NLRB Redoubles Stance that Mandatory Arbitration Clauses Waiving Employees' Rights to Pursue Class or Collective Actions Violate the NLRA

Practical Law Legal Update 6-586-5225 (Approx. 11 pages)

NLRB Redoubles Stance that Mandatory Arbitration Clauses Waiving Employees' Rights to Pursue Class or Collective Actions Violate the NLRA

by Practical Law Labor & Employment

Background

Murphy Oil USA, Inc. operates over 1000 retail gasoline and diesel fueling stations in 21 states. The company had an arbitration agreement that employees were required to sign as a condition of employment. The agreement stated, in part:

"Excluding claims which must, by statute or other law, be resolved in other forums, Company and Individual agree to resolve any and all disputes or claims each may have against the other which relate in any manner whatsoever as to [sic] Individual’s employment, including but not limited to, all claims beginning from the period of application through cessation of employment at Company and any post-termination claims and all related claims against managers, by binding arbitration . . . By signing this Agreement, Individual and the Company waive their right to commence, be a party to, or [act as a] class member [in, any class] or collective action in any court action against the other party relating to employment issues. Further, the parties waive their right to commence or be a party to any group, class or collective action claim in arbitration or any other forum. The parties agree that any claim by or against Individual or the Company shall be heard without consolidation of such claim with any other person or entity’s claim."

Several employees, including Sheila Hobson, who signed the agreement when she applied to work at Murphy, filed a putative FLSA collective action in an Alabama federal district court, alleging overtime and other wage and hour violations. Murphy filed a motion to compel arbitration of the claims and dismiss the collective action based on the mandatory arbitration agreement. Murphy continued petitioning to enforce the arbitration agreement during several court proceedings over 18 months. In 2011, Hobson filed a ULP charge (and the NLRB's Acting General Counsel authorized issuing a ULP complaint), alleging that Murphy violated Section 8(a)(1) of the NLRA by requiring employees to sign an agreement that:

Prohibited them from exercising their Section 7 right to concertedly litigate employment-related claims.
Would reasonably be interpreted by employees to prohibit them from filing ULP charges with the NLRB.

In 2012, Murphy revised its arbitration agreement, adding a paragraph which stated:

"Notwithstanding the group, class or collective action waiver set forth in the preceding paragraph, Individual and Company agree that Individual is not waiving his or her right under Section 7 of the National Labor Relations Act (“NLRA”) to file a group, class or collective action in court and that Individual will not be disciplined or threatened with discipline for doing so. The Company, however, may lawfully seek enforcement of the group, class or collective action waiver in this Agreement under the Federal Arbitration Act and seek dismissal of any such class or collective claims. Both parties further agree that nothing in this Agreement precludes Individual or the Company from participating in proceedings to adjudicate unfair labor practices charges before the National Labor Relations Board (“NLRB”), including, but not limited to, charges addressing the enforcement of the group, class or collective action waiver set forth in the preceding paragraph."

The federal district court granted Murphy's motion to compel arbitration and ordered that Hobson's lawsuit be stayed pending arbitration.

In the NLRB proceeding, the NLRB's General Counsel filed an amended complaint adding a claim that Murphy interfered with the employees' Section 7 rights by seeking to enforce the arbitration agreement to restrict employees' exercise of Section 7 rights.

The issues in this NLRB case are not novel.

In its January 3, 2012 decision in D.R. Horton, Inc., the Board held that requiring employees, as a condition of employment, to sign an arbitration agreement prohibiting them from filing collective or class actions for employment-related claims violates the NLRA. The NLRB also held that its decision did not conflict with the Federal Arbitration Act (FAA). (See Legal Update, Mandatory Arbitration Agreement Prohibiting Class and Collective Actions Violates the NLRA: NLRB.)

In a December 3, 2013 opinion in D.R. Horton, Inc. v. NLRB, the US Court of Appeals for the Fifth Circuit granted the employer's petition to review the NLRB order invalidating the arbitration agreement's waiver of class procedures, finding, contrary to the NLRB, that there is no substantive NLRA right for employees to pursue legal claims through class actions. The NLRB declined to petition the Supreme Court for certiorari by the July 16, 2014 deadline to challenge the Fifth Circuit's substantive decision and later decision to decline the NLRB's request for a full panel review of the substantive decision. (See Legal Update, FAA Trumps NLRA in D.R. Horton Class Action Waiver Challenge: Fifth Circuit.)

In Murphy Oil USA, the parties waived a hearing before an NLRB administrative law judge and agreed to submit the case directly to the Board.

Outcome

The Board:

Endorsed its previous decision in D.R. Horton, Inc.(357 N.L.R.B. slip op. 184 (Jan. 3, 2012)).
Disagreed with the Fifth Circuit's holding in D.R. Horton, Inc. v. N.L.R.B. (737 F.3d 344 (5th Cir. 2013)).
Concluded that Murphy's arbitration agreements violated Section 8(a)(1) of the NLRA and are invalid.
Concluded that Murphy's efforts to enforce the arbitration agreement also violated Section 8(a)(1).

In reaffirming the principles it set out in D.R. Horton, the Board noted that:

Mandatory arbitration agreements which include waivers of class, collective or joint claims, restrict an employee's substantive NLRA right to act concertedly for mutual aid or protection.
The Board and many courts have held that employer-imposed agreements that require employees to pursue employment claims individually, violate the NLRA.
Finding a mandatory arbitration agreement that prevents employees from bringing class, collective or joint claims in any forum unlawful does not conflict with the Federal Arbitration Act (FAA).

(D.R. Horton, 357 N.L.R.B. slip op. 184.)

The Board recognized that the NLRA does not create a right to class certification, but rather a right to pursue class (or collective or joint) claims without employer-imposed restrictions.

The Board noted that it was not bound to acquiesce to any court's interpretation of the NLRA in subsequent proceedings not involving the same parties besides the Supreme Court (see Enloe Med. Ctr. v. NLRB, 433 F.3d 834, 838 (D.C. Cir. 2005) and identified Fifth Circuit analysis and conclusions to which it disagreed, including that:

The Fifth Circuit gave too little weight to the national labor policy that workers may work collectively to improve their working conditions.
The Fifth Circuit failed to reflect that the Board must accommodate both the NLRA and the FAA. NLRA rights would be compromised by the implementation of the policy of the Fifth Circuit which:
- viewed the NLRA too narrowly; and
- viewed the FAA too broadly.
The Fifth Circuit failed to recognize that the right to engage in concerted or collective action is:
- a substantive, not merely procedural, right; and
- the most significant right protected by the NLRA.
All Section 7 rights are collective and substantive rights (Emporium Capwell Co. v. Western Addition Community Org., 420 U.S. 50, 62 (1975)).
The NLRA is different from other federal employment statutes, as it protects joint employee action rather than individual action.
Section 10(a) of the NLRA prohibits all arbitration provisions containing collective or class action waivers because they restrict protected concerted activity that would not be allowed if it was not in an arbitration agreement.
The Fifth Circuit held that the FAA requires arbitration agreements to be enforced according to their terms unless one of two exceptions is met:
- an arbitration agreement is invalid under the grounds recognized under the savings clause of the FAA; or
- another statute's contrary congressional command precludes application of the FAA.
The Board held that both exceptions applied when addressing the enforceability of mandatory arbitration agreements, noting that:
- the mandatory arbitration agreement is invalid under the FAA's savings clause, as the Supreme Court has held that any individual employment contract that bars an employee's Section 7 rights is unlawful (National Licorice Co. v. NLRB, 309 U.S. 350, 361 (1940); J.I. Case Co. v. NLRB, 321 U.S. 332, 337 (1944)); and
- In D.R. Horton the Board was correct that Section 7 of the NLRA is a contrary congressional command overriding the FAA. The broad language of the Section 7 authorizes the right to engage in concerted legal activity.
The Fifth Circuit failed to explain either how enforcing the mandatory arbitration agreement with class action waivers could be reconciled with the NLRA or why the FAA should preempt the NLRA. The Board had interpreted both laws in a way that permits them to coexist.
The Fifth Circuit was incorrect when it concluded that there is no conflict between the NLRA and the FAA, as it fails to recognize that the allowance, under the NLRA, of arbitration provisions that are collectively bargained differs from the allowance of arbitration provisions that are mandatorily imposed by an employer (in direct contrast with the NLRA's purpose).

The Board acknowledged that the US Court of Appeals for the Eighth and Second Circuits found the Board's decision in D.R. Horton unpersuasive, but discounted those opinions for not providing significant legal analysis (Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297–298 fn. 8 (2d Cir. 2013); Owens v. Bristol Care, Inc., 702 F.3d 1050, 1053–1054 (8th Cir. 2013).

In dissent, Member Miscimarra argued that:

There is no support for the conclusion that Congress through the NLRA gave the Board authority to dictate how other agencies or courts must adjudicate non-NLRA claims.
Section 9(a) of the NLRA protects the right of individual employees and their employer to enter into agreements to adjust claims on an individual basis, including agreements which waive class or collective rights.
The FAA precludes the Board from deeming invalid all class waivers in employment agreements with arbitration clauses.

In a separate dissent, Member Johnson argued that:

The Board majority:
- punished Murphy for attempting to enforce its arbitration agreement according to its terms;
- ignored 40 federal and state courts that have disagreed with the Board's previous interpretation of "laws outside its expertise;"
- failed to respect the principles that the circumstances of an arbitration hearing can be governed by individual arbitration agreements and are the concern of the arbitrator or court, not the Board; and
- used faulty logic to conclude that employees have a substantive (rather than procedural) Section 7 right to collective and class action procedures for workplace claims and that any arbitration agreement that restricts employees' collective action rights violates the NLRA and is void.
National policy favors arbitration (Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)).
When reaching the D.R. Horton and Murphy Oil USA decisions, the following findings by the majority used faulty logic:
- the NLRA's text is silent about the FAA and certainly does not command that the NLRA override the FAA's mandate that arbitration agreements be enforced according to their terms. This silence indicates that the NLRA does not conflict with the FAA;
- the Board majority's conclusion that the FAA cannot allow an agreement containing a class or collective action waiver because it constitutes a waiver of Section 7 rights would allow Section 7 to engulf the FAA;
- the Board majority cannot rewrite claim litigation procedures under other federal statutes by labeling them as Section 7 rights. Section 7 does not create a "procedural superhalo" authorizing class or collective actions where Congress and courts would not;
- Section 8 permits some limits on Section 7 activity and would permit employees to agree to those restrictions; and
- the Board cannot subordinate all other federal statutes to the NLRA.

Practical Implications

The Board maintains its stance that a mandatory arbitration agreement that contains a waiver of collective or class action violates the NLRA by restricting an employee's right to concerted activity. The Board opted not to acquiesce to the Fifth Circuit's adverse decision in D.R. Horton, Inc. v. N.L.R.B. and used this decision to refine and supplement arguments that were not successful in the Fifth Circuit. In light of the Board's decision, employers must continue to weigh the costs and benefits of requiring employees who are covered by the NLRA to enter arbitration agreements that include class action waivers. The NLRB may be rebuffed by several more courts of appeals before it acquiesces or seeks a fully-binding analysis by the Supreme Court.

UPDATE

In Epic Systems Corp. v. Lewis, the US Supreme Court held that arbitration agreements with class and collective action waivers are not prohibited under Section 7 of the NLRA and must be enforced as written under the Federal Arbitration Act (FAA). The decision invalidates the NLRB's analysis in Murphy Oil. (( (U.S. May 21, 2018); see Legal Update, SCOTUS: Arbitration Agreements with Class Action Waivers Must Be Enforced as Written, and NLRA Does Not Command Otherwise and Article, Expert Q&A on Class Action Waivers in the Employment Context.)

NLRB Redoubles Stance that Mandatory Arbitration Clauses Waiving Employees' Rights to Pursue Class or Collective Actions Violate the NLRA | Practical Law