NLRB Holds That NLRA Prohibits Class Action Waivers in Mandatory Arbitration Agreements

Posted on January 26, 2012 by Erin Sylvester Torcello

Arbitration agreements are a common tool that employers use to manage EEO and wage/hour litigation risk.  Those agreements often include a provision that an employee who wishes to submit an employment-related claim to arbitration may do so only on behalf of himself or herself, and may not do so as part of a class or collective action.  On January 3, 2012, Member Becker's last day on the National Labor Relations Board ("NLRB"), Members Becker and Pearce dealt a blow to employers seeking to create or expand arbitration agreements that employees are required to sign as a condition of employment.  In D.R. Horton, Inc., the NLRB held that mandatory arbitration agreements that include a class action waiver are unlawful under the National Labor Relations Act ("NLRA").

In D.R. Horton, Inc., the employer (a home builder with operations in more than 20 states) instituted a corporate-wide policy that required new and current employees, as a condition of employment, to sign an arbitration agreement.  The agreement required all disputes arising from each employee's employment to be resolved by an arbitrator, rather than in a judicial forum.  The agreement further provided that the arbitrator had no authority to consolidate the claims of other employees, to hear any class or collective action, or to award relief to a class or group of employees.

The charging party, Michael Cuda, was a superintendent with the home building company.  Cuda's attorney notified the company that his firm represented Cuda and a nationwide class of similarly situated employees.  He asserted that the company was misclassifying the superintendents as exempt under the Fair Labor Standards Act ("FLSA") and gave notice that he intended to initiate an arbitration proceeding on behalf of the class of superintendents.  The company responded that such a collective action was prohibited under the arbitration agreement that Cuda and other employees signed.

Cuda then filed an unfair labor practice charge with the NLRB, alleging, among other things, that the arbitration agreement violated Section 8(a)(1) of the NLRA as it prohibited employees from engaging in concerted activity for their mutual aid and protection.

The NLRB agreed with Cuda that the arbitration agreement violated Section 8(a)(1) of the NLRA.  The NLRB held that employees have the right to attempt to improve their working conditions through judicial, administrative, and arbitral proceedings.  The NLRB further held that employees' collective efforts to pursue rights or improve working conditions are "at the core of what Congress intended to protect" in Section 7 of the NLRA.  The Board concluded that, because the arbitration agreement at issue prohibited employees from pursuing class or collective actions in either an arbitral or judicial forum, it violated Section 8(a)(1) of the NLRA.

The company argued that a decision holding its arbitration agreement to be unlawful would conflict with the provisions of the Federal Arbitration Act ("FAA") and the Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion.  However, the NLRB rejected these arguments.

The FAA was enacted to prevent courts from treating arbitration agreements less favorably than other private contracts.  The NLRB reasoned that its decision was not in conflict with the FAA because it was treating the arbitration agreement no worse than any other private agreement.  The NLRB stated that it would have reached the same conclusion had the agreement not mentioned arbitration, but required employees to pursue only individual claims -- rather than collective claims -- in a judicial or other type of forum.

In AT&T Mobility, a class action was brought against AT&T by a group of customers who alleged that AT&T's offer of a "free" telephone to anyone who signed up for its service was fraudulent to the extent that AT&T still charged new subscribers sales tax on the retail value of the "free" telephone.  AT&T demanded that each plaintiff's claim be submitted to individual arbitration because its arbitration agreement with its customers barred class actions.  The plaintiffs argued that such a class action waiver was unconscionable under California law.  The Supreme Court rejected the plaintiffs' argument, and held that the class action waiver contained in the arbitration agreement was enforceable.  The NLRB distinguished the Supreme Court's AT&T Mobility decision, principally on the basis that the arbitration agreement at issue in that case involved customers of AT&T rather than employees, and therefore, the issue of whether the arbitration agreement violated the NLRA was not presented.

The D.R. Horton case will likely be appealed to a U.S. Circuit Court of Appeals, and may eventually be heard by the Supreme Court.  However, in the meantime, employers looking to create or expand an arbitration agreement that employees must sign as a condition of employment should be cautious not to prohibit employees from pursuing class or collective actions in an arbitral forum.
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Second Circuit Rules FLSA Collective Action and State-Law Class Action May Be Brought in the Same Case

Posted on October 19, 2011 by Michael D. Billok

At one point in the Hitchhiker’s Guide to the Galaxy series by British author Douglas Adams, Arthur Dent finds himself confronted by a door that will not open unless he can demonstrate a high degree of intelligence. When Dent somehow manages to possess both tea and no tea at the same time, the door opens, noting that Dent must be quite a philosopher to overcome the inherent contradiction of holding and not holding an item at once.

A recent decision by the Second Circuit is reminiscent of Dent’s feat. In Shahriar v. Smith & Wollensky, the Second Circuit Court of Appeals was confronted with the question of whether plaintiffs could simultaneously maintain a collective action under the Fair Labor Standards Act, as well as a class action based on state-law claims under Rule 23 of the Federal Rules of Civil Procedure. If you are wondering why that poses an issue, in a collective action potential plaintiff class members are not in unless they affirmatively opt in, whereas the plaintiffs in Rule 23 class actions are in unless they affirmatively opt out. As a result, the same person could be both a plaintiff and not a plaintiff in the same action; out of the collective action because she did not opt in, but in the class action because she did not opt out.
 

Despite the many potential consequences of permitting both participation and non-participation by the same person in a single action, the Second Circuit found that there is no inherent conflict in a federal court allowing both a collective FLSA action and a Rule 23 class action asserting parallel state law claims. The defendant argued that permitting a state law opt-out class action to proceed concurrently with the FLSA opt-in collective action would be inconsistent with the opt-in scheme created by Congress. The Second Circuit rejected that argument and found no inconsistency, concluding that nothing in the language of the FLSA or its legislative history indicated a Congressional intent to preclude concurrent class actions on state law claims, and that other circuits had reached the same conclusion. Another factor may have also influenced the Court’s decision. Earlier in the opinion, the Court stated that the potential FLSA plaintiffs may decide not to take the step of affirmatively opting into the collective action out of fear of retaliation, but that the same risk is not posed by participation in an opt-out class action.
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