Case No. CA-63184-71805 involved two consolidated cases against Advanced Services, Inc, an employer operating a call center for General Electric appliance parts. Advanced Services’ arbitration procedure required all employees to waive the right to bring class/collective actions unless both the employee and Advanced agreed to the class/collective action, but allowed employees to “act concertedly to challenge the terms of the arbitration policy and class waiver itself”. The NLRB’s administrative law judge invalidated this procedure, finding that it unlawfully restricted employees’ rights to engage in concerted activity if it precluded filing employment-related collective class claims against their employer in both arbitral and judicial forums. The ability to collectively challenge the procedure was insufficient, because, according to the ALJ, the claims themselves would still have to be brought on an individual basis. What about the fact that collective/class claims were allowed if both sides agreed? Still not enough, according to the ALJ, because there was no way of establishing when the employer would agree to such proceedings. Therefore, the policy had the potential to “chill” protected activity and was an unfair labor practice under Section 8 of the NLRA. As you can see, even though the policy in question was different from that in DR Horton the ALJ still applied Horton, resulting in essentially the same outcome.
Another NLRB administrative law judge, in 24 Hour Fitness, Case No.. 20-CA-35419 actually expanded on Horton. The arbitration policy, while requiring submission of employment-related disputes to arbitration, allowed employees 30 days opt out of the requirement within 30 days of receipt of the employee handbook. and specifically said that employees were not precluded from filing charges with the NLRB or the EEOC. The ALJ found the opt out provision “illusory”. Since the policy prohibited non opt-out employees from disclosing “the existence, content or results of any arbitration”, it limited any assistance the opt-outs could obtain from fellow workers, effectively preventing concerted employee activity between the opt-outs and non-opt outs. The ALJ went further, and required 24 Hour Fitness to 1. notify any judicial or arbitral forum where the policy had been enforced that it no longer opposes seeking of class/collective action relief, and 2. withdraw any pending motion to compel individual arbitration. Clearly this ruling significantly exceeds even the scope of DR Horton.
The NLRB cases have essentially held that Concepciondoes not apply in employment matters.
Wait a minute… Doesn’t the FAA require enforcement of arbitration agreements? Does the NLRA trump the FAA? According to the NLRB, in DR Horton, in this context, yes. While it appears that administrative law judges will follow DR Horton until further notice, that is not the “final answer”. As of today, DR Horton is on appeal to the Fifth Circuit Court of Appeals (the intermediate federal court covering OH,).
Federal district courts (“trial courts”) have, by and large, refused to adopt DR Horton. Why is that? While the NLRB is entitled to deference in its interpretation of the NLRA, the courts reason that it does not have expertise and therefore is not entitled to deference in its interpretation of the FAA. With very few exceptions, the federal courts have interpreted the FAA consistent with the strong policy that favors arbitration, and have ruled that Concepcion does apply in the employment law arena. Therefore, according to most federal district courts, arbitration policies that include class action waivers are enforceable.
So can an employer still mandate that employment-related disputes be resolved through binding arbitration? Yes, if their agreements and policies clear the hurdles discussed here and here. Can arbitration provisions prohibit class or collective actions? Unfortunately, there is no clear answer at this time. We should have more clarity after the Fifth Circuit decides the Horton appeal. In the meantime, the almost unanimous refusal of federal district courts to follow Horton suggests that courts will generally continue to enforce agreements to arbitrate employment disputes if they meet the criteria we have already discussed.
Please join us next week, when The Emplawyerologist wraps up its “mini-series” on mandatory employment arbitration agreements and explores the advantages and disadvantages of arbitration versus litigation in the employment arena.
Click here to learn more about Janette Levey Frisch, author of The Emplawyerologist.
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Disclaimer: The content of this post and of all posts on The Emplawyerologist is not legal advice and does not create an attorney-client relationship. Always consult with competent local employment counsel on any employment law issue.