The decision holds that arbitration agreements with class and collective action waivers violate the National Labor Relations Act.
On October 28, the National Labor Relations Board (NLRB or the Board) held fast to its position that arbitration agreements with class and collective action waivers, required as a condition of employment, violate the National Labor Relations Act (NLRA) and are unenforceable. The Board’s position on this issue—first announced in its 2012 D. R. Horton decision—was rejected on appeal by the U.S. Court of Appeal for the Fifth Circuit last year and by dozens of other federal courts considering the same issue.
In Murphy Oil USA, Inc., a majority of the Board reaffirmed its position that class and collective action waivers, at least when they are required as a condition of employment, violate the NLRA. It remains to be seen whether the Board will find that other forms of arbitration agreements with class and collective action waivers, such as those with opt-out provisions or those that are entered into with some other form of consideration, also violate the NLRA under the rationale of Murphy Oil and D. R. Horton.
The Board Majority’s Rationale
The Board’s disagreement with the Fifth Circuit (and the forceful dissents filed by two of its Members) centers on the appropriate accommodation of the NLRA and the Federal Arbitration Act (FAA). The Board takes the position that the NLRA is sui generis among employment statutes and guarantees employees a substantive right to engage in concerted activity, including class and collective action litigation. Thus, the Board believes there is no inherent conflict between the NLRA and the FAA because (1) the NLRA falls within the savings clause of the FAA, which provides that an agreement to arbitrate can be invalidated “upon such grounds as exist at law or in equity for the revocation of any contract,” and (2) the NLRA constitutes a “contrary congressional command” sufficient to override the FAA’s strong federal policy favoring arbitration.
The Fifth Circuit and both dissenting Board Members disagreed with this position, arguing instead that the NLRA must be treated like any other employment statute for purposes of accommodation with the FAA. The U.S. Supreme Court has clearly ruled that the class and collective action mechanisms provided by certain employment statutes—including the collective action procedure contained in the Age Discrimination in Employment Act—are merely procedural rights that can be waived in an arbitration agreement. Thus, the NLRA does not fall within the FAA’s savings clause and does not contain a contrary congressional command to override the FAA.
Both the Fifth Circuit and the dissenting Board Members noted that the Board majority’s position flies in the face of the numerous recent Supreme Court decisions invoking the strong federal policy in favor of arbitration to sweep away challenges to class and collective action waivers in arbitration agreements.
In the coming weeks, we will likely see a number of Board decisions applying Murphy Oil to other types of arbitration agreements with class and collective action waivers, including those that may not be required as a condition of employment. These decisions may ultimately be tested in the federal courts of appeal, and, eventually, the issue may be presented to the Supreme Court. As the Fifth Circuit and the Board’s dissenting Members have noted, the Supreme Court’s recent decisions interpreting the FAA suggest that it would reject the Board’s position, if given the opportunity.
For employers who maintain or are considering whether to implement arbitration agreements with class and collective action waivers, Murphy Oilis a clear affirmation of the Board’s position that such agreements violate the NLRA. The federal courts have, to date, rejected the Board’s position, but the Board may continue to maintain its position until it is rejected by the Supreme Court.