D.R. Horton Still Alive: NLRB Judge Says Employer’s Intent to Compel Employees to Waive Class Claims Renders Arbitration Clause Unenforceable Even When there is No Explicit Waiver

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Although the Circuit Courts of Appeals that have addressed the issue currently stand united in the view that class arbitration waivers in individual employment contracts do not violate the National Labor Relations Act (“NLRA”), the National Labor Relations Board (“NLRB”) ruling to the contrary in D. R. Horton, Inc. and Michael Cuda, Case 12–CA–25764, 357 NLRB No. 184 (Jan. 3, 2012) continues to drive the invalidation of arbitration agreements in employment agreements.  On January 17, 2014, an NLRB Administrative Law Judge relied on the NLRB’s decision in D.R. Horton to find in Leslie’s Poolmart, Inc. and Cunningham, case 21–CA–102332, that the arbitration clause in an individual employment agreement is unenforceable even though there was no express class action/arbitration waiver in the arbitration clause at issue and even though the Fifth Circuit recently reversed the NLRB’s ruling in D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir.  Dec. 3, 2013), revised December 4, 2013.  See our previous post: “Loath to create a circuit split,” the Fifth Circuit Overturns NLRB’s D.R. Horton Ruling that Class Arbitration Waivers in Individual Employment Contracts Violate the NLRA.  The Leslie’s Poolmart ALJ held that, despite Circuit Court rulings to the contrary, the NLRB’s ruling in D.R. Horton is binding unless and until reversed by the U.S. Supreme Court.  The ALJ found the arbitration agreement and the defendant company’s motion to compel arbitration violations of the NLRA and ordered the company to cease and desist from maintaining and seeking court action to enforce “a mandatory and binding arbitration policy that, either expressly or impliedly, or by Respondent’s actions or practice, waives the right to maintain class or collective actions in all forums, whether arbitral or judicial.”

NLRB Precedent Remains Controlling.  The ALJ acknowledged that U.S. Supreme Court precedent has exhibited deference to arbitration agreements in accordance with the Federal Arbitration Act’s policy favoring arbitration.  However, the ALJ asserted that she must follow current NLRB precedent in the absence of Supreme Court precedent that reverses the NLRB, citing to NLRB decisions, including Waco, Inc., 273 NLRB 746, 749 fn. 14 (1984) (“We emphasize that it is a judge’s duty to apply established Board precedent which the Supreme Court has not reversed. It is for the Board, not the judge, to determine whether precedent should be varied”) (citation omitted).”

The Effect of the Agreement is Determinative Despite Silence on Class or Collective Actions.  The arbitration agreement in Leslie’s Poolmart did not contain an explicit waiver of class or collective actions.  However, the ALJ held that the arbitration agreement’s silence regarding class or collective actions was not determinative, given the defendant company’s attempt to compel arbitration of the plaintiff’s individual claims and to dismiss the class claims.  The ALJ reasoned: “While the arbitration agreement does not, on its face, prohibit collective or class action, it has the effect of doing so as evinced when Respondent, in moving to compel arbitration of his claims, sought to preclude Cunningham from filing a class action lawsuit and maintained that ‘arbitration is the elected and required forum for resolving [Charging Party’s] individual claims.’”  The ALJ found the Leslie’s Poolmart arbitration agreement indistinguishable from that in D.R. Horton, because “in practice, Respondent closed the avenue to pursue collective and/or classwide litigation when it sought to limit Cunningham and other similarly situated employees to arbitration of their individual claims.”

The Company’s Motion to Compel Violates the NLRA.  The ALJ found that the company’s filing of a motion to compel arbitration violated Section 8(a)(1) of the NLRA because the company’s “actions in enforcing its mandatory arbitration agreement (by filing a motion to compel in district court) interferes, restrains, or coerces Cunningham and similarly situated employees from exercising their substantive rights to file classwide litigation.”  The ALJ rejected the company’s argument that filing the motion to compel is a “constitutionally protected petitioning of the government under the First Amendment.”

Moving Forward.  Decisions by an NLRB Administrative Law Judge are appealable to the NLRB Board.  As such, the ALJ’s decision in this matter may be overturned by the NLRB Board on appeal, in accordance with the Fifth Circuit’s ruling in D.R. Horton.  Board decisions are appealable to the U.S. Circuit Courts of Appeals, and then the U.S. Supreme Court.  As the Fifth Circuit noted in its D.R. Horton decision:

Every one of our sister circuits to consider the issue has either suggested or expressly stated that they would not defer to the NLRB’s rationale, and held arbitration agreements containing class waivers enforceable. See Richards v. Ernst & Young, LLP, – F.3d — , No. 11-17530, 2013 WL 4437601, at *2 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297-98 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013).

Therefore, the viability of the ALJ’s decision in Leslie’s Poolmart is questionable.  That plaintiffs will continue to challenge the enforceability of arbitration agreements is a guarantee.  We will keep you posted on developments.