About Us  |  About Cheetah®  |  Contact Us

NLRB reaffirms rationale of D.R. Horton, finds collective arbitration ban violates NLRA

By Ronald Miller, J.D.

Reaffirming its rationale set forth in D. R. Horton, a divided five-member panel of the NLRB held that an employer acted unlawfully by requiring its employees to agree to resolve all employment-related claims through individual arbitration, and by taking steps to enforce the unlawful agreements in federal district court when an employee and three coworkers filed a collective FLSA claim against the employer. Concluding that D.R. Horton was correctly decided (notwithstanding a Fifth Circuit determination to the contrary), the Board majority determined that the arbitration agreements at issue here violated NLRA, Section 8(a)(1), and that efforts to enforce the agreements were also unlawful. Members Miscimarra and Johnson filed separate dissenting opinions (Murphy Oil USA, Inc, October 28, 2014).

Collective action. The employer operates over 1,000 retail gas stations in 21 states. Prior to March 6, 2012, the employer required all job applicants and current employees, as a condition of employment, to execute a binding arbitration agreement. The employee in this action signed the agreement when she applied for employment in November 2008. In June 2010, the employee and three coworkers filed a collective action alleging violations of the FLSA. The complaint alleged that the employer failed to compensate the plaintiffs for overtime and for various required work-related activities performed off the clock. In response, the employer filed a motion to compel the plaintiffs to arbitrate their claims on an individual basis and to dismiss the FLSA collective action.

The employee filed an unfair labor practice charge with the NLRB and a complaint was issued alleging that the employer violated Sec. 8(a)(1) of the NLRA by maintaining and enforcing a mandatory arbitration agreement. According to the NLRB General Counsel, the agreement violates Sec. 8(a)(1) because it prohibits employees from exercising their Section 7 right to litigate employment-related claims concertedly, and because it would lead employees reasonably to believe that they were prohibited from filing unfair labor practice charges with the Board. Moreover, by seeking to enforce the agreement through its motion to dismiss their collective action and compel individual arbitration of their claims, the General Counsel contended that the employer further interfered with the employees’ Sec. 7 rights.

On the other hand, the employer contended the Board should reconsider and overrule D.R. Horton and that in any event, its agreement did not restrict employees in the exercise of their Sec. 7 right to engage in collective legal activity. Rather, the employer argued, the agreement preserved employees’ rights under the Act.

D.R. Horton revisited. Despite the Fifth Circuit’s decision rejecting D.R. Horton, the majority stated that it would adhere to its essential rationale for protecting workers’ core substantive right under the NLRA. It disagreed with the Fifth Circuit’s reasoning in applying a framework derived from the Supreme Court’s Federal Arbitration Act jurisprudence. Invoking the Supreme Court’s decision in AT & T Mobility LLC v. Concepcion, the appeals court had ruled that the Board’s interpretation of the FAA “savings clause” had the impermissible effect of “disfavoring arbitration.” Second, the appeals court concluded that the NLRA did not “contain a congressional command to override the FAA.” However, according to the Board majority, the Fifth Circuit gave too little weight to national labor policy, and viewed the NLRA and its policies much more narrowly than the Supreme Court has done.

According to the majority, the Fifth Circuit understood D. R. Horton as simply another in a series of cases to be decided under the established framework of the Supreme Court’s FAA jurisprudence, and not as a case presenting novel questions. The court’s first step was to determine that the pursuit of legal claims concertedly is not a substantive right under Sec 7. However, the majority declined to accept that conclusion because it violates the long-established understanding of the NLRA and national labor policy.

Treatment of Norris-LaGuardia. Also troubling to the majority was the Fifth Circuit’s treatment of the Norris-LaGuardia Act (NLGA). Although the Board’s decision in D.R. Horton was grounded in NLRA, Sec. 7, the majority concluded that it was entirely appropriate for the Board to look to the NLGA both in identifying federal labor policy and in seeking an accommodation between federal labor policy and the federal policy favoring arbitration. Thus, the majority was not persuaded by the Fifth Circuit’s view that, in issuing D.R. Horton, the Board erred.

Next, the majority examined the Eighth Circuit’s decision in Owen v. Bristol Care, a ruling also endorsed by the Second Circuit. Without referring to the Board’s analysis in D. R. Horton, the Eighth Circuit rejected an employee argument based on the NLGA, observing that the 1947 “decision to reenact the FAA suggests that Congress intended its arbitration protections to remain intact even in light of the earlier passage of three major labor relations statutes.” The Board majority found this conclusion untenable. It argued that the Board is entitled to some deference as the primary interpreter of federal labor law. Further, the Board’s understanding of federal law outside the NLRA may in fact be correct, regardless of whether deference is claimed by the Board or owed by the courts, argued the majority.

Easy ruling. Having reaffirmed the rationale and holding of D.R. Horton, the majority concluded the case at hand was easily disposed of. It found that the agreement violated Sec. 8(a)(1) because it explicitly prohibited employees from concertedly pursuing employment-related claims in any forum. By virtue of the agreement, the employer conditioned employment on a waiver of employees’ right “to commence, be a party to, or act as a class member in, any class or collective action in any court action . . . relating to employment issues.” Because the agreement limited the resolution of all employment-related disputes to binding individual arbitration, it clearly barred employees from exercising their Sec. 7 right to pursue collective litigation of employment-related disputes in all forums.

Moreover, the employer’s effort to enforce its unlawful agreements further violated Sec. 8(a)(1). Specifically, the employer acted unlawfully by enforcing the agreement through its motion to dismiss the collective action and to compel employees to arbitrate their FLSA claims individually. The Board found unavailing the employer’s contention that the First Amendment, as construed by the Supreme Court in BE & K Construction Co. v. NLRB, prevented the agency from finding that the employer violated the Act by litigating its motion in court. The First Amendment protects the right to petition the government for redress of grievances; however, in Bill Johnson’s Restaurants v. NLRB, the Supreme Court carved out an exception for two situations in which a lawsuit enjoys no First Amendment protection: (1) where the action is beyond a state court’s jurisdiction because of federal preemption; and (2) where a lawsuit “has an objective that is illegal under federal law.” Thus, the Board may restrain litigation efforts that have an illegal objective even if those efforts are “otherwise meritorious.” Here, the Board found that the employer acted with an illegal objective when it moved to compel arbitration of the employees’ FLSA claims and to dismiss their collective action.

Partial dissent. In a partial dissent, Member Miscimarra observed that the NLRA coexists in a broad array of federal and state statutes, and that the majority’s decision treated the NLRA as the protector of “class” action procedure under all laws. While Miscimarra agreed that the NLRA affords protection to two or more employees acting in concert, he disagreed with the majority’s holding here and with its holding in D.R. Horton that Sec. 8(a)(1) prohibits employees and employers from entering into agreements that waive “class” procedures in litigation or arbitration.

Dissent. Member Johnson, in a separate dissenting opinion, argued that the majority’s ruling punished the employer for attempting to enforce an arbitration agreement according to its terms. Johnson observed that while the NLRA protects employees when they act concertedly and when they walk together into the door of the courthouse or the arbitration hearing, under the FAA, what happens there is the business of the court or the arbitrator, and may legitimately be governed by individual arbitration agreements like those at issue in this case.