New England Biz Law Update
One year after the National Labor Relations Board sent shockwaves through the labor and employment bar by ruling that mandatory arbitration clauses barring class actions violated the National Labor Relations Act, the decision is coming under direct fire from federal courts — and it could lead to a U.S. Supreme Court showdown.
At the time that it was handed down last year, lawyers representing employers said the NLRB’s decision in DR Horton seemed to conflict with Supreme Court precedent upholding mandatory arbitration agreements that barred class arbitration under the Federal Arbitration Act.
Still, lawyers who routinely included such class action waivers in employment contracts and collective bargaining agreements were forced to change course to head off unfair labor practice allegations.
But now the NLRB’s ruling faces two levels of challenges: one based on the merits of the case and another based on the authority of the board to issue the ruling at all.
While the 5th U.S. Circuit Court of Appeals is considering whether to overrule the decision on appeal, the 8th Circuit recently declined to follow its reasoning.
“I think it’s very likely that DR Horton is going to be reversed,” said Christopher Bopst, a partner in the Buffalo, N.Y., office of Goldberg Segalla. “Right now, there is a fair amount of hostility” toward the NLRB’s ruling.
In DR Horton, the board held that the pursuit of class action litigation or other class-based relief was protected concerted activity under the NLRA, and therefore employers’ use of mandatory arbitration agreements that include a waiver of the right to make classwide claims constitutes an unfair labor practice.
But trial and appellate courts across the country have taken a different view, ruling that such mandatory arbitration clauses do not run afoul of federal labor law. Most notably, the 8th Circuit’s Jan. 7 ruling in Owen v. Bristol Care held that a mandatory arbitration clause that precluded class claims was valid and did not violate the Fair Labor Standards Act.
Though the employee in that case relied in part on the DR Horton ruling, the court declined to follow the NLRB, saying that appellate court judges “owe no deference to its reasoning” and noting that “although no court of appeals has addressed DR Horton, nearly all of the district courts to consider the decision have declined to follow it.”
Challenges based on merits, recess appointments
Ron Chapman Jr., a shareholder in the Dallas office of Ogletree Deakins who represents DR Horton in the 5th Circuit appeal, said the board’s ruling is based on a faulty legal premise that employees have a statutorily protected right to bring class claims.
“There is no such right,” Chapman said. “It does not exist in the clear, written text of the statute.”
During Feb. 4 oral arguments before the 5th Circuit, Kira Dellinger Vol, counsel for the NLRB, disagreed.
“The board and the courts have long held that employees’ right under the National Labor Relations Act to act concertedly for mutual aid or protection encompasses the right to litigate work-related claims concertedly,” Vol told the judges. Any agreement or rule that circumvents that right, she argued, “violates the National Labor Relations Act.”
A decision from the 5th Circuit could come by the spring, but Chapman said the legal momentum is strongly against the NLRB.
“If you do the math, in the 13 months since the NLRB’s decision, 26 different courts have rejected it, including the 8th Circuit Court of Appeals,” Chapman said.
The ruling is facing additional challenges on the basis of a January ruling from the D.C. Circuit that the recess appointments of three members to the NLRB last year were unconstitutional.
The D.C. Circuit’s ruling came down after the 5th Circuit appeal was already under way, but latter courts could take up the constitutional challenge as well. If it holds that the three board members acted without authority, the case could be thrown out.
All those factors make it more likely that the Supreme Court will step in to settle the law on the use of class action waivers in the employment context.
Despite AT&T Mobility LLC v. Concepcion and other rulings upholding such waivers in arbitration contracts, “the NLRB is still taking the position it did in DR Horton,” Bopst said. “I’m not going to tell my clients right now to use a mandatory arbitration provision. I really think there’s a strong likelihood that this will end up before the Supreme Court.”
