I previously wrote here about the NLRB case, D.R. Horton, which found that mandatory arbitration agreements violate the National Labor Relations Act. The 5th Circuit Court of Appeals overruled that decision in December 2013. Apparently that does not bother the NLRB… What’s up with that –and what’s an employer to do? We should –and will–talk about that–after the jump…
(image from insidecounsel.com).
Per DR Horton an arbitration agreement that’s “a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer” violates the NLRA. Then 5th Circuit reversed that ruling. In 2014 the NLRB “independently reexamined” its decision in Murphy Oil, an identical class action waiver case, and reaffirmed D.R. Horton. While a 5th Circuit decision is only binding on courts in Texas, Louisiana and Mississippi. Murphy Oil, is located in that territory–and it appealed the NLRB’s ruling to the 5th Circuit, which, in turn, reaffirmed its previous decision:
“the Board disregarded this court’s contrary D. R. Horton ruling that such arbitration agreements are enforceable and not unlawful. Our decision was issued not quite two years ago; we will not repeat its analysis here.. . . [and we] do not celebrate the Board’s failure to follow our D. R. Horton reasoning.”
Undeterred, the NLRB has pressed onward.
Here are some examples:
In Solar City, a carve-out provision allowing employees to file claims with federal, state or local agencies that enforce employment laws, including the EEOC, NLRB and OSHA did not pass NLRB muster. Why? Since the agreement said that employees had to individually arbitrate “all disputes”, it would take “specialized legal knowledge” for an employee to determine whether the right to file an NLRB charge was permitted or precluded. The NLRB seemed to be saying that Solar City needed to specifically say affirmatively say that employees have a right to file an NLRB charge.
How about an opt-out provision? Nope. The agreement in 24 Hour Fitness USA Inc v. National Labor Relations Board Case No 16-60005, along with an opt-out provision and class/collective actions waiver, contained a nondisclosure provision. Neither a party nor an arbitrator could disclose the existence or results of an arbitration proceeding without prior written consent from both parties. Therefore, an employee who either starts or opts out of an arbitration proceeding probably can’t discuss it with fellow workers. Per the NLRB, the non-disclosure clause had a chilling effect on concerted activity for employees’ mutual aid and protection specifically allowed by NLRA Section 7. Later policy revisions, including an Acknowledgement of Receipt of the Employee Handbook stated that employees were bound by the arbitration policy even if they didn’t sign the receipt. The NLRB read this to mean that even employees who opted out would lose their rights. The NLRB struck down the policy and agreement and ordered them rescinded. Then 24-Hour Fitness appealed the ruling to — you guessed it– the 5th Circuit Court of Appeals. 24-Hour Fitness may have a good chance of winning, after expending significant dollars, time and other resources. Besides, it doesn’t look like a third adverse ruling from the same circuit will stop the NLRB.
The Second, Eighth and Eleventh Circuits refused to defer to the NLRB and D.R. Horton in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013) and Owens v. Bristol Care, Inc., 702 F.3d 1050 and Walthour v. Chipio Windshield Repair, 745 F.3d 1326 respectively.
The Ninth Circuit in 2014 in Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1075-1077 neither followed D.R. Horton nor decided the issue, as it found the case distinguishable from D.R. Horton. In D.R. Horton the arbitration agreement with the class action waiver was a mandatory condition of employment, whereas the one in this case was not. Even so, the Ninth Circuit noted the Second and Eighth Circuits, “and the overwhelming majority of the district courts to have considered the issue have determined that they should not defer to the NLRB’s decision in D.R. Horton on the ground that it conflicts with the explicit pronouncements of the Supreme Court concerning the policies undergirding the Federal Arbitration Act.”
So, 4 Circuit Courts of appeals and most of the federal district courts won’t uphold D.R. Horton. Past US Supreme Court decisions favor arbitration, hold that the Federal Arbitration Act prevails over most anything else in issues regarding arbitration. But SCOTUS hasn’t decided whether the FAA trumps the NLRA. The NLRB believes that it does not-and it won’t stop its enforcement activity until the US Supreme Court tells it otherwise (or Congress does, by amending the NLRA, or maybe, if all the circuits reject D.R. Horton). How likely is that? Usually SCOTUS will only hear an appeal when there’s a split among the circuits before the SCOTUS will hear an appeal. Should employers actually hope for one circuit to uphold D.R. Horton so there will be a circuit split so SCOTUS will hear an appeal. How insane is that?
So now what? It appears employers have the following options:
- Don’t use arbitration agreements with class action waivers, and rescind any you might currently have in place. This would be the safe route as far as the NLRB is concerned.
- Include clear, affirmative language allowing employees to opt out of the arbitration agreement and stating that in all circumstances employees always have the right to file charges with the NLRB, EEOC and OSHA. This might work, but the NLRB has been known to hair-split and often finds even clearly written carve-outs aren’t enough.
- Use mandatory arbitration agreements but don’t include a class/collective action waiver. For many employers however, the point is to avoid the expenditure of dollars and time on class and collective actions. Also, in at least one case the NLRB found that an agreement that was silent on class/collective actions, still “had the effect of” a class action waiver–then again, that employer actually used the agreement to preclude a class action.
- Follow option 2 and include language that the agreement only applies to individual claims and that class or collective actions are not waived. See my comments on options 2 and 3 above.
Your choice will likely depend on how much risk you can tolerate. Stay tuned. I think we will see further developments on this issue. Let’s end here for now…
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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