The National Labor Relations Board (NLRB) recently re-affirmed a ruling that has been rejected by multiple federal circuit courts, holding that an arbitration agreement cannot require employees to waive their rights to proceed as a class or collective action.
In D.R. Horton and Michael Cuda, the NLRB first held that an employment agreement violates an employee’s Section 7 rights under the National Labor Relations Act (NLRA) when it 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 Fifth Circuit Court of Appeals overturned the NLRB’s decision in D.R. Horton, reasoning that it conflicted with the Federal Arbitration Act (FAA) and the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). Later, both the Eighth Circuit and the Second Circuit agreed that the Fifth Circuit was right, and the NLRB was wrong. See Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052–54 (8th Cir. 2013).
Perhaps due to its recent losing streak, the NLRB decided that it’s not going to take it anymore. In Murphy Oil USA, Inc., the NLRB re-affirmed its holding in D.R. Horton and held that the position adopted by the federal circuit courts “violates the long-established understanding of the [NLRA] and national labor policy.” 361 NLRB No. 72 (NLRB, Oct. 28 2014). The NLRB referred to the circuit courts’ analysis as “unpersuasive,” and remarked that “scholarly support for the Board’s approach, by contrast, has been strong.”
The primary argument made by the NLRB in Murphy Oil was that the NLRA creates a substantive legal right for employees to participate in class or collective actions, not just a procedural right to do so. The NLRB explained that “[b]ecause mandatory arbitration agreements like those involved in D.R. Horton purport to extinguish a substantive right to engage in concerted activity under the NLRA, they are invalid.” This is contrary to the position of the Fifth, Second, and Eighth Circuits, which regard the right to participate in an FLSA collective action as a procedural right, which may be waived.
Given the Fifth, Second, and Eighth Circuit opinions rejecting the approach adopted by the NLRB in Murphy Oil, there is a strong incentive for the employer to appeal the Murphy Oil decision. If that happens, the NLRB’s reasoning will once again be tested by the circuit courts, and potentially the U.S. Supreme Court, hopefully resolving the issue once and for all.
Takeaway: Look for another showdown between the NLRB and the federal circuit courts regarding class-action waivers in the near future.