Just last week, in the case GameStop Corp., a National Labor Relations Board (NLRB) administrative law judge applied recent Board precedent and ignored contrary cases from federal courts to find an employer’s arbitration agreement was unenforceable because it waived the right of employees to bring class or collective actions. While the decision has yet to be approved by the NLRB itself (parties can appeal ALJ decisions to the NLRB), it illustrates the continuing tension in this area between the NLRB (which disfavors class action waivers in employee arbitration agreements) and the federal courts (which favor them).
As we have reported, U.S. federal courts continue to hold that employees may enter into arbitration agreements in which they waive the right to file class or collective action claims. The U.S. Supreme Court put its stamp of approval on such waivers in 2011 in the blockbuster case AT&T v. Concepcion, holding that the enforceability of arbitration agreements was governed by the Federal Arbitration Act (FAA), which preempted any state law purporting to regulate arbitration agreements, including arbitration agreements with class action waivers. Building on a decades-long line of cases steadily increasing support for the concept of arbitration and similar alternative dispute resolution (“ADR”) methods for resolving litigation, Concepcion also held decisively that arbitration agreements could include waivers by the parties of the right to bring lawsuits as class actions. The U.S. Supreme Court has re-affirmed Concepcion in subsequent decisions.
The NLRB Picks A Fight With the U.S. Supreme Court. Who Do You Think Will Win?
Concepcion was a consumer class action case involving a class action waiver in a cell phone service agreement between a customer and cell phone provider. But the Court’s reasoning left little doubt among employment law experts that the decision could apply to employment arbitration agreements as well. One employment expert did take exception to Concepcion, however: namely, the NLRB. In early 2012, the NLRB issued its controversial opinion in the case D.R. Horton, which held that, despite Concepcion, a class action waiver in an employment agreement was unenforceable because it violated federal labor laws that protect employees’ right to engage in concerted or collective action to advocate for the improvement of working conditions. While such “concerted action” typically has meant the right to form labor unions, in D.R. Horton, the NLRB held that filing class action discrimination or wage and hour lawsuits was a form of “concerted action” that could not be infringed upon or waived in an arbitration agreement.
D.R. Horton put the NLRB directly at odds with the U.S. Supreme Court and put employers in a difficult spot. On the one hand, the U.S. Supreme Court approved of the use of class action waivers in arbitration agreements, and many employers were eager to use them in employment agreements to help reduce the exposure to costly class action litigation, especially wage and hour class actions, which have been steadily on the rise over the past decade. On the other hand, according to the NLRB, such waivers constitute a violation of federal labor law.
Right Answer: The U.S. Supreme Court.
Many employment law experts believe that D.R. Horton was based on shaky legal reasoning and would likely eventually be overturned by the federal courts. In fact, lower federal trial courts have almost uniformly ignored D.R. Horton, and relying on Concepcion and related cases have continued to find that employment agreements with class action waivers can be fully enforceable under the FAA. Employers got an additional boost over the past few weeks, when Ernst & Young’s employee class action arbitration waiver was upheld by both the Second and Ninth Circuits. See Sutherland v. Ernst & Young LLP, 2013 U.S. App. LEXIS 16513 (2d Cir. N.Y. Aug. 9, 2013) Richards v. Ernst & Young, LLP, 2013 U.S. App. LEXIS 17488 (9th Cir. Cal. Aug. 21, 2013). Those cases follow another similar decision from the Eighth Circuit in January of this year in Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. Mo. Jan. 7, 2013) (affirming enforceability of class action waiver precluding FLSA collective action lawsuit and finding D.R. Horton “carries little persuasive authority.”)
So while the NLRB may be sticking to its guns for the moment in GameStop Corp., time may be on the side of employers hoping that Concepcion will carry the day. It is unlikely that the NLRB’s GameStop Corp. decision or D.R. Horton will continue to stand for long in light of the overwhelming and growing body of contrary law in the federal courts, which for most purposes trump the NLRB in the federal judicial pecking-order. (The D.R. Horton decision itself is being reviewed by the Fifth Circuit Court of Appeals, with a decision expected soon.) While employers should be aware of the continuing tension and flux over the enforceability of class action wavers in employee arbitration agreements, the developing weight of the law continues to shift in favor of enforceability. Employers who wish to lower the risk of exposure to very costly and time-consuming class action litigation, particularly wage and hour collective or class actions, may wish to consider using arbitration agreements with appropriate class action waivers.