By Eric H. Rumbaugh and Anne Carroll

Last week we introduced a U.S. Supreme Court ruling (AT&T Mobility v. Concepcion) that held arbitration agreements barring class claims are valid, and that federal law preempts state laws that bar class action waiver agreements. While Concepcion did not concern employment contracts, a further court decision opened the door to the concept. But courts still have been divided on the matter.

This article addresses the National Labor Relations Board’s (NLRB) stance on the applicability of Concepcion to employment agreements.

The NLRB’s Hostility
In the case of D.R. Horton and Michael Cuda, the National Labor Relations Board held that it was an unfair labor practice for employers to require employees to sign arbitration agreements that waive their right to file joint or class claims. According to the NLRB, requiring employees to waive their rights to proceed on a collective action basis violates Section 7 of the National Labor Relations Act (NLRA), which provides that employees have the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. The NLRB specifically decided that Concepcion did not preclude its holding because Concepcion did not involve waivers of class actions in employment arbitration agreements but instead involved the preemption of a state’s attempt to restrict class arbitration agreements. The NLRB did, however, note that its holding was limited only to arbitration agreements that implicate Section 7 rights.

Following the NLRB’s decision, though, several federal district courts refused to follow D.R. Horton. The Fifth Circuit finally overturned the NLRB’s decision in December 2013, recognizing an absence of any authority to support a finding that Section 7 prohibited class action waivers. The Fifth Circuit also considered the public policy considerations discussed by the U.S. Supreme Court in Concepcion, including the notion that a ban on class action waivers would discourage individual arbitration and necessitate class action procedures that would be inconsistent with the Federal Arbitration Agreement.  

Despite the Fifth Circuit’s holding, the NLRB has showed no sign of changing its position on class waivers and is likely to argue that D.R. Horton is good law unless and until the U.S. Supreme Court says otherwise. In the January 2014 Leslie’s Poolmart Inc. decision, an NLRB administrative law judge found — relying on D.R. Horton — an employer’s arbitration agreement that did not contain an express prohibition on class actions still ran afoul of the NLRA because the employer intended to prohibit such acts. An employee signed an arbitration agreement, which required him to submit all claims arising from his employment to arbitration but was silent as to whether employees could pursue class claims. The employee filed an unfair labor practice with the NLRB, claiming that the agreement did prohibit employees from filing collective actions. An administrative law judge agreed, finding that the employer committed an unfair labor practice because it tried to utilize the agreement to bar the employee’s collective action claims.

The Poolmart decision serves as a reminder that Concepcion does not rule the day in the eyes of the NLRB. It also provides yet another reason for employers to watch carefully for the U.S. Supreme Court’s decision in Noel Canning this spring. The court might hold that the NLRB’s decision in D.R. Horton is void because it was not issued with the requisite quorum for the board.

What’s an Employer to Do?
The law in this area is certainly not settled — especially where the NLRB is concerned — but courts are increasingly following Concepcion and enforcing arbitration agreements that bar class litigation. Employers should seriously consider whether arbitration agreements are the right move for their businesses.

On the other hand, if a business’ exposure to a class action is low, it may not benefit much from a mandatory arbitration agreement, and employers must consider whether they are comfortable with a decision that is worth all the marbles. Arbitration decisions are virtually unappealable, so employers can get stuck with bad decisions. In Oxford Health Plans LLC v. Sutter, for example, an employer’s arbitration agreement did not actually specify whether class actions were prohibited, but merely said that the parties agreed to arbitrate all disputes. The arbitrator concluded that that language allowed class action arbitration. On appeal, the U.S. Supreme Court hinted that it thought the arbitrator was dead wrong but refused to overturn the decision because, under the Federal Arbitration Act, as long as the arbitrator makes a good faith effort to interpret the parties’ contract, his interpretation is subject to limited court review.

Fortunately, employers have options. They do not have to institute a mandatory arbitration program, and if they do, they have some flexibility when structuring it. Employers should talk to their counsel to determine whether arbitration agreements fit their business’ needs and to craft agreements that minimize potential exposure to class claims.

Eric Rumbaugh is a partner and Anne Carroll is an attorney with Michael Best and Friedrich LLC (www.michaelbest.com). They represent lawyers in employment law matters.