United States: High-Court Showdown Looming? NLRB Defends D.R. Horton Section 7 Decision With Full-Throated Rebuttal In Murphy Oil

Last Updated: November 7 2014
Article by Dustin M. Dow

In the wake of federal circuit courts rejecting its position on the issue of class action waivers, the National Labor Relations Board is digging in its heels, perhaps preparing itself for a Supreme Court battle.  Employers must continue to beware that their employment arbitration agreements barring class claims may still be found unenforceable by the Board despite volumes of federal case law holding otherwise.  The Supreme Court has not yet weighed in, because the Board—always on the losing side, thus far—hasn't asked it to.

The Board's aggressive stance was reflected in Tuesday's Murphy Oil, USA, Inc. and Sheila M. Hobson , 361 NLRB No. 72, 2014 WL 5465454 (N.L.R.B. Oct. 28, 2014) in which the Board vociferously said it is refusing to yield from the position it staked out in its 2012 D.R. Horton decision.  In D.R. Horton, the Board held a class-action waiver to be unenforceable, despite a Federal Arbitration Act policy favoring arbitration, because Section 7 of the National Labor Relations Act protects employees' rights to act concertedly, including pursuing class claims.  Since then, rejection has been harsh and unanimous. The Fifth Circuit directly overturned the D.R. Horton decision, and other circuits, including the Second, Eight, and Ninth, held it to be unpersuasive considering the U.S. Supreme Court's edict that as a matter of FAA policy, arbitration agreements are to be enforced according to their terms.  (We previously blogged on the trend of circuit court rejecting the Board's D.R. Horton stance on August 23, 2013 and December 4, 2013.)

But the Board isn't giving up.  Perhaps angling for an appeals court willing to take its side (and, thus, creating a circuit split for more favorable Supreme Court review), the Board used Murphy Oil to fire heavy criticism at the Fifth Circuit's legal reasoning in D.R. Horton, accusing the appeals court of failing to understand the policy ramifications of the NLRA.  "The court's first step was to determine that the pursuit of claims concertedly is not a substantive right under section 7 of the NLRA.  We cannot accept that conclusion; it violates the long-established understanding of the Act and national labor policy. . . . [T]he right to engage in collective action—including collective legal action—is the core substantive right protected by the NLRA."

Not only that, the Board also accused the circuit courts of misunderstanding the principle of federal preemption upon which the Concepcion decision was based.  In Concepcion, the Supreme Court held that the FAA policy favoring arbitration preempted contrary California state common law barring class-action waivers.  In D.R. Horton and Murphy Oil, the Board argues, federal preemption is not an issue.  Rather, the issue is how to reconcile two federal statutes, one of which according to the Board creates a non-waivable right to collective action (the NLRA), while the other favors enforcing arbitration agreements, even if they contain class-action waivers (the FAA).  Concepcion does not answer that question.  However, the Board sidestepped the Court's 2013 follow up to Concepcion, American Express v. Italian Colors Restaurant, 133 S. Ct. 2304, 2309, 186 L. Ed. 2d 417 (2013).  In Italian Colors, the Court noted that Concepcion's principle "holds true for claims that allege a violation of a federal statute, unless the FAA's mandate has been 'overridden by a contrary congressional command.'"

Presumably, the Board construes the NLRA as containing a contrary congressional command to the FAA's pro-arbitration policy.  Dissenting Board member Harry Johnson III, however, suggested that the Board's combative stance is going to result in a painful lesson.  Criticizing the majority, he wrote "that both D.R. Horton and today's decision are steering the agency on a collision course with the Supreme Court . . . . [T]his unfortunate conflict will almost certainly end with the inevitable reaffirmation by the Supreme Court that the Act, too, must yield to the federal policy of enforcing arbitration agreements according to their terms."

For now, the Board has shown no interest in petitioning for Supreme Court review—at least not until it has at least one appeals court decision in its favor to validate its position.  Until then, Murphy Oil re-confirms that the Board will continue to aggressively pursue Section 7 collective action rights for employees when employers compel individual arbitration.

Bottom Line: The NLRB is strategically ratcheting up its aggressive protection of Section 7 collective action rights despite class-action waivers even as appeals courts have resoundingly rejected its legal reasoning as in conflict with the Federal Arbitration Act.

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