News & Updates: NLRB Reaffirms Controversial Decision that Class Action Waivers in Employment Agreements Violate the NLRA.

In Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014), a noteworthy and controversial decision that contradicts numerous federal and state courts, the National Labor Relations Board (“NLRB” or the “Board”) reaffirmed its earlier decision in D.R. Horton, Inc., 357 NLRB No. 184 (2012), in which it held that the National Labor Relations Act (“NLRA”) prohibits contracts requiring employees to waive their rights to participate in class proceedings.

Background

In D.R. Horton, the NLRB invalidated class action waivers in employment agreements on the ground that such waivers interfere with the exercise of employees’ right to engage in collective action in violation of the the NLRA.

In December 2013, the Fifth Circuit Court of Appeals in D.R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344 (2013) expressly disagreed with the NLRB, observing that compelling bilateral arbitration does not deny the exercise of any statutory rights under the NLRA.  The Fifth Circuit, relying on recent Supreme Court precedent, found that interpreting the NLRA to prohibit class action waivers disfavors arbitration and is therefore inconsistent with the Federal Arbitration Act (“FAA”).  The NLRA and the FAA are equally important federal statutes, and the NLRA reflects no congressional intent to override the FAA.

The Fifth Circuit’s ruling is consistent with numerous other state and federal courts, which have rejected the NLRB’s D.R. Horton precedent.  See, e.g. Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013); Owens v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013); Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014).

Murphy Oil USA, Inc.

In Murphy Oil USA, Inc., the employer required employees to sign an agreement requiring arbitration of employment disputes and waiving the right to file or participate in a group, class or collective action in court, arbitration or other forum.  After four employees filed a collective action against the company, the company sought to compel individual arbitration of the claims.  The lead plaintiff then filed an unfair labor practice charge with the NLRB, and the NLRB issued a complaint against the company.

In adjudicating the labor violation charge, the NLRB decided by a 3-2 margin that that rationale of D.R. Horton was “straightforward, clearly articulated, and well supported at every step,” stating, “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central” to the NLRA.  361 NLRB No. 72, at 5. The Board fundamentally disagreed with the Fifth Circuits interpretation of the proper interplay between the NLRA and the FAA. In the Board’s estimation, the NLRA has a special character setting it apart from other employment statutes, and because mandatory arbitration agreements purport to extinguish a substantive right to engage in concerted activity under the NLRA, they are invalid.  The Board concluded that the NLRA demonstrates “contrary congressional command” sufficient to  override the FAA’s strong federal policy favoring arbitration,” and that as between the NLRA and the FAA, the Fifth Circuit did not explain why the NLRA must give way.

The controversy around the Board’s decision is highlighted by the vigorous dissents of two NLRB Board members, who asserted among other things that the majority opinion was an “unfortunate example of a Federal agency refusing to follow the clear instructions of our nation’s Supreme Court on the interpretation of the statute entrusted to our charge,” and that the “majority effectively ignores the opinions of nearly 40 Federal and State courts that, directly or indirectly, all recognize the flaws in the Board’s use of a strained, tautological reasoning of the [NLRA] in order to both override the [FAA] and ignore the commands of other Federal statutes.  Instead, the majority chooses to double down on that mistake that, by now, is blatantly apparent.”  Id. at 35.

Consequences for Employers

Employers who utilize or are considering whether to implement arbitration agreements with class or collective action waivers should understand that, while federal courts have, to date, rejected the Board’s argument, the Board has staked the clear position that such agreements violate the NLRA.  It appears that the Board will hold to its position until the U.S. Supreme Court resolves the issue.  Until resolved by the Supreme Court, employers using agreements with class arbitration waivers are at continued risk of facing unfair labor practice charges.