|December 30, 2013|
Previously published on December 2013
A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit has rejected, 2-1, the Board's position that an employer's use of a mandatory arbitration agreement, which was executed individually by an employee as a condition of employment and which included a waiver of class or collective claims in arbitration, violated the National Labor Relations Act.
The Board's position in this and many other cases is that the right to pursue employment-related claims collectively, either in court or in arbitration, is "protected concerted activity." According to the Board, an employer unlawfully interferes with employees' rights to engage in protected concerted activity when the employer requires an individual waiver of class or collective claims (in other words, waiver of the employee's right to go to court as well as the right to have class or collective claims heard in the arbitral forum) in a mandatory arbitration agreement. The Board's current position apparently allows employees to waive these rights only through labor unions, despite the NLRA's provision that guarantees an employee's Section 7 right "to refrain from" concerted activity.
However, the U.S. Courts of Appeal for the Second, Eighth, and Ninth circuits have rejected the Board's position on this issue, and now the Fifth Circuit has joined them.
The Fifth Circuit panel in D. R. Horton largely sidestepped challenges to the Board's order based on the participation of former Member Becker and instead focused on the substance of the Section 8(a)(1) interference allegation. The panel's two-judge majority determined that the NLRA was not the only "relevant authority," and it closely examined U.S. Supreme Court decisions interpreting the Federal Arbitration Act -- most importantly, AT&T Mobility v. Concepcion. The Fifth Circuit majority determined that the NLRA's protection of employees' right to engage in concerted activity did not override the FAA's clear command that, absent special exceptions not present in the case, arbitration agreements are to be enforced according to their terms and that individual arbitration is a process protected by the FAA based on Supreme Court authority. The majority found that the right to proceed on a class basis, as advocated by the Board, was a procedural device and not a substantive right. And, according to the panel majority, "[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA."
The Fifth Circuit panel wrapped up its NLRA and FAA analysis succinctly, emphasizing, "The issue here is narrow: do the rights of collective action embodied in this labor statute make it distinguishable from cases which hold that arbitration must be individual arbitration? We have explained the general reasoning that indicates that the answer is, 'no.'" The majority added that it was loath to create a split with the three other federal appeals courts that had already indicated that they would not defer to the Board's rationale. Although the Fifth Circuit panel held that use of the arbitration agreement did not violate the NLRA and refused to enforce the Board's order on that ground, the panel unanimously enforced the Board's order anyway, finding that the agreement violated Section 8(a)(1) because it failed to make a clear exception for filing of unfair labor practice charges with the Board.
Litigation and accompanying uncertainty on the issue of mandatory arbitration agreements with waivers of class claims is far from over. The Board may seek rehearing en banc before the full Fifth Circuit, petition for certiorari to the U.S. Supreme Court, or essentially ignore the decision and others like it in other appellate circuits across the nation. Given the current makeup of the Board, and without a Supreme Court ruling on the issue, employers should not expect the Board to acquiesce to the Fifth Circuit ruling anywhere but in the Fifth Circuit.
Surely employers would like clarity on this issue. In recent years, many non-union employers have turned to mandatory arbitration agreements with employees as a way to stem litigation and lessen the cost of resolving disputes. Although state laws often restrict arbitration, the Supreme Court has largely cleared those out of the way. Until the issue in D.R. Horton is ruled on by the Supreme Court, employers should balance the benefits of mandatory arbitration agreements containing class and collective action waivers against the risks associated with a potential NLRA violation.