Legal Background

In D.R. Horton, Inc., 357 NLRB No. 184 (2012), the National Labor Relations Board (NLRB or the Board) held that a mandatory arbitration policy violated the National Labor Relations Act (NLRA or the Act) because it required employees to refrain from bringing collective or class claims in any forum, whether a court or arbitral forum. The Board based its holding on the basic proposition that any work policies or rules that tend to chill employees’ rights to engage in concerted action are unlawful. Lafayette Park Hotel, 326 NLRB 824 (1998). The mere maintenance of any such rule or policy violates the NLRA, without regard to whether the employer ever applied it for that purpose. Guardsmark v. NLRB, 475 F.3d 369 (D.C. Cir. 2007).

The 24 Hour Case

A former employee of 24 Hour Fitness USA, Inc. (24 Hour), Alton Sanders, filed an unfair labor practice charge in the spring of 2012 alleging that 24 Hour had maintained and enforced an arbitration policy that prohibited class actions and was, therefore, unlawful under the D.R. Horton decision. The NLRB director for Region 20 issued a complaint based on that theory.

The facts in the 24 Hour case are straightforward. Sanders had signed an application for employment that stated:

I understand that as an expeditious and economical way to settle employment disputes without need to go through courts, 24 Hour Fitness agrees to submit such disputes to final and binding arbitration. I understand that I may opt-out of the arbitration procedure, within a specified period of time, as the procedure provides. 24 Hour Fitness and I also understand that if I am offered employment and I do not opt-out, we both will submit exclusively to final and binding arbitration all disputes arising out of or relating to my employment. This means a neutral arbitrator, rather than a court or jury will decide the dispute.

Sanders was offered employment and was issued the Company’s Handbook, which provided, in pertinent part:

In particular, I agree that if there is a dispute arising out of or related to my employment as described in the “Arbitration of Disputes” policy, I will submit it exclusively to binding and final arbitration according to its terms, unless I elect to opt-out of the Arbitration of Disputes policy as set forth below.

I understand that I may opt-out of the Arbitration of Disputes policy by signing the Arbitration of Dispute Opt-Out Form and returning it through inter-office mail … no later than thirty (30) calendar days after the date I received this Handbook, as determined by the Company’s records ….

The Company’s Arbitration Policy provided in part that:

There will be no right or authority for any dispute to be brought, heard or arbitrated as a class action (including without limitation opt-out class actions or opt-in collective actions), or in a representative or private attorney general capacity on behalf of a class of persons of the general public.

Sanders did not opt-out of 24 Hour’s arbitration policy. When later he sought to join in a race and sex discrimination case brought by another employee, he was informed that he had to proceed individually since he had agreed to the arbitration policy.

Before the NLRB Administrative Law Judge (ALJ), 24 Hour acknowledged that it had taken action to enforce the class action ban in a number of cases. It argued, however, that given the opt-out feature, the waiver of collective or class action was voluntary on the part of the employee. Accordingly, its policy was fundamentally distinguishable from that in D.R. Horton and the D.R. Horton precedent did not apply. (The U.S. Chamber of Commerce filed an amicus brief in support of this argument.)

The ALJ Decision

On November 6, 2012, ALJ William L. Schmidt issued the decision. While the ALJ specifically recognizes that employers have the right to require employees to arbitrate employment-related disputes, he rejects the proposition that the opt-out feature makes 24 Hour’s arbitration policy distinguishable from that in D.R. Horton. Accordingly, the ALJ found that the case was controlled by D.R. Horton:

The requirement that employees must affirmatively act to preserve rights already protected by Section 7 rights through the opt-out process is, as the Acting General Counsel argues, an unlawful burden on the right of employees to engage in collective litigation that may arise in the future.[1]

Conclusion

Many employers have adopted alternative dispute resolution procedures that culminate in binding arbitration and impose restrictions on class or collective actions. Given the state of the law, reaffirmed in the 24 Hour ALJ decision, employers that wish to avoid NLRB proceedings over such restrictions in their alternative dispute resolution procedures should review their procedures carefully and consider consulting with labor counsel regarding modifications that may avoid or minimize the risk of litigation.