On May 26, 2017, in National Labor Relations Board v. Alternative Entertainment, Inc., the US Court of Appeals for the Sixth Circuit enforced a National Labor Relations Board (NLRB) order and held that mandatory arbitration provisions that prohibit employees from bringing collective or class action suits are illegal under the National Labor Relations Act (NLRA). In so ruling, the Sixth Circuit deepened a circuit split on this issue ( (6th Cir. May 26, 2017).)

This case arose out of charges that James DeCommer, a former field technician for respondent Alternative Entertainment, Inc. (AEI), filed with the NLRB. DeCommer was fired on December 18, 2014 after repeatedly complaining to his managers, AEI officers, and fellow employees that AEI's recently revised pay structure would severely reduce his earnings and the earnings of his coworkers. AEI's employee handbook prohibited employees from discussing compensation or employee salary information.

In his NLRB complaint, DeCommer alleged that AEI's employment agreement, entitled Open Door Policy and Arbitration Program, violates the NLRA. The Arbitration Program compels employees, as a condition of employment, to sign mandatory arbitration agreements that prohibit collective or class action arbitrations and prevent employees from consolidating or joining with the claims of others. The administrative law judge ruled for DeCommer, finding that AEI's Arbitration Program violated the NLRA because it prevents employees from taking any concerted legal action, a core right under Section 7 of the NLRA (29 U.S.C. § 157). The NLRB adopted the ALJ's findings and, on March 30, 2016, the NLRB filed an application to the US Court of Appeals for the Sixth Circuit for enforcement of the ALJ order.

The Sixth Circuit granted the NLRB's application. The court held, in an question of first impression in the circuit, that an arbitration provision requiring employees to arbitrate all employment-related claims individually is unenforceable under both the NLRA and the Federal Arbitration Act (FAA). The court ruled that the provision violates the NLRA's guarantee of collective action, and is unenforceable under the FAA's savings clause.

The FAA states that arbitration agreements are valid "save upon such grounds as exist at law or in equity for the revocation of any contract" (9 U.S.C. § 2). Therefore, if an arbitration provision is illegal under law, then the FAA's savings clause renders that provision unenforceable.

Turning to the NLRA, a core right under the Act is Section 7's protection of employees' right to engage in "concerted activities" for the purpose of mutual aid or protection, which the Supreme Court held includes resorting to administrative or judicial forums. By forbidding concerted legal action in any forum, AEI's arbitration provision was illegal and could not be salvaged by the FAA due to the savings clause.

In ruling this way, the Sixth Circuit deepened a circuit split on this issue. The Seventh and Ninth Circuits held that arbitration provisions mandating individual arbitration of employment claims violate the NLRA and fall within the FAA's savings clause. The Fifth and Eighth Circuits reached the opposite conclusion. The Sixth Circuit specifically addressed the Fifth Circuit's ruling, disagreeing with the Fifth Circuit on two grounds:

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 D.R. Horton and Murphy Oil on which this decision relies and therefore abrogates much of the analysis in this case (( (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.)