United States: Fifth Circuit Stands Pat, Again Rejects NLRB Attempt To Void Class And Collective Action Waiver

As expected, the Fifth Circuit once again has rejected the NLRB's highly controversial position that the National Labor Relations Act ("NLRA") prohibits employers from requiring mandatory arbitration agreements that preclude employees from filing class or collective claims in any forum.

The Fifth Circuit first took up the issue nearly two years ago, when it set aside the NLRB's D.R. Horton, Inc. decision.  In the Fifth Circuit's view, the strong congressional policy contained in the Federal Arbitration Act ("FAA"), which requires the enforcement of arbitration agreements "as written," was not overcome by the NLRA's general provisions protecting the rights to organize and to engage in various forms of protected concerted activity.  Most courts (including the Second Circuit and  Ninth Circuit) to address the issue since then have followed suit.

Despite the courts' dim view, the NLRB has been undeterred and continues to press its D.R. Horton rationale.  One such decision is Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).  The facts are these:  Murphy Oil's new hires signed binding arbitration agreements that included a waiver of the right to commence or participate in a group, collective or class action.  Despite having signed the agreement, several employees filed an FLSA collective action in federal court.  Murphy Oil filed a motion to dismiss and compel arbitration on an individual basis, which the court granted.

The plaintiffs did not appeal the district court's dismissal order. Instead, they pursued unfair labor practice charges with the NLRB, contending that the arbitration agreement interfered with their rights under Section 7 of the NLRA to engage in protected concerted activity.

In a 3-2 decision, the Board majority invalidated Murphy Oil's arbitration agreement, concluding that the "reasoning and result" of the D.R. Horton decision were correct, notwithstanding that it had been "rejected by the U.S. Court of Appeals for the Fifth Circuit and viewed as unpersuasive by decisions of the Second and Eighth Circuits."

Murphy Oil petitioned the Fifth Circuit to review the decision. The court declined the NLRB's request to hear the case en banc, and at oral argument the panel pointedly reminded the agency it would follow circuit precedent.  Unsurprisingly, then, the Board's order was set aside by the court of appeals to the extent it conflicted with the earlier D.R. Horton decision.

Unfortunately for employers, the Fifth Circuit did not add to its earlier decision, offering only a matter of fact statement: "Our [D.R. Horton] decision was issued not quite two years ago; we will not repeat its analysis here.  Murphy Oil committed no unfair labor practice by requiring employees to relinquish their right to pursue class or collective claims in all forums by signing the arbitration agreements at issue here."

The Fifth Circuit did uphold the Board's order with respect to its conclusion that the arbitration agreement suggested that employees were prohibited from filing unfair labor practice charges with the Board. The court declined to hold that agreements must include an express statement of employees' right to do so, but also opined that such a statement would be helpful in the event that "incompatible or confusing language appears" elsewhere in the agreement.

Perhaps the only surprising aspect of the decision is the court's mild tone toward an agency that continues to flout the court's authority. For example, Murphy Oil had pressed for a contempt order or sanction to address what it had characterized as the Board's "defiance" of the D.R. Horton decision.  The court declined to do so ("We do not celebrate the Board's failure to follow our D.R. Horton reasoning, but neither do we condemn its nonacquiescence."), but its reasoning is perplexing.  As the court pointed out, employers typically can chose among several circuits when challenging a decision by the Board, so the "Board may well not know which circuit's law will be applied on a petition for review."  However, to date no circuit has taken a contradictory view – a point the court had earlier noted, when it explained that "several of our sister circuits have either indicated or expressly stated that they would agree with our holding in D.R. Horton if faced with the same question."

Similarly, in its decision, the Board had award attorneys' fees and expenses that the charging party had incurred to oppose Murphy Oil's successful district court motion to compel arbitration – an action the Board concluded had been taken "with an illegal objective." The Fifth Circuit also refused to enforce that portion of the order, but again the language is soft: "Though the Board might not need to acquiesce in our decisions, it is a bit bold for it to hold that an employer who followed the reasoning of our D.R. Horton decision had no basis in fact or law or an 'illegal objective' in doing so.  The Board might want to strike a more respectful balance between its views and those of circuit courts reviewing its orders."

In the end, the Fifth Circuit's Murphy Oil decision is unlikely to change the status quo.  While the precedent in this circuit has been bolstered, the decision seems unlikely to deter the Board from charting its own course, both within and without this circuit, and continuing to invalidate arbitration agreements that contain class and collective action waivers.

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