NLRB Doubles Down: Again Holds Waivers of Class Actions in Arbitration Agreements Illegal

It's election time. So here's a short political rant:  The National Labor Relations Board is one of the administrative agencies that prove the cliche: elections have consequences.  (The President nominates the Board's members, each of whom is confirmed by the Senate to a five-year term.)  The President packed the Board with "recess appointments" after the Senate would not confirm his nominees. The Supreme Court voided those recess appointments. And then the Senate confirmed a slate of 5 nominees in a political compromise over filibusters and such.  Because advice and consent on the merits. End rant.

Whether you agree or disagree with the administration's politics, it's no secret that the NLRB has set about expanding the reach of the National Labor Relations Act, into non-union settings (like social media policies; handbook policies against insubordination, disloyalty, etc.; confidentiality agreements; and more).  It is not an exaggeration to say that non-union employers face more scrutiny by the National Labor Relations Board than they ever have in the past.

The Board also has weighed in on private agreements to arbitrate. The Board made news a couple of years ago when it held that an employer's requiring employees to waive the right to pursue class relief in mandatory arbitration agreements violated the National Labor Relations Act.  That was the "DR Horton" decision here.  The essence of DR Horton is that class action waivers violate the National Labor Relations Act by requiring employees to give up the right to act in a group (class) concerning wages, hours, or other terms and conditions of employment.

But the Fifth Circuit Court of Appeals refused to enforce DR Horton, meaning it could not be enforced against DR Horton in court, or against other employers as precedent.  Other courts also declined to follow DR Horton in part because it has nothing to do with the National Labor Relations Act, and in part because the U.S. Supreme Court has found class waivers to be fine under the Federal Arbitration Act.  Even the California courts of appeal have refused to hold class waivers unenforceable under DR Horton.

So, given that courts, which interpret the law that Congress enacts, universally rejected DR Horton, the NLRB's decision is probably relegated to the dust-bin of blips in the employment law radar, never to be heard from again, right?

Political rant redux: Nah, this is the 2014 National Labor Relations Board. They are not constrained by silly federal and state judges and stuff!  Ok, I'm done.

The Board's new decision, Murphy Oil (opinion here) gives new life to DR Horton.  Based primarily on encouraging law review articles written by law school professors, 3 of 5 members decided to re-affirm DR Horton and declare once again that class action waivers in arbitration agreements violate the NLRA, and will maintain this position until the U.S. Supreme Court says otherwise.  Given it will take the federal courts and Supreme Court a few years to take up the issue, this will be the Board's position for a while.

So, in this new case,  Sheila Hobson worked for a Murphy Oil facility and signed an arbitration agreement containing this language:

INDIVIDUAL AND COMPANY UNDERSTAND THAT, ABSENT THIS AGREEMENT, THEY WOULD HAVE THE RIGHT TO SUE EACH OTHER IN COURT, TO INITIATE OR BE A PARTY TO A GROUP OR CLASS ACTION CLAIM, AND THE RIGHT TO A JURY TRIAL, BUT, BY EXECUTING THIS AGREEMENT, BOTH PARTIES GIVE UP THOSE RIGHTS AND AGREE TO HAVE ALL EMPLOYMENT DISPUTES BETWEEN THEM RESOLVED BY MANDATORY,
FINAL AND BINDING ARBITRATION. ANY EMPLOYMENT RELATIONSHIP BETWEEN INDIVIDUAL AND COMPANY IS TERMINABLE AT-WILL, AND NO OTHER INFERENCE IS TO BE DRAWN FROM THIS AGREEMENT.

Hobson later sued Murphy under the Fair Labor Standards Act, asserting a collective action along with three other employees.  The federal district court ordered Hobson to individual arbitration.   But Hobson filed a complaint (charge) with the NLRB and the NLRB's General Counsel charged Murphy with an unfair labor practice (forcing Hobson to give up the right to collectively pursue her wage claims).

The NLRB decided 3-2 that Murphy violated the NLRA, that DR Horton was correctly decided and valid, that the circuit courts that rejected it were wrong, and that the 2 dissenting Board members were also wrong.

What is the upshot?

1. Class action waivers in arbitration agreements remain enforceable in court.

2. Employers maintaining class arbitration waivers may expect unfair labor practice charges before the NLRB, including non-union employers.

3.  NLRB orders are not enforceable by themselves, in that the NLRB has to go to a federal court of appeals to obtain a judgment. So, unless a circuit court of appeals enforces the Board's order, the legal effect of an unfair labor practice finding is limited to whatever sanctions the Administration can levy on employers who are federal contractors found to violate the NLRA, and to whatever retribution the NLRB may bring against the employer for refusing to comply with its unenforceable order.

4. If a circuit court does choose to enforce the order, it could create a circuit split, providing some incentive for the U.S. Supreme Court to take up the case.

Be careful out there.

U.S. Supreme Court: Arbitrator Had Power to Interpret Whether Arbitration Agreement Allowed Class Actions

The Supreme Court infrequently issues unanimous decisions in matters that concern employers and employees. So, it was a bit of a surprise to see Oxford Health Plans v. Sutter, the Court's 9-0 decision today.  Then I noticed that the substantive claims are not employment law-related.  Still, this opinion  will affect class action arbitration, employment law and otherwise.

Sutter was a doctor. He and a class of doctors sued Oxford for failing to reimburse adequately under the insurance reimbursement contract. Oxford required Sutter to arbitrated his claim under this arbitration clause:

No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.

Once in arbitration, the parties agreed to let the arbitrator  decide whether the above language authorized classwide arbitration. The arbitrator held that it did.  When the Supreme Court issued Stolt Nielsen v. AnimalFeeds (when arbitration agreement is silent regarding class action arbitration, the default is to hold individual arbitrations), Oxford asked the arbitrator again to exclude class claims. The arbitrator again refused.

So, for a second time Oxford moved to vacate that finding under the Federal Arbitration Act.  The trial court, the court of appeals and the Supreme Court unanimously said, no can do:

Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration. So to overturn his decision, we would have to rely on a finding that he misapprehended the parties’ intent. But [Federal Arbitration Act] §10(a)(4) bars that course: It permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly.

As in other cases, the Court's decision in part turned on the litigation strategy of one of the parties. Possibly to garner more votes, Justice Kagan was pretty negative about the arbitrator's decision.  She suggested that a court might well have ruled a different way if Oxford had chosen to ask the district court to interpret the agreement instead of the arbitrator:

We would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called “question of arbitrability.” Those questions—which “include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy”—are presumptively for courts to decide. Green Tree Financial Corp. v. Bazzle, 539 U. S. 444, 452 (2003) (plurality opinion). A court may therefore review an arbitrator’s determination of such a matter de novo absent “clear[] and unmistakabl[e]” evidence that the parties wanted an arbitrator to resolve the dispute. AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649 (1986). StoltNielsen made clear that this Court has not yet decided whether the
availability of class arbitration is a question of arbitrability. See 559 U. S., at 680. But this case gives us no opportunity to do so because Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures. See Brief for Petitioner 38, n. 9 (conceding this point). Indeed, Oxford submitted that issue to the arbitrator not once, but twice—and the second time after StoltNielsen flagged that it might be a question of arbitrability.

So, lesson learned.  If you think a court will follow Stolt-Nielsen more faithfully than an arbitrator, seek construction of your arbitration clause in court.

Bonus - the Court said this right up front:  "Class arbitration is a matter of consent: An arbitrator
may employ class procedures only if the parties have authorized them."  That does not bode well for those who would like the California Supreme Court to hold that class action waivers are illegal.

This case Oxford Health Plans LLC v. Sutter and the opinion is here.