D.R. Horton on Steroids: NLRB Invalidates Arbitration Agreement Without Class Waiver

by BakerHostetler

As reported previously here, the National Labor Relations Board (“NLRB” or the “Board”) in D.R. Horton, Inc., 357 NLRB No. 184 (2012), held that requiring employees to enter into an arbitration agreement containing a class/collective action waiver violated the National Labor Relations Act (the “Act”) because the class action waiver inhibited employees from engaging in protected concerted activity. Now, an NLRB administrative law judge has found – relying upon D.R. Horton – that an employer’s arbitration agreement that did not contain an express prohibition on class or collective claims still ran afoul of the Act since the employer intended to prohibit such claims. Leslie’s Poolmart, Inc., Case 21-CA-102332 (Jan. 17, 2014).

The Charging Party, Keith Cunningham, was employed by Leslie’s Poolmart in California as a retail assistant store manager from September 2011 through September 2012. In connection with his employment, Cunningham had entered into a Mutual Agreement to Arbitrate (the “Arbitration Agreement”), which required him to submit all claims arising from his employment to arbitration, including claims alleging unpaid wages. As stated above, the Arbitration Agreement did not limit employees to pursuing individual claims, and it was silent as to whether it barred employees from pursuing class or collective claims.

After the termination of his employment, Cunningham filed an action in state court alleging that Leslie’s Poolmart failed to properly pay him and similarly situated employees overtime compensation. Leslie’s Poolmart removed the case to federal court and filed a motion to compel arbitration of Cunningham’s individual claims and to dismiss his class/collective action claims based upon the terms of the Arbitration Agreement. The court eventually granted the motion but allowed Cunningham to proceed in arbitration on a representative claim based upon California’s Private Attorney General Act of 2004. Cunningham also filed with the Board an unfair labor practice complaint alleging that the Arbitration Agreement prohibited employees from filing class or collective actions. The NLRB’s General Counsel issued a complaint against Leslie’s Poolmart based upon Cunningham’s charge, which complaint was considered by Administrative Law Judge Lisa D. Thompson on a stipulated record.

Judge Thompson agreed with the General Counsel in finding that even though the Arbitration Agreement did not address class or collective claims, Leslie’s Poolmart committed an unfair labor practice by seeking to utilize the Arbitration Agreement to bar Cunningham’s class and collective action claims (including by filing in federal court a motion to dismiss the class/collective claims). In so finding, Judge Thompson stated that she was bound by the Board’s decision in D.R. Horton to find that the arbitration agreement violated the law. The Judge rejected Leslie’s Poolmart’s argument that the Board’s decision in D.R. Horton was void because it was issued without the requisite quorum for the Board – the issue currently before the U.S. Supreme Court in Noel Canning v. NLRB, as we reported here – and she declined to stay consideration of the issue pending the Supreme Court’s ruling in Noel Canning. She also declined to follow the Fifth Circuit Court of Appeals, which had overturned the Board’s decision in D.R. Horton, or to find that Supreme Court precedent on the enforceability of arbitration agreements under the Federal Arbitration Act effectively preempted the Act. Judge Thompson stated that the Supreme Court has not expressly overruled D.R. Horton and, thus, the Board’s decision controlled consideration of this case. Finally, Judge Thompson found that Cunningham had filed his charge with the Board in a timely fashion because Leslie’s Poolmart had engaged in a continuing violation with respect to enforcement of its Arbitration Agreement, and that Cunningham had engaged in protected concerted activity even though there was no evidence that any other employee was involved in the initiation or prosecution of the claim.

The ALJ’s decision in Leslie’s Poolmart creates yet another potential landmine for employers wishing to utilize arbitration agreements. While D.R. Horton invalidated class/collective action waivers under the Act, Leslie’s Poolmart suggests that arbitration agreements must expressly permit an employee to bring a class or collective action claims in arbitration. Since there are numerous issues regarding the efficacy of handling class claims in an arbitration context, employers may no longer want to implement these agreements should these Board decisions stand. Of course, all bets may be off if the Supreme Court invalidates the Board’s quorum in Noel Canning. Watch for the Court’s decision this spring.

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