Fifth Circuit Joins Other Federal Circuits and Rejects NLRB’S Refusal to Enforce Collective Action Waiver

December 4, 2013Articles
The Fifth Circuit weighed in yesterday on the ongoing discussion among courts regarding the enforceability of class/collective action waivers.i While federal appellate courts have upheld collective action waivers and rejected the National Labor Relations Board’s position, some federal courts at the district court level have invalidated collective action waivers in reliance on the NLRB’s In re DR Horton decision,ii which found that arbitration agreements prohibiting employees from filing employment related class/collective actions violated the National Labor Relations Act. In this much anticipated decision, the Fifth Circuit reviewed and generally rejected this NLRB position.

Specifically, the Fifth Circuit overturned the NLRB’s ruling that a prohibition on proceeding as a class/collective violated the NLRA on the grounds that the NLRB failed to give proper weight to the Federal Arbitration Act.iii DR Horton, Inc. required its employees to sign an arbitration agreement that contained, among other things, a prohibition on employees pursuing a class or collective action. One of its employees sought to bring a Fair Labor Standards Act collective action arbitration proceeding alleging that he and other similarly situated employees had been misclassified as exempt and were due unpaid overtime wages. DR Horton responded that the action was barred by the arbitration agreement, but that the employee and other employees could pursue such claims individually.

In response, the employee filed an unfair labor practice charge, arguing that the collective action waiver violated the employee’s rights under the NLRA. An administrative law judge found that the arbitration agreement violated the NLRA because its language would cause employees to reasonably believe that they were prohibited from filing NLRB charges and the NLRB panel of Mark Pearce and Craig Becker upheld this decision. The NLRB Panel went even further than the ALJ, finding that the collective and class action waiver violated the NLRA because it required employees to waive their collective/class rights in any forum. The NLRB required DR Horton to rescind or revise the agreement to clarify that employees were not prohibited from filing charges with the NLRB, nor were they prohibited from bringing employment-related claims as a class or collectively.

The Fifth Circuit found that the FAA would be violated and arbitration disfavored if the arbitration agreement was not enforced because it deprived employees of the nonsubstantive right to proceed as a class/collective. The Fifth Circuit concluded: “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.” Since the Court found no congressional command that the NLRA override the FAA in the statutory text or legislative history of the NLRA, and no such inference from any inherent conflict between the NLRA and FAA, the Court overturned the NLRB’s holding with respect to class/collective action waivers.

In reaching its decision, the Fifth Circuit noted that it was “loath” to create a circuit split, acknowledging that every one of its sister circuits had either expressly stated or suggested that they would not follow the NLRB’s rationale and upheld class/collective action waivers in arbitration agreements. See Richards v. Ernst & Young LLP, No. 11-17530, 2013 WL 4437601 (9th Cir. August 13, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2nd Cir. 2013); Owen v. Bristol Care Inc., 702 F.3d 1050 (8th Cir. 2013).

In light of this decision, employers can gain even further confidence in the enforceability of class/collective action waivers in their arbitration agreements, but with the caveat that several Circuit Courts of Appeal and the United States Supreme Court have yet to weigh in on the subject. Nonetheless, employers should take care that such arbitration agreements do not overreach in the manner of DR Horton’s and make clear that the filing of agency charges such as with the NLRB or EEOC are not prohibited. Employers should also take care, as always, to ensure that such agreements comply with the state of current law in their Circuit(s) as well as any applicable state requirements for enforceable arbitration agreements.

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(i) DR Horton, Inc. v. National Labor Relations Board, Case No. 12-60031 (5th Cir. Dec. 3, 2013)
(ii) 357 NLRB No. 184 (Jan 3, 2012)
(iii) Before considering the merits of the case, the Fifth Circuit addressed several procedural concerns related to the validity of the Board’s action. As a threshold matter, the Fifth Circuit found that it was not required for jurisdictional reasons to determine whether the NLRB decision was invalid consistent with Noel Canning, and therefore declined to do so. The Court did consider whether Member Becker’s recess appointment expired before the Board issued its decision, which would have invalidated the decision, but found that the session ended with the start of the next session on January 3 at noon rather than at the time of Senate adjournment in December 2011, and that the record was sufficiently unclear on the timing of the issuance of the decision on January 3 that the issue was waived. The Court also refused to require an express delegation of authority by the Board for two members of a three member panel to decide a case.