In On Assignment Staffing Services, Inc., the National Labor Relations Board (NLRB) held that an opt-out provision did not save an arbitration agreement with a class action waiver from being a mandatory condition of employment, unlawful under D. R. Horton and Murphy Oil.
On August 27, 2015, in On Assignment Staffing Services, Inc., the panel (Board) heading the NLRB's judicial functions held that an arbitration agreement with a class action waiver was an unlawful mandatory condition of employment even though it contained an opt-out provision for employees. The Board found that the non-union employees' ability to opt-out of the agreement did not render the agreement lawful and that the employer's prescribed opt-out procedure itself interfered with employees' Section 7 rights. (362 N.L.R.B. slip op. 189 (Aug. 27, 2015.)
Background
The employer maintained a Dispute Resolution Agreement and required that its employees sign a form acknowledging their receipt of the agreement. The agreement:
Provided that all employment-related disputes (including termination of employment) were subject to binding arbitration and could not be brought to court.
Contained a class action waiver precluding employees from bringing class or collective actions.
Gave employees an opportunity to opt out of the agreement within ten days of receiving it. Employees desiring to opt out of the agreement were required to follow a specified procedure, including returning an opt-out certification form. If an employee did not exercise the opt-out option by following the required procedure, the employee was bound by the agreement with its mandatory arbitration clause and class action waiver.
In addition to providing employees with the agreement and the acknowledgment form, the employer also provided employees a cover letter:
Explaining:
the nature of arbitration;
the class waiver;
the 10-day opt-out procedure;
how the Agreement affected employees' rights; and
that employees were free to have an attorney review the agreement prior to deciding whether to opt out.
Containing statements about arbitration being less costly and more efficient than litigation.
Reiterating that a failure to opt out meant that the binding arbitration and class action waiver provisions in the agreement would take effect.
The Board previously held that employers violate the NLRA by requiring employees, as a condition of employment, to sign an arbitration agreement that precludes them from pursuing class or collective actions in court to address their wages, hours, or other working conditions (Murphy Oil USA, Inc., 361 N.L.R.B. slip op. 72 (Oct. 28, 2014); D. R. Horton, Inc., 357 N.L.R.B. slip op. 184 (Jan. 3, 2012)). With this case, the Board addressed whether an arbitration agreement with a class action waiver:
Is an unlawful mandatory condition of employment under D. R. Horton and Murphy Oil.
Would be unlawful, even if the agreement were not mandatory.
Outcome
The Board majority (Chairman Pearce and Member McFerran) held that:
The employer's arbitration agreement containing an opt-out provision:
was an unlawful mandatory condition of employment; and
did not cease to be an unlawful mandatory condition of employment because employees could opt out of it.
The opt-out option did not save the unlawful arbitration agreement and the opt-out procedure itself was an unlawful mandatory condition of employment burdening employees in exercising their Section 7 rights.
The Board majority found that:
The 10-day opt-out procedure did not:
make employee participation in the arbitration agreement voluntary; and
place the agreement outside the scope of prohibited mandatory arbitration agreements under D. R. Horton.
The opt-out procedure interfered with employees' Section 7 rights by requiring employees to:
take affirmative steps prescribed by the employer including filling out and sending or mailing the opt-out form within a specific timetable in order to retain their Section 7 rights;
obtain their employer's permission to engage in protected concerted activity;
make an observable choice revealing their support for, or rejection of, protected concerted activity; and
decide whether or not to leave their employer with a permanent written record that they chose to opt out.
Employees would reasonably construe their choice to opt out as rejecting the employer's strong preference that they sign the agreement and forever waive their Section 7 right to litigate employment claims concertedly against the employer.
Even if an arbitration agreement were not a condition of employment because the employer permitted employees to reject the agreement entirely without needing to opt out, that kind of an agreement would still be unlawful because:
an agreement that prohibits employees from pursuing protected concerted activity represents a prospective waiver of Section 7 rights;
the Board and the US Supreme Court have struck down agreements that require employees to prospectively waive their Section 7 rights or prevent employees from exercising Section 7 rights; and
extending the D. R. Horton and Murphy Oil rule to arbitration agreements that are not conditions of employment is consistent with both the Federal Arbitration Act and the Norris-LaGuardia Act.
Class action waivers in arbitration agreements do not violate the NLRA and should not be found invalid in the first place.
Section 7 does not protect employees' ability to pursue litigation using particular types of procedures like class actions and collective actions.
Arbitration agreements that permit employees to opt-out and remain employed cannot accurately be found "mandatory conditions of employment."
Practical Implications
The Board's decision in On Assignment Staffing extends D. R. Horton and Murphy Oil to arbitration agreements that allow employees to opt-out. The majority equates granting employees the options not to resolve employment disputes through arbitration and not to limit claims to individual claims with requiring employees to seek permission to engage in concerted activity. It is becoming clearer that the Board majority is unlikely ever to find an agreement to arbitrate employment disputes or waivers of class or collective actions lawful.