United States: NLRB "Doubles Down": Board Affirms Controversial Ruling Barring Mandatory Agreements That Prohibit Arbitration Of Class Or Collective Action Employment Disputes

Last Updated: November 6 2014
Article by Michael Stevens and Karen S. Vladeck

In January 2012, the National Labor Relations Board (NLRB or Board) decided arbitration clauses in employment contracts that require individual arbitration, rather than class-wide or collective actions, violate Section 8(a)(1) of the National Labor Relations Act (the NLRA or Act). The Board's ruling in D.R. Horton Inc., 357 NLRB No. 184 (Jan. 3, 2012), immediately became a labor law lightning rod — garnering criticism on a number of grounds, including the claim that it could not be reconciled with the Supreme Court's decisions upholding bans on class arbitration, especially AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011), Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010), and Gilmer v. Intertate/Johnson Lane Corp., 500 U.S. 20 (1991).

On appeal, the Fifth Circuit overruled the NLRB, holding that it is lawful for an employer and an employee to enter into an agreement to arbitrate employment-related claims — and to do so only on an individual basis, lawfully precluding class-wide and collective actions brought on behalf of employees. See D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013). The Fifth Circuit held that the NLRA does not give employees a substantive right to pursue collective or class actions, and that employees could therefore consent by contract to forfeit such remedies without running afoul of the Act. Earlier this year, the Fifth Circuit denied the NLRB's petition for rehearing en banc. Other circuits, specifically the Second and the Eighth, have joined the Fifth Circuit in their reasoning, as have several federal district courts and, most recently, the California Supreme Court.

On October 28, 2014, the NLRB discredited this voluminous body of precedent, holding in Murphy Oil USA, 361 NLRB No. 72 (Oct. 28, 2014), that a gas station chain's arbitration pact ran afoul of Section 8(a)(1) by interfering with employees' Section 7 rights to engage in protected concerted activity. In so ruling, the Board has once more thrown its weight behind the oft-criticized (and long-since repudiated) D.H. Horton decision, and has set the stage for either the Eleventh Circuit or DC Circuit (which would hear the appeal if Murphy Oil so files) to either reverse the NLRB or, if it doesn't, to create a circuit split, all but guaranteeing that this issue will end up in the Supreme Court.

The binding arbitration agreement at issue in Murphy Oil was provided to Sheila Hobson, an employee of Murphy Oil USA, as a condition of her employment at the company's Calera, Alabama facility in 2008. The company operates more than 1,000 gas stations in 21 states. In 2010, Hobson filed a collective action in the US District Court for the Northern District of Alabama, alleging violations of the Fair Labor Standards Act. Murphy Oil filed a motion to compel arbitration, seeking to force Hobson and others similarly situated to arbitrate their claims on an individual basis rather than file a collective suit. In response, Hobson filed an unfair labor practice charge with the NLRB and the NLRB issued a complaint against Murphy Oil, alleging that the arbitration agreement signed by Hobson and others violated Section 8(a)(1) of the NLRA insofar as it barred employees from litigating their employment related claims in concert. The district court granted Murphy Oil's motion to compel individual arbitration, staying its decision while the NLRB charge made its way to the Board.

By a 3-2 vote, the Board held that the arbitration clause violated Hobson's Section 7 rights to engage in protected concerted activity. The majority, including Board Chairman Mark Pearce and members Kent Hirozawa and Nancy Schiffer, dismissed most of the contrary authority as not being thorough enough — discrediting the Second and Eighth Circuit's decisions for their "abbreviated" analysis, and refusing to engage with the California Supreme Court's more detailed discussion (or that of any of the federal district courts to consider the issue) because those courts don't typically exercise direct review over Board decisions. As for the Fifth Circuit's decision in D.R. Horton directly reversing the Board on the exact same question, the majority in Murphy Oil complained that the court of appeals gave "too little weight to [Board] policy," and that "[t]he costs to Federal labor policy imposed by the Fifth Circuit's decision would be very high."

"In sum," the majority concluded, "we have carefully considered, and fully addressed, the views of both the Federal appellate courts that have rejected D.R. Horton and the views of our dissenting colleagues. We have no illusions that our decision today will be the last word on the subject, but we believe that D.R. Horton was correctly decided, and we adhere to it."

In a sharply worded dissent, Member Harry Johnson wrote that the Board majority failed to heed "clear instructions" from the circuit courts about the interpretation of the NLRA, and compounded that mistake by rejecting similarly clear instructions from the Supreme Court in Concepcion and Stolt-Nielsen, among other rulings, on how to interpret the Federal Arbitration Act — a law on which the Board has "no special authority or expertise." His dissent focused on the fact that agencies, such as the Board, need to tread lightly when dealing with areas outside of their field, and only more so when a majority of the courts to consider the very same issue have come out the other way. He concluded that "with this decision, the majority effectively ignores the opinions of nearly 40 Federal and State courts that, directly or indirectly, all recognize the flaws in the Board's use of a strained, tautological reading of the National Labor Relations Act in order to both override the Federal Arbitration Act and ignore the commands of other federal statutes. Instead, the majority chooses to double down on a mistake that, by now, is blatantly apparent."

Assuming Murphy Oil appeals the Board's ruling — as is its right — the stage is now set for yet another court of appeals to confront the NLRB's controversial reasoning in D.H. Horton. Arent Fox will continue to monitor developments in this area. If you have any questions about this Alert, please contact the authors, or the Arent Fox attorney who regularly handles your matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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