NLRB Reaffirms Its 2012 D.R. Horton Ruling Despite Strong Dissent and Adverse Courts of Appeals Decisions

HIGHLIGHTS:

  • The National Labor Relations Board in Murphy Oil USA, Inc. and Sheila M. Hobson refused to back away from its controversial 2012 ruling in D.R. Horton, Inc. finding class action waivers unenforceable.
  • A clear resolution of the issue of class action waiver enforceability under the National Labor Relations Act (NLRA) likely will not occur until the U.S. Supreme Court reviews the question.

The National Labor Relations Board (Board) in Murphy Oil USA, Inc. and Sheila M. Hobson1 (Murphy Oil) refused to back away from its controversial 2012 ruling in D.R. Horton, Inc. and Michael Cuda2 (D.R. Horton) finding class action waivers unenforceable. The Board's opinion was filed on Oct. 28, 2014. Instead, a bare three-member majority reaffirmed D.R. Horton over a vigorous dissent and in defiance of adverse judicial decisions of the U.S. Courts of Appeals for the Second, Fifth and Eighth Circuits – all of which have rejected D.R. Horton. A clear resolution of the issue of class action waiver enforceability under the National Labor Relations Act (NLRA) likely will not occur until the U.S. Supreme Court reviews the question.

Factual Background About Murphy Oil Case

Murphy Oil USA, Inc. (Company) operates more than 1,000 retail fueling stations in 21 states. Prior to March 6, 2012, the Company required all job applicants and current employees, as a condition of employment, to sign a "Binding Arbitration Agreement and Waiver of Jury Trial" (Agreement) wherein they each agreed to arbitrate any employment claims individually with the Company. Importantly, and relevant to the decision, applicants and employees signing the Agreement thereby "waive" their right to commence, be a party to, or act as a class member in any class or collective action in any court action or arbitration.3

Nonetheless, four Company employees filed a federal collective action under the Fair Labor Standards Act (FLSA). The complaint alleged that the Company failed to pay overtime and pay for various required work-related activities performed off the clock, including driving to the fuel stations of competitors to monitor fuel prices and check the accuracy of their signage. In July 2010, the Company filed a motion to compel arbitration on an individual basis and to dismiss the FLSA collective action based on the Agreement. The Company continued to seek enforcement of the Agreement in approximately eight court pleadings and related filings between September 2010 and February 2012.4 In September 2012, the federal District Court granted the Company's motion to compel individual arbitration of Hobson's and the other plaintiffs' FLSA claims and ordered the lawsuit stayed pending arbitration. The plaintiffs did not appeal this decision. For its part, the Company refused to arbitrate Hobson's and the other plaintiffs' claims on a collective basis.

Procedural Background of the Board's Murphy Oil Case

In January 2011, Hobson filed an unfair labor practice charge and the Board's general counsel issued a complaint and notice of hearing in March 2011. The complaint alleged that the Company had been violating Section 8(a)(1) of the NLRA by maintaining and enforcing a mandatory arbitration agreement that prohibits employees from engaging in protected, concerted activities. Thereafter, the Company revised the Agreement to note that employees are not waiving their rights under Section 7 of the NLRA to file class or collective actions, and they are not waiving their rights to file unfair labor practices before the Board.

Despite the amendment, the Board's general counsel issued an amended complaint regarding the maintenance of the Agreement and further alleging that the Company's efforts to enforce the Agreement in federal court also violated Section 8(a)(1) of the NLRA.

Board "Doubles Down" on Its 2012 D.R. Horton Holding That Class Action Waivers Deny a Substantive Right of Employees Under the NLRA

The Board in Murphy Oil self-servingly found that despite its overwhelming rejection by federal District Courts, federal courts of appeals and the California Supreme Court, "[t]he rationale of D.R. Horton was straightforward, clearly articulated, and well supported at every step[.]"5 The Murphy Oil Board reaffirmed its view that mandatory arbitration agreements barring a class or collective action "restrict the exercise of a substantive right to act concertedly for mutual aid or protection that is central to the [NLRA]." It also reaffirmed its view that holding mandatory arbitration agreements unlawful under the NLRA does not conflict with the Federal Arbitration Act (FAA).6

Board in Murphy Oil Also Dismissed Contrary Authority as Not Properly Addressing the Uniqueness of the NLRA and the Board's Role in Interpreting That Act

The Murphy Oil Board attacked the Fifth Circuit's repudiation of D.R. Horton, noting that the U.S. Supreme Court has "emphasized often that the [Board] has the primary responsibility for developing and applying national labor policy" and that the Fifth Circuit's decision "gives too little weight to this policy."7 The Board also found unpersuasive the Fifth Circuit's reasoning that the right to pursue legal claims "concertedly" is not a substantive right, but merely a procedural one subject to waiver. Instead, the Board explained that Section 7 of the NLRA "does not create procedural rights in the sense that the Fifth Circuit invoked" and mandatory arbitration agreements unlawfully purport to extinguish a substantive right to a form of concerted activity (i.e., concerted legal activity), and are invalid.8 Additionally, the Board criticized the Fifth Circuit's lack of explanation of why, "in the event of a conflict between the NLRA and the FAA, it would be the NLRA that would be required to yield."9 Finally, the Board found "troubling" the Fifth Circuit's view that the FAA's survival of the Norris-LaGuardia Act indicated its preeminence where conflicts arose with the NLRA.

As to the Second and Eighth Circuits' opinions, the Murphy Oil Board first found that the Second Circuit's decision in Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297-98 and n.8 (2nd Cir. 2013), was of little value given its "unelaborated endorsement of the Eighth Circuit's" rejection of the D.R. Horton opinion in its decision Owen v. Bristol Care, 702 F.3d 1050, 1053-54 (8th Cir. 2013). Focusing on the Eighth Circuit's opinion, the Board found that it provided "limited analysis" in its rejection of the Board's argument that the legislative history of the NLRA "indicated a congressional command to override the FAA." The Board also stated that the Eighth Circuit erred in rejecting the employees' argument based on the Norris-LaGuardia Act, which it did by observing that the 1947 decision to reenact the FAA suggested Congress intended arbitration protections to remain intact "even in light of the earlier passage" of that Act and the NLRA. Finally, the Board concluded that the Eighth Circuit simply failed to give any deference to the Board as "primary interpreter of Federal labor law" and, also, that the Board's understanding of federal law "outside the NLRA may in fact be correct[.]"

Turning to a key state court decision, the Board dismissed the California Supreme Court's endorsement of the Fifth Circuit's position in Iskanian v. CLS Transportation Los Angeles LLC, 327 P.3d 29, 137-43, 173 Cal. Rptr. 3d 289, 299-305 (2014), on the ground that "[s]tate courts do not review the Board's decisions and play no role in the administration of the [NLRA]."10

The Two Dissents Make Clear the Board's Decision Will Not Be the Last Word on the Matter

There were two vigorous dissents. Board Member Miscimarra argued "Congress did not vest the [Board] with authority to dictate what internal procedures must govern ­non-NLRA claims adjudicated by courts and agencies other than the [Board]." Nor can it be correct, he continued, to suggest that the NLRA in those areas "trumps all other Federal statutes." The NLRA cannot be reasonably interpreted as giving employees a broad-based right to "class" treatment under other federal, state and local laws. Indeed, most of those laws and modern treatment of "class" litigation did not even exist until long after the NLRA was enacted. And, he further argued, Congress could not have decided, as part of the NLRA, to protect "class" litigation under all kinds of other laws when those laws themselves do not attach a common meaning to what constitutes "class" litigation.11

Member Johnson argued that the NLRA must yield to the FAA given the long string of Supreme Court decisions noting the "extraordinary strength" of federal policy favoring arbitrations. This case, he stated, "poses the unfortunate example of [a] Federal agency refusing to follow the clear instructions of our nation's Supreme Court on the interpretation of the statute entrusted to our charge" and compounds the error "by rejecting the clear instructions on how to interpret the [FAA], a statute where the Board possesses no special authority or expertise." The opinion, he noted, "effectively ignores the opinions of nearly 40 Federal and State courts" that recognize the flaws in the Board's use of a "strained, tautological reading of the [NLRA]."12

Next Steps for Employers

The Murphy Oil case upholds the Board's 2012 analysis in D.R. Horton that class action waivers in employment arbitration agreements are unenforceable under the NLRA. The decision makes clear that the Board will not acquiesce to any court other than the U.S. Supreme Court, which will keep the issue of enforceability of class action waivers in arbitration agreements alive until the U.S. Supreme Court decides the matter. Employers with such waivers in federal circuits – other than the Second, Fifth and Eighth – will either have to endure unfair labor practice litigation or modify their policies until the Supreme Court resolves the issue.