Why it matters: A divided panel of the National Labor Relations Board (NLRB) stood behind its much-criticized D.R. Horton decision by reaffirming that an employment agreement waiving class arbitration violated the National Labor Relations Act (NLRA). The Board first considered the issue in the D.R. Horton case, a ruling that was reversed by the Fifth U.S. Circuit Court of Appeals and rejected by other courts around the country. With a chance for a do-over, the five-member panel split three to two and found the reasoning and result of D.R. Horton to be correct. “The core objective of the National Labor Relations Act is the protection of workers’ ability to act in concert, in support of one another,” the majority emphasized, and the right to act concertedly for mutual aid and protection includes judicial forums. Not everyone agreed – two members of the panel issued dissents arguing that the Board failed to recognize the need for the NLRA to coexist with other statutes and also neglected to follow the instructions of the U.S. Supreme Court with regard to arbitration.

Detailed Discussion

Sheila Hobson signed a binding arbitration agreement and waiver of jury trial when she applied for a job with Murphy Oil in November 2008. Less than two years later, Hobson filed suit in Alabama federal court along with three other employees seeking to pursue a collective action alleging violations of the Fair Labors Standards Act (FLSA).

Relying upon the agreement, Murphy Oil moved to compel arbitration on an individual basis. While the district court sided with the employer, Hobson filed an unfair labor charge with the NLRB.

Hobson’s charge did not occur in a vacuum, however.

In 2012, the NLRB issued a decision in D.R. Horton, holding that an employer violates the NLRA “when it requires employees covered by the Act, as condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial.”

The Board reached this conclusion “notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable,” noting that arbitration under the FAA “is a matter of consent, not coercion.”

On appeal, the Fifth Circuit reversed; other courts across the country similarly declined to follow the NLRB’s decision.

But the Board embraced the opportunity to carefully reexamine D.R. Horton in light of the adverse judicial decisions and reaffirm its holding. Characterizing the NLRA as unique among workplace statutes, the majority wrote that the national labor policy was built on the premise of protecting workers’ ability to act in concert and in support of one another – even in the courtroom.

“The rights uniquely guaranteed by Section 7 (with the exception of the right to refrain from concerted activity) are, as the Supreme Court has observed, ‘collective rights,’ and all of them are substantive rights,” the majority said. “Section 7 protects picketing. It protects a consumer boycott. It protects a strike. And as numerous Board and judicial decisions make quite clear, it protects, as a substantive right, workers joining together to pursue legal redress in a state or federal court. There is no basis in the Act or its jurisprudence to carve out concerted legal activity as somehow entitled to less protection than other concerted activity.”

The Fifth Circuit opinion gave the NLRA short shrift, the majority said, and should have afforded the statute more respect instead of assuming that the FAA trumped it. “Section 7 of the NLRA amounts to a ‘contrary congressional command’ overriding the FAA,” the Board said. “We see no compelling basis for the court’s conclusion that to override the FAA, Section 7 was required to explicitly provide for a private cause of action for employees, a right to file a collective legal action, and the procedures to be employed.”

After considering the stance of the dissenting panel members, the majority remained unmoved. “The employer’s imposition of a mandatory arbitration agreement requiring employees to bring all workplace claims individually – and forbidding them access to any group procedure – reflects and perpetuates precisely the inequality of bargaining power that the Act was intended to redress,” the panel wrote.

The majority was careful to note that its decision did not guarantee class treatment, but it did reflect “a right to pursue joint, class, or collective claims if and as available, without the interference of an employer-imposed restraint.”

With that said, the Board found that Murphy Oil’s arbitration agreement violated Section 7 of the NLRA by explicitly prohibiting employees from concertedly pursuing employment-related claims in any forum. Further, the employer violated Section 8(a)(1) by attempting to enforce the unlawful agreement when it moved to compel arbitration in the underlying suit, the majority said.

The Board ordered Murphy Oil to cease and desist using the mandatory arbitration agreement and rescind or revise it for current employees.

Board member Philip A. Miscimarra dissented, writing that the NLRA needs to “coexist with a broad array” of other federal and state laws. “I believe Congress did not vest the NLRB with authority to dictate what internal procedures must govern non-NLRA claims adjudicated by courts and agencies other than the NLRB,” he said.

Also dissenting: member Harry I. Johnson, III, who said the majority opinion “poses the unfortunate example of a federal agency refusing to follow the clear instructions of our nation’s Supreme Court on the interpretation of the statute entrusted to our charge, and compounding that error by rejecting the Supreme Court’s clear instructions on how to interpret the Federal Arbitration Act, a statute where the Board possess no special authority or expertise.”

He also listed the courts that have “condemned” the D.R. Horton case, including the Second, Fifth, and Eighth Circuits as well as courts in Arkansas, California, Colorado, Georgia, Illinois, Kansas, Nevada, New York, Texas, and Virginia.

To read the order in Murphy Oil USA, click here.