Class action waivers in arbitration agreements, when used correctly, are an extremely effective tool for employers to reduce exposure on employment claims. So, naturally, the current National Labor Relations Board (NLRB) will not support them. Having lost before the Fifth Circuit Court of Appeals on their argument that Section 7 and Section 8 of the National Labor Relations Act (NLRA) categorically prohibit explicit class action waivers, the NLRB remains undeterred. Here is what the NLRB is up to now.
As brief background, Section 7 of the NLRA, 29 U.S.C. § 157, grants most private-sector employees in the United States the right to collectively bargain (federal, state, and local public-sector employees are not covered and other federal laws cover certain categories of private-sector employees, for example the Railway Labor Act). Section 8 of the NLRA, 29 U.S.C. § 158, prohibits among other things certain actions by employers to interfere or restrain an employee’s exercise of those rights granted by Section 7.
By now, many readers are probably familiar with the NLRB’s decision in D.R. Horton. For those who are not, the NLRB held in D.R. Horton (a) that an arbitration agreement prohibiting class or collective actions by employees interferes with or restrains those employees’ Section 7 rights to band together collectively, thus constituting a violation of Section 8, and (b) that an arbitration agreement prohibiting class or collective actions could reasonably be interpreted by employees as restricting their right to file unfair labor practice charges (i.e., complaints alleging violations of Section 8) with the NLRB.
The Fifth Circuit upheld the NLRB on holding (b) above, but overruled it on holding (a) above. The practical effect of the Fifth Circuit’s ruling in D.R. Horton was that employers were required to include a cautionary statement in an arbitration agreement with a class action waiver that the agreement and waiver does not preclude filing unfair labor practice charges with the NLRB; however, the class action waiver itself was not improper under the NLRA. We wrote about this decision here approximately three months ago.
Despite the Fifth Circuit overruling the NLRB in D.R. Horton, an Administrative Law Judge (ALJ) of the NLRB recently held in Leslie’s Poolmart & Cunningham, No. 21-CA-102332, that the NLRB’s decision in D.R. Horton was still good law until the United States Supreme Court overruled it. The ALJ then proceeded to expand D.R. Horton by holding that not only are explicit class action waivers in arbitration agreements a violation of Sections 7 and 8 of the NLRA, but so are arbitration agreements without any explicit class action waiver if the employer ever argues that the arbitration agreement prohibits a class or collective action.
Here is what happened. In Leslie’s Poolmart, an employee filed an overtime class action against the employer. The employer removed to federal court and then filed a motion to compel arbitration of the employee’s individual overtime claims and, even though the arbitration agreement lacked an explicit class action waiver, a motion to dismiss the employee’s class or collective claims. The district court granted the motion except as to one class action claim under California state law. As a result, in parallel NLRB proceedings against Leslie’s Poolmart, the ALJ held that the employer’s attempt to effectively enforce a class action waiver in the federal court litigation was qualitatively no different than enforcing an explicit class action waiver held invalid by the NLRB in D.R. Horton.
What The Decision Means
Given the ALJ’s statement that the NLRB is not bound by federal court decisions except those rendered by the U.S. Supreme Court, it seems unlikely that the NLRB will appeal the Fifth Circuit’s D.R. Horton decision to the U.S. Supreme Court and risk a definitive loss. This approach will leave the NLRB free to render decisions such Leslie’s Poolmart until an employer eventually loses one of these cases in a federal circuit court of appeals and obtains U.S. Supreme Court review. As a result, employers (outside the Fifth Circuit states of Texas, Louisiana and Mississippi) with class action waivers in an arbitration agreement or those that seek to dismiss class or collective claims based upon an arbitration agreement will continue to face the prospect of expensive NLRB litigation and will be subject to the additional leverage that these types of NLRB decisions give employees.
Bottom line, employers will continue to spend time and money fighting with the NLRB over class action waivers in arbitration agreements until the U.S. Supreme Court definitively answers the question of whether Sections 7 and 8 of the NLRA prohibit these waivers. Leslie’s Poolmart is a dangerous decision in that it demonstrates the NLRB will do what it wants on this issue until it is once and for all put to rest by the U.S. Supreme Court.