NLRB ignores ‘Concepcion’

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By Carol Lundberg
Dolan Newswires

Employers have increasingly required workers to sign mandatory arbitration agreements.

But you might want to tell your employer clients that they may have to rip up those agreements, or so said two members of the National Labor Relations Board in a Jan. 3 decision in D.R. Horton Inc.

In those agreements, employees often waive their rights to pursue class or collective claims.

Employers like them because they can save time and litigation costs if employees must arbitrate rather than litigate.

The decision clashes with a Supreme Court of the United States landmark opinion last year, AT&T Mobility LLC v. Concepcion, which upheld the validity of such waivers.

In D.R. Horton, Michael Cuda had worked as a superintendent for D.R. Horton, Inc., a residential homebuilder. He claimed the company had misclassified him, and all its superintendents, as exempt from overtime pay. In 2008, he notified the company that he was going to initiate arbitration on behalf of himself and a class of superintendents around the country.

Cuda’s employer said that the agreement prohibited arbitration of class or collective claims.

The NLRB said that the mandatory arbitration agreement infringed on substantive rights — to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection” — provided in Section 7 of the National Labor Relations Act.

“What happened in Horton is that [the NLRB] made a big distinction that took people by surprise,” said Clifford L. Hammond, employment lawyer with Nemeth Burwell, P.C. in Detroit.

The Concepcion opinion has been cited more than 200 times since the opinion was released in 2011.

“It was a very good decision for companies and it would go forth unchallenged,” Hammond said.

The Supreme Court in Concepcion said that the Federal Arbitration Act encourages arbitration as preferable over litigation.

“Basically, the NLRB said, ‘We’re different because people have the right to engage in collective actions,’” Hammond said.

The practical effect is that employers’ arbitrations agreements are invalid unless they allow class or collective arbitration, said William H. Fallon of Miller, Johnson, Snell & Cummiskey, P.L.C. in Grand Rapids.

“So employers with agreements have to look at them and say, ‘Do we comply with the Board decision in Horton?’” Fallon said. “Then the immediate question is, ‘What if I have an arbitration agreement that does not comply?’”

His clients, employers, will have to make a judgment call when they’re determining how they want to comply with the D.R. Horton decision. They’ll have to determine whether it’s still worth it to have the arbitration agreements.

“Every employer has to make a judgment call,” Fallon said. “It’s always involved a judgment call, but there are a number of reasons independent of this class-action issue that employers would want or not want arbitration.”

For example, employers consider arbitration’s appeal-proof nature as a factor.

“What if you get a result you’re not happy with? Some employers say it’s not worth it,” Fallon said. “Others say that if we get hit with even two or three lawsuits, then it’s just too expensive. Horton is just one more factor an employer has to take into consideration.”

Although D.R. Horton says employers can’t force someone to sign a class-action arbitration waiver as a condition of employment, Hammond noted that it doesn’t preclude employers and employees from agreeing to the terms of such a waiver.

“The employee can sign it of his own volition,” Hammond said. (See NLRB decision details above.)
Fallon said the D.R. Horton decision caught the legal world a little by surprise, because just a year and a half ago, NLRB’s General Counsel had issued guidance regarding the waivers. While the NLRB is recognized for its political swings, the General Counsel is less prone to such swings.

“We do pay attention to General Counsel memos,” Fallon said. “The memo said that these arbitration agreements are just fine. And that was in 2010. Then, less than two years later, you have the board throwing it out. It’s 180 degrees in the opposite direction. We do value stare decisis. That’s out the window.”

D.R. Horton has filed a notice of appeal in the 5th U.S. Circuit Court of Appeals, and lawyers are going to be watching the result, Fallon said.

“The fundamental lynchpin of the analysis that got them to where they are, is that the right of a group of employees to pursue their claims as a class action or collective action is a substantive right, rather than a procedural opportunity,” he said. “That’s the point I think is questionable.”

Fallon said he thinks that if the case goes all the way to the Supreme Court, the Court may say that the “opportunity to litigate together is a procedural opportunity to promote fairness and efficiency in the matter the litigation is conducted, and not a substantive right.”

In the meantime, employers aren’t going to wait to see if Concepcion can save them from D.R. Horton, Hammond said.

“If you don’t review your agreements, you may be subjected to be invalidated,” he said, which opens another can of worms altogether. “The first place an employee will go to is the NLRB to have that agreement invalidated. Then, all of a sudden, you’re on the NLRB’s radar. You have a reason to be in the crosshairs of a union. It’s a threshold issue that gets their attention.”

NLRB decision details

The National Labor Relations Board decision in D.R. Horton Inc. does leave some wiggle room for employers’ waiver agreements to prohibit class or collective arbitration:

* The agreement can make clear that class-action litigation is an option, even if collective arbitration is not. From the decision: “[E]mployees who join together to bring employment-related claims on a classwide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA [National Labor Relations Act].” Even though the Federal Arbitration Act favors arbitration over litigation, Clifford L. Hammond, employment lawyer with Nemeth Burwell, P.C. in Detroit, noted that the NLRB “made it clear they are not saying that employers are prohibited from requiring employees to sign an arbitration agreement that waives class action, so long as the agreement doesn’t waive all of the employees’ rights to bring class action in all forms. The problem is that the FAA seems to prefer arbitration, but the NLRA indicates the opposite. … You need to look at what types of agreements you have and how they are offered.”

* The D.R. Horton decision is limited to qualifying employees under the NLRA, so it does not apply to managers and supervisors.

* A union is free to agree to the prohibition of class and collective claims.

From the NLRB:

“A policy associated with the FAA and arguably in tension with the policies of the NLRA was explained by the Supreme Court in AT&T Mobility v Concepcion, supra at 1748: The ‘overarching purpose of the FAA … is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings.’ The ‘switch from bilateral to class arbitration,’ the Court stated, ‘sacrifices the principal advantage of arbitration — its informality.’ … But the weight of this countervailing consideration was considerably greater in the context of AT&T Mobility than it is here for several reasons. AT&T Mobility involved the claim that a class-action waiver in an arbitration clause of any contract of adhesion in the State of California was unconscionable. Here, in contrast, only agreements between employers and their own employees are at stake. As the Court pointed out in AT&T Mobility, such contracts of adhesion in the retail and services industries might cover ‘tens of thousands of potential claimants.’ … The average number of employees employed by a single employer, in contrast, is 20 … .

“Moreover, the holding in this case covers only one type of contract, that ­between an employer and its covered employees … . Accordingly, an intrusion on the policies underlying the FAA is similarly limited.”