The Continuing Struggle over Class Action Waivers in Employment Arbitration

Robert Arrington[1]

Many employers now have company sponsored employee dispute resolution plans, in which all employees are required to agree to submit employment disputes to binding arbitration. Most such agreements prohibit employees from filing class actions. For the past several years, these provisions have been under attack from the National Labor Relations Board. It appears this controversy may soon be resolved. The manner in which it will be resolved is important because many employers who now maintain such plans will not continue to do so if class claims cannot be waived.

Section 7 of the National Labor Relations Act (“the NLRA”), 29 U.S.C.§ 157, provides, in pertinent part, that “[e]mployees shall have the right…to engage in…concerted activities for the purpose of collective bargaining or other mutual aid or protection.” (Emphasis supplied.) Interference with Section 7 rights is an unfair labor practice under Section 8 of the NLRA. 29 U.S.C. §158(a)(1).

D.R. Horton, Inc. (‘D.R. Horton”) employed Michael Cuda as a superintendent during 2005 and 2006. D.R. Horton required all of its employees to execute a Mutual Arbitration Agreement (“the MAA”), which provided that all claims arising out of the employment relationship would be resolved by binding arbitration, and, as is common in such agreements, prohibited arbitrators selected pursuant to it from entertaining class or collective claims. In 2008, Cuda hired counsel who filed a demand for arbitration of alleged wage and hour misclassification on a collective basis. Relying on the plain language of the arbitration clause, D.R. Horton declined to arbitrate Cuda’s claim other than on an individual basis.

Cuda filed a charge of unfair labor practice against D.R. Horton. An administrative law judge found the class action waiver did not violate Section 7. Cuda appealed that ruling to the National Labor Relations Board (“the Board”). The Board reversed the ALJ in D.R. Horton, Inc., 357 N.L.R.B. 184 (2012), holding that the adoption of a mandatory arbitration plan for employees containing a class and collective action waiver is an unlawful restraint of Section 7 rights. The Board relied on both the NLRA and the Norris-LaGuardia Act, 29 U.S.C. § 101 et seq., which also protects concerted activity. Id. at 2282.

 

D.R. Horton petitioned for review of this ruling by the United States Court of Appeals for the Fifth Circuit. In the meantime, two other circuits rejected the Board’s reasoning in D.R. Horton. Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013) and Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013)  The Fifth Circuit, closely following the reasoning of the Eight Circuit in Bristol Care, overturned the Board in 2013. D.R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344 (5th Cir. 2013).

The Fifth Circuit reaffirmed its holding in D.R. Horton in 2015. Murphy Oil USA, Inc. v. National Labor Relations Board, 808 F.3d 1013 (2015).  But the following year, the Seventh and Ninth Circuits sided with the Board, accepting its reasoning in D.R. Horton in all essential respects. See Lewis v. Epic Systems Corp., 823 F.3rd 1147 (7th Cir. 2016); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016).  Moreover, a panel of the Second Circuit held in 2016 that while it was bound by the holding in Sutherland, it found the reasoning in the Lewis and Morris cases persuasive. Patterson v. Raymours Furniture Company, Inc., 659 Fed. Appx. 40 (2d Cir. 2016).

The Supreme Court has granted certiorari to review the decisions in Murphy Oil, Lewis, and Morris. The cases have been consolidated. The question presented by all three is as follows:

Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in “concerted activities” in pursuit of their “mutual aid or protection” 29 U.S.C. 157, and are therefore unenforceable under the saving clause of the Federal Arbitration Act, 9 U.S.C.2.

 

The Court heard oral argument in these cases a few weeks ago. Court watchers think the Court is likely to uphold the class action waivers in the arbitration agreements at issue. But who knows? Stay tuned. We will provide a report when the Court rules. This may be later this year, or could be early in 2018.

Also watch for updates concerning the position of the Board itself, which may be about to change. Two new members have been appointed, and there are signals the “new” NLRB may alter its position.

[1] The author would like to thank John R. (Jack) Graham for his help with research and citations for this article. Jack is an Associate Attorney at Wilson Worley Moore Gamble & Stout PC: http://wwmgs.com/attorneys/jack-graham/.