Executive Summary: Two recent decisions illustrate the tension between the National Labor Relations Board (NLRB) and courts created by the Board's decision in D.R. Horton, which held that an employer violated the National Labor Relations Act (NLRA) when it required employees to sign an agreement that precluded them from filing joint, class, or collective claims regarding wages, hours or other working conditions against the employer in any forum, arbitral or judicial. In Johnson v. TruGreen Ltd. Partnership, a federal district court in Texas rejected the Board's analysis in Horton, noting that the Board misinterpreted Gilmer v. Interstate/Johnson Lane Corp., a leading U.S. Supreme Court decision upholding the federal policy favoring arbitration. See Johnson v. TruGreen Ltd. Partnership, Cause No. A-12-CV-166-LY (October 25, 2012). Not surprisingly, on the very same day, an NLRB administrative law judge (ALJ) followed Horton and held that a class action waiver in an employment application violated Section 8(a)(1) of the NLRA. See Convergys Corp., Case 14-CA-075249 (October 25, 2012).
Federal Trial Court Refuses to follow Horton – Finds Board Misread Gilmer
In TruGreen, the court rejected the plaintiffs' challenge to a class action waiver contained in the employer's alternative dispute resolution (ADR) program, finding Horton unpersuasive because the Board misread the Supreme Court's decision in Gilmer.
In TruGreen, the plaintiffs were employed as lawncare technicians and telemarketers. TruGreen had an alternative dispute resolution (ADR) program that required employees to arbitrate all employment-related disputes. The ADR program also contained a class-action waiver provision, pursuant to which all participating employees agreed to waive any right to bring any dispute as a class, collective or representative action.
The plaintiffs filed a collective action against TruGreen in federal court, claiming the company violated the Fair Labor Standards Act (FLSA) by compensating them on a fluctuating workweek basis. In response, TruGreen filed motions requesting the court dismiss the action, compel individual arbitration and strike the class action claims. The court granted TruGreen's motions.
Arbitration Agreement Enforceable
The court found that the arbitration agreement was valid and enforceable and that the plaintiffs' FLSA claims fell within the scope of the agreement. The court noted that it is well-settled that FLSA claims are subject to arbitration and, as long as the plaintiffs are able to vindicate their statutory cause of action under the FLSA, the arbitration agreement is enforceable.
Class Action Waiver Valid
The court also found valid the class-action waiver contained in the employer's ADR policy. The court rejected the plaintiffs' argument that the class-action waiver was unenforceable based on the Board's decision in Horton, noting that, until Horton, courts had uniformly enforced arbitration agreements containing class-action waivers under the Federal Arbitration Act (FAA), even those governing the employer-employee relationship. Although it acknowledged that two federal trial courts have followed Horton, the court found the reasoning of those decisions unpersuasive in light of Fifth Circuit and U.S. Supreme Court precedent upholding the enforcement of arbitration agreements as written. Additionally, although not cited in TruGreen, state courts have also refused to follow Horton. See, e.g., Nelsen v. Legacy Partners Residential, Inc., 207 Cal. App. 4th 1115, modified and rehearing denied, 2012 Cal App LEXIS 876 (Cal. App. 1st Dist. August 14, 2012). The California Supreme Court denied review in Nelsen on October 31, 2012.
The court in TruGreen further held that it is not required to defer to the NLRB's interpretation of law outside the NLRA "for good reason." According to the court, the Board in Horton misread Gilmer and inquired whether the plaintiff could vindicate his statutory rights arising under the NLRA even though the statutory cause of action at issue was the FLSA. Under Gilmer, the question is not how arbitration affects all statutory rights somehow related to the plaintiff's cause of action; it is whether the "statutory cause of action" forming the basis of a plaintiff's lawsuit may be vindicated in the arbitral forum. The court wrote: "Had the Board looked to the correct statute, the FLSA, it would have been required to follow governing precedent and find the plaintiff's claims arbitrable." Thus, the court rejected the plaintiffs' argument that the collective-action waiver required them to forego the NLRA's substantive protections in violation of the principles set forth in Gilmer.
The court also noted that the U.S. Supreme Court has written extensively on the incompatibility of class procedures with arbitration, citing the Court's decision in AT&T Mobility LLC v. Concepcion. In light of this precedent strongly favoring the enforcement of arbitration agreements as written, the court found Horton's interpretation of the FAA "extremely suspect."
Thus, absent any binding authority from the Fifth Circuit or the Supreme Court adopting the reasoning in Horton, the court followed current precedent and enforced the arbitration agreement as written, upholding the class-action waiver and requiring the plaintiffs to individually arbitrate their FLSA claims.
The NLRB Follows Horton
In Convergys Corp., an ALJ followed Horton and found that the employer violated the NLRA by: including a class action waiver in its employment application; filing a motion to strike the plaintiffs' class and collective allegations; and defending against these allegations on the basis of the waiver.
In Convergys, the plaintiff, Grant, was a customer service representative who filed an FLSA collective action against the employer for unpaid wages. When she was hired, Grant signed an employment application that included a waiver of the right to a jury trial, a waiver of any statute of limitations longer than six months, and a class action waiver. In response to Grant's complaint, the employer filed a motion to strike the class and collective actions in the FLSA suit, relying on the waiver contained in the employment application.
The NLRB regional director then issued a complaint against Convergys, claiming the employer violated Section 8(a)(1) by requiring job applicants to waive their rights to file collective lawsuits, by enforcing these waivers, by filing the motion to strike the class and collective allegations of Grant's suit, and by defending against the class and collective allegations of Grant's suit on the basis of the waiver she signed.
The ALJ stated that he was bound to follow the NLRB's decision in Horton, which is on appeal to the Fifth Circuit. Because the facts in Convergys were not materially distinguishable from those in Horton, the ALJ found that Convergys violated the NLRA. Although Horton involved a mandatory arbitration agreement rather than a lawsuit that waived employees' rights to bring class or collective actions, the ALJ found it dispositive of Convergys because the Board's order specifically required the company to cease and desist from "maintaining a mandatory arbitration agreement that waives the right to maintain class or collective actions in all forums, whether arbitral or judicial."
The ALJ rejected the employer's argument that Horton does not apply because Grant was a job applicant, not an employee, when she signed the job application. According to the ALJ, "applicants for employment are employees within the meaning of section 2(3) of the NLRA." Additionally, the ALJ noted that Grant was working for the employer when she exercised the right found by the Board in Horton to file a class action lawsuit.
The ALJ also held that Horton stands for the proposition that employers are free to assert arguments against class certification other than those based on the kind of waiver signed in this case. "D.R. Horton does not prevent an individual employee from a non-coercive waiver of his or her right to participate in a class action lawsuit. It does hold a waiver obtained by the employer as a condition of employment to be a violation of the NLRA."
Employers' Bottom Line:
Employers will continue to find the Board challenging mandatory arbitration agreements that contain class action waivers; however, most federal courts, such as the one in TruGreen, have refused to follow Horton, recognizing the deficiencies in the Board's analysis. Horton is on appeal to the Fifth Circuit; thus, employers may soon have more guidance on the impact of the Board's decision. However, the NLRB has consistently held that it is not bound by U.S. Circuit Court of Appeals decisions; rather, it is bound only by U.S. Supreme Court decisions and previous NLRB decisions. Therefore, while the Fifth Circuit may decide the case in D.R. Horton's favor, that may not necessarily end the litigation over this issue.
If you have any questions regarding the issues discussed in this Alert or other labor or employment related issues, please contact the FordHarrison attorney with whom you usually work.