The National Labor Relations Board filed a brief with the Fifth Circuit Court of Appeals on September 4, 2012, defending its decision in D.R. Horton Inc., 357 NLRB No. 184 (Jan. 3, 2012), and asking the court to enforce its original decision and order.

In D.R. Horton, the NLRB held that an arbitration agreement requiring employees to waive “as a condition of employment” their right to bring a joint, class or collective action violates Section 8(a)(1) of the National Labor Relations Act, which protects the rights of employees to engage in concerted, protected activity. Significantly, for purposes of the appeal to the Fifth Circuit, the NLRB reached this decision in a 2-0 vote on January 3, 2012, which was the final day of recess appointee Craig Becker’s term.

The employer petitioned the Fifth Circuit for review on January 13, 2012, and the NLRB cross-applied for enforcement of its order on March 19. There are three issues on appeal: (1) whether the NLRB reasonably found that the employer violated Section 8(a)(1) of the NLRA by maintaining a mandatory arbitration agreement that waives employees’ right to pursue employment-related claims in a concerted manner in any forum; (2) whether the NLRB reasonably found that the employer violated Section 8(a)(1) of the NLRA by maintaining a mandatory arbitration agreement the employees could reasonably interpret as restricting their right to file unfair labor practice charges before the NLRB; and (3) whether the Board’s order, based on a 2-0 vote, was validly issued.

The NLRB’s arguments addressing the first two issues are predicated on employees’ Section 7 rights under the NLRA, which confers on employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as “the right to refrain from any or all of such activities.” The NLRB argues in its brief that the employer’s mandatory arbitration agreement explicitly requires all employees to pursue any work-related claims individually, “effectively barring exercise of [Section 7] concerted protected activity in that context,” which violates Section 8(a)(1) of the NLRA. The NLRB likewise argues that the mandatory arbitration agreement violates Section 8(a)(1) because employees subject to the agreement would reasonably construe it to bar their Section 7 right to file unfair labor practice charges before the NLRB. 

In making this argument, the Board distinguishes this case from 14 Penn Plaza LLC v. Pyett, 556 U.S. 247, 258 (2009), in which the U.S. Supreme Court enforced the parties’ collective bargaining agreement’s clear and unmistakable waiver of any judicial forum in favor of arbitration for statutory claims. The Board does so first by noting that, in Penn Plaza, the Court did not address employees’ NLRA Section 7 right to pursue collectively work-related claims. Second, the Board distinguished Penn Plaza by noting that the waiver in the parties’ collective bargaining agreement was a “bargained-for exchange” by the employees’ collective bargaining representative that is entirely consistent with employees’ rights under Section 7.

The Board then addressed whether its decision to invalidate the Horton mandatory arbitration agreement conflicted with the Federal Arbitration Act (FAA). The purpose of the FAA is to “ensure the enforcement of arbitration proceedings according to their terms so as to facilitate streamlined proceedings.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011). The Board points out, however, that Section 2 of the FAA (9 U.S.C. § 2) mandates that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” It is the FAA’s savings clause that the Board relies on to argue that its decision is consistent with the FAA because “[a]ny other contract that violated the NLRA, restricted a substantive federal statutory right, or conflicted with the public policy embodied in a federal statute would also be invalid.” 

Finally, the Board addressed the third issue and argues that it had a three-member quorum when it issued its decision and that two participating members satisfied the quorum requirement. First, the Board argues that the NLRB did have a quorum of three members on the date it issued its order because Member Becker’s term did not end until noon on January 3, 2012. Citing Article II, Clause 3 of the U.S. Constitution – the Recess Appointment Clause – the Board argues that Member Becker’s recess appointment expired at the end of the Senate’s next session. The date when that session of the Senate ended, argues the Board, was at noon on January 3, 2012, when the Senate officially ended its 1st session of the 104th Congress and began the 2nd session pursuant to the 20th Amendment to the U.S. Constitution, Section 2, which states, “[t]he Congress shall assemble at least once in every year, and such meeting shall begin at noon on the 3d day of January.”

The Board then argues that Member Hayes’ recusal from the Board’s decision did not deprive it of a quorum to render a decision because Section 3(b) of the NLRA states, “two members shall constitute a quorum of any group designated,” and this delegation of authority is proper where the third member is merely recused as opposed to having already departed the Board as a member.

The Fifth Circuit has not yet scheduled oral argument. This is a significant case for private sector employers because it impacts an employers’ ability to contract with its employees up front, as a condition of employment, over the issue of whether its employees may bring class or collective actions, which are notoriously expensive to litigate, expensive to settle, and financially risky to try in court. (Please note that this case does not affect supervisory employees, who are not “employees” covered by the NLRA.) The plaintiffs’ bar, in the form of the National Employment Lawyers Association (NELA), which describes itself as the “largest professional membership organization in the country comprised of lawyers who represent workers in labor, employment, and civil rights disputes,” has filed an amicus brief with the Fifth Circuit recommending enforcement of the NLRB’s decision and order. NELA’s decision to file a brief in support of the NLRB clearly indicates the lucrative nature of having the NLRB’s position prevail for plaintiffs’ lawyers.

Employer organizations also understand the importance of this case and, thus far, the National Federation of Independent Businesses and the Texas Association of Businesses have filed notices of appearances and will soon file their own briefs in support of D.R. Horton seeking to have the Fifth Circuit rule against the NLRB.