Class action waivers are an important tool for employers with employee arbitration agreements to limit their exposure to proceedings initiated by employees or former employees on a classwide basis.
Class action arbitration waivers have taken on even greater significance in recent years with the proliferation of collective actions under the Fair Labor Standards Act (FLSA), as such actions can be burdensome and costly to defend, even in an arbitral forum
In the first days of 2012, the National Labor Relations Board (NLRB or the Board) shocked the employer community when, in D.R. Horton, 357 NLRB No. 184 (2012), it held that class action waivers by employees in arbitration agreements with their employers violated the National Labor Relations Act (NLRA). Nearly five years after D.R. Horton, employers face considerable uncertainty as to the legality of class action waivers in employee arbitration agreements. However, with a recently emerged circuit court split between appellate courts siding with and against the NLRB's invalidation of employee class action arbitration waivers, it is more likely than at any point since D.R. Horton that employers finally will get legal clarity on this key issue.
NLRB's Invalidation Of Employee Class Action Arbitration Waivers
In D.R. Horton, the NLRB held that the arbitration agreement D.R. Horton required its employees to sign interfered with the exercise of employees' rights under §7 of the NLRA, which among other things, grants to employees the right "to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection."
Since D.R. Horton, undeterred by circuit court holdings to the contrary, the Board has doubled down on its invalidation of employee class action arbitration waivers. See Murphy Oil USA, 361 NLRB No. 72 (2014).
Emerging Split Amongst U.S. Circuit Courts of Appeal
The results of litigation on this issue at the U.S. Court of Appeals level is less clear-cut. The Fifth Circuit Court of Appeals twice has rejected the NLRB's position that class action waivers in employee arbitration agreements violate §7 of the NLRA. In a late 2013 decision, the Fifth Circuit refused to enforce the Board's holding in D.R. Horton that employee class action arbitration waivers violate the NLRA. D.R. Horton v. NLRB,
More recently, the Fifth Circuit reaffirmed its holding that employee class action arbitration waivers are not unlawful under the NLRA and refused to enforce the Board's decision to the contrary in Murphy Oil USA v. NLRB,
Two other circuit courts of appeal have sided with the Fifth Circuit in rejecting the NLRB's holding in D.R. Horton and refusing to invalidate employee class action arbitration waivers.
Very recently, however, two other circuit courts—the Seventh Circuit and the Ninth Circuit—have sided with the NLRB and held that employee class action arbitration waivers are unlawful because they violate the NLRA. In late May 2016, siding with the Board's decision in D.R. Horton, the Seventh Circuit held that an employee arbitration agreement barring class or collective arbitration violated §7 of the NLRA.
Similarly, in late August 2016, in Morris v.
Where Do We Go From Here?
Ever since the NLRB's game-changing decision in D.R. Horton to ring in the new year in 2012, employers have been faced with the decision between ceding to employees the right to arbitrate claims in a class or collective action and potentially violating the NLRA. This decision has been particularly challenging for those employers who have geographically diverse businesses with employees located in multiple jurisdictions, and employers who find themselves in jurisdictions where federal courts have not yet weighed in on the issue.
However, this confusion seems likely to end in the near future. In early September 2016, both Epic Systems and
Given the circuit split and the fact that parties on both sides of the issue are asking the Supreme Court to weigh in, it is likely that the court will take up the issue in the near future. How the Supreme Court will rule is much less certain. The late Justice
That the NLRB—which has passed up previous opportunities to have the Supreme Court review the issue—has elected to seek Supreme Court review now appears to suggest that the Board sees an opening to obtain high court approval of its D.R. Horton decision, which would likely be detrimental to employers and immediately invalidate class action waivers in employee arbitration agreements across the country. Conversely, with the current 4-4 split on the Supreme Court, it is possible that the court may not reach a majority decision, leaving in place the current patchwork of appellate court decisions that, while vexing to some employers, may be viewed as a triumph for employers in the Second, Fifth and Eighth Circuits. It is also possible that the court rejects the reasoning of the NLRB and the Seventh and Ninth Circuits, in line with a series of decisions in which the court has expressed a strong preference for arbitration under the FAA.
This issue merits prudent monitoring by employers going forward. Particularly if the Supreme Court sides with the NLRB and invalidates countless existing class action arbitration waivers nationwide, affected employers will want to implement a game plan to deal with the potential implications of such a decision and take other steps to protect themselves against the threat of a class or collective arbitration.
Reprinted with permission from New York Law Journal, © ALM Media Properties LLC. All rights reserved.