Courts Reject NLRB’s Ruling That Arbitration Agreements Violate NLRA

by Morgan Lewis
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Three district courts to consider D.R. Horton have distinguished or rejected the NLRB's holding that it was a violation of the NLRA to condition employment on an agreement providing all employment disputes and claims would be resolved in arbitration.

On January 6, the National Labor Relations Board (Board or NLRB) ruled that home builder D.R. Horton's mutual arbitration agreement (MAA) violated the National Labor Relations Act (NLRA) because it required employees—as a condition of employment—to forgo class and collective action court and arbitration proceedings. D.R. Horton, Inc., 357 N.L.R.B. No. 184. In the two months since the NLRB issued its decision, several federal district courts have considered whether agreements similar to the MAA were invalid under the reasoning set forth in D.R. Horton. Thus far, every district court to consider D.R. Horton has refused to rely on it and upheld the arbitration agreement at issue.

Background

The D.R. Horton ruling invited potential legal challenges on several fronts, ranging from procedural questions as to whether the Board had the power to issue the decision at all, to more substantive questions regarding the NLRB's interpretation of the Federal Arbitration Act (FAA), the right of individuals to refrain from collective activity under Section 7 of the NLRA, and several other issues. Citing all of these issues and more, D.R. Horton has petitioned the Fifth Circuit for review of the NLRB's decision. The parties are currently awaiting a briefing schedule.

Many of the legal questions raised by D.R. Horton will remain unresolved at least until the Fifth Circuit has completed its review. The enforceability of class/collective action restrictions, however, is adjudicated much more often in the courts than before the NLRB, and the courts (especially federal courts) have been more receptive to the use and enforceability of mandatory arbitration and class/collective action restrictions. Indeed, three federal district courts asked to enforce arbitration agreements with class/collective action restrictions post–D.R. Horton have all granted enforcement while distinguishing or refusing to rely on the Board's decision.

Sanders v. Swift Transportation Co. of Arizona, LLC and Palmer v. Convergys Corp.

Magistrate Judge Nathanael M. Cousins of the Northern District of California granted a motion to compel arbitration of the individual claims of the plaintiff in a putative class action alleging that the defendant transportation company had violated California labor laws. Sanders v. Swift Transp. Co. of Ariz., LLC, --- F. Supp. 2d ---, No. 10-cv-03739, 2012 WL 523527 (N.D. Cal. Jan. 17, 2012). The plaintiff submitted a notice of supplemental authority arguing that the arbitration agreement he had signed (which contained class/collective action restrictions) was invalid under D.R. Horton, but the court held in a footnote that the Board's decision was inapposite and therefore was not considered in determining the motion to compel arbitration.

Less than a month later, in Palmer v. Convergys Corp., Judge Hugh Lawson of the Middle District of Georgia granted the defendants' motion to strike collective action FLSA allegations pursuant to class/collective action restrictions in an agreement signed by the plaintiffs. No. 7:10-CV-145 HL, 2012 WL 425256, at *3 (M.D. Ga. Feb. 9, 2012). The plaintiffs had argued in a notice of supplemental authority that the class/collective action restrictions violated the NLRA based on the Board's holding in D.R. Horton. The court acknowledged D.R. Horton in a footnote but declined to follow it because "it does not meaningfully apply to the facts of the present case."

Johnmohammadi v. Bloomingdales, Inc.

Finally, in Johnmohammadi v. Bloomingdales, Inc., Judge George H. Wu of the Central District of California was also asked to decide whether an arbitration agreement with class/collective action restrictions violated the NLRA based on the Board's holding in D.R. Horton. In a pair of tentative rulings that preceded an order compelling arbitration, Judge Wu provided the most in-depth analysis of any court to address D.R. Horton thus far. Johnmohammadi v. Bloomingdales, Inc., slip op., No. CV 11-6434 (C.D. Cal. Feb. 23, 2012). In the first tentative opinion, Judge Wu explained that he was inclined to find the arbitration agreement enforceable despite the plaintiff's reliance on D.R. Horton. Specifically, Judge Wu noted that the Board had explicitly limited its holding to situations where the arbitration agreement was a condition of employment, but the employees at issue in Bloomingdales were free to opt out of their arbitration agreements. Thus, the court did not have to rule on whether D.R. Horton was correctly decided because it was factually distinguishable.

In the second tentative opinion, Judge Wu considered whether the fact that the plaintiff had now filed an unfair labor practice charge with the NLRB deprived the court of authority to compel arbitration. Judge Wu explained that while the Board has "primary jurisdiction" over the NLRA, that does not deprive courts of the ability to determine whether a contract provision violates the NLRA, especially where the NLRA must be interpreted in conjunction with other statutes such as the FAA. Judge Wu held that while the court had discretion to stay a ruling on the motion to compel arbitration until the NLRB ruled on the plaintiff's charge, the better course was to compel arbitration because the court would not necessarily be required to defer to the NLRB even if it reached a different determination on the plaintiff's charge. Accordingly, Judge Wu granted the defendant's motion to compel arbitration.

Conclusion

The true impact of the NLRB's D.R. Horton ruling will not be determined at least until after the Fifth Circuit completes its review of the decision. The federal district courts' consistent rejection of D.R. Horton over the last two months, however, suggests that most courts are unlikely to deny enforcement of arbitration agreements with class/collective action restrictions or waivers based upon an argument that such restrictions or waivers violate the NLRA, particularly where the arbitration agreement was not entered into as a condition of employment.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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