Why it matters

The U.S. Court of Appeals for the Sixth Circuit affirmed a decision from the National Labor Relations Board that an employer ran afoul of the National Labor Relations Act by prohibiting employees from pursuing class or collective actions in any forum, joining the Seventh and Ninth Circuits and splitting from the Fifth and Eighth Circuits. The case involved a field technician performing installations for Dish Network. As a condition of employment, he signed an arbitration agreement that banned class or collective actions. When the technician later filed a charge with the NLRB related to changes made by the employer with regard to pay structure, the board found the policy violated the NLRA, which protects workers’ right to concerted activity. On appeal, the Sixth Circuit upheld the decision, holding that the Federal Arbitration Act does not trump the NLRA. While the decision broadens the circuit split, an answer is forthcoming: The Supreme Court is set to hear oral argument on the issue next term.

Detailed discussion

Employees at Alternative Entertainment Inc. are required to sign an agreement titled “AEI ALTERNATIVE ENTERTAINMENT, INC. OPEN DOOR POLICY AND ARBITRATION POLICY,” which states, “Disputes between you and AEI (or any of its affiliates, officers, directors, managers or employees) relating to your employment with the Company” must, at the election of the employee or the company, be resolved “exclusively through binding arbitration.”

The agreement also states, “By signing this policy, you and AEI also agree that a claim may not be arbitrated as a class action, also called ‘representative’ or ‘collective’ actions, and that a claim may not otherwise be consolidated or joined with the claims of others.”

James DeConner, a field technician, worked at AEI from August 2006 until he was fired in December 2014. The dispute arose when the employer changed its compensation structure. Believing that the changes negatively impacted his salary, DeConner spoke out against them in conversations with supervisors, in an email to the company president and in conversations with his fellow technicians. DeConner was ultimately fired and told the “relationship wasn’t working out.”

He then filed a charge against AEI with the NLRB. An administrative law judge determined that the employer violated the NLRA by prohibiting DeConner from discussing his concerns over changes in compensation with coworkers and discharging him for engaging in protected activity in violation of Section 8(a)(1). The ALJ also declared the requirement that employees waive their right to pursue class or collective action in all forums, arbitral and judicial, violated the same provision of the statute.

The NLRB affirmed, and AEI appealed to the U.S. Court of Appeals for the Sixth Circuit, where the panel recognized the current split among the federal appellate panels. On one side are the Seventh and Ninth Circuits, which have agreed with the NLRB; on the other, the Fifth and Eighth Circuits, which have determined that arbitration provisions mandating individual arbitration of employment-related claims do not violate the NLRA and are enforceable under the Federal Arbitration Act (FAA).

With this “robust debate” already underway—and the Supreme Court set to hear oral argument on the issue next term—the Sixth Circuit sided with the Seventh and Ninth Circuits.

AEI’s arbitration provision implicates two federal statutes, the court said: the FAA and the NLRA. But the two statutes do not conflict, the Sixth Circuit concluded. “The NLRA and FAA are compatible because the FAA’s savings clause addresses precisely the scenario before us,” the panel wrote. “The NLRA prohibits the arbitration provision on grounds that would apply to any contractual provision, and thus triggers the FAA’s savings clause. Because of the FAA’s savings clause, the statutes work in harmony.”

The NLRA prohibits mandatory arbitration provisions barring collective or class action suits because they interfere with employees’ right to engage in concerted activity, not because they mandate arbitration, the court emphasized. “These are grounds that would apply to any contract,” the court said. “Because the NLRA makes such a contractual provision illegal on generally applicable grounds—interference with the right to concerted activity—the FAA does not require enforcement.”

Agreeing with the Fifth Circuit that Rule 23 class action procedures are not a substantive right, the Sixth Circuit explained that the Section 7 right to act concertedly, whether to pursue arbitration or litigation, is. “Mandatory arbitration provisions that permit only individual arbitration of employment-related claims are illegal pursuant to the NLRA and unenforceable pursuant to the FAA’s savings clause,” the court wrote.

The panel also distinguished Supreme Court precedent in cases involving mandatory arbitration agreements, including AT&T Mobility LLC v. Concepcion, which the court said addressed a rule hostile to arbitration, unlike the NLRA, which is, “if anything, in favor of arbitration.” “The problem with the AEI agreement is not that it mandates arbitration or that it prohibits collective arbitration; it is that it prohibited concerted legal action in any forum,” the court said.

Turning to the other issues on appeal, the Sixth Circuit affirmed the NLRB’s ruling that AEI violated Section 8(a)(1) by forbidding DeConner from discussing compensation with coworkers and terminating him for doing so.

One member of the panel dissented with regard to the arbitration agreement, noting that the NLRA does not create an express exemption from the FAA or expressly prohibit class action waivers by name, adding that “there is nothing inherently ‘concerted’ about the class action.”

To read the opinion in National Labor Relations Board v. Alternative Entertainment, Inc., click here.