Tag Archives: D.R.Horton

November 10, 2014

NLRB Unwilling to Give Up on Workers’ Right to Class Actions

Mumaugh_BBy Brian Mumaugh

Reaffirming its controversial D.R. Horton decision, the National Labor Relations Board (NLRB or Board) recently ruled that an employer who required its employees to agree to resolve all employment-related claims through individual arbitration, waiving their right to pursue class actions, violated the National Labor Relations Act (NLRA).  Though two members of the Board dissented, the three member majority pointed to the core objective of the NLRA, namely the protection of workers acting in concert, to find that mandatory arbitration agreements waiving an employee’s right to file a class or collective action is unlawful.  Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014).

Employees Filed FLSA Collective Action

Four employees of Murphy Oil USA, Inc., which operates over 1,000 retail fueling stations across 21 states, filed a lawsuit in federal court in Alabama alleging that the company violated the Fair Labor Standards Act (FLSA) by failing to pay overtime and requiring employees to perform work-related activities off-the-clock.  They brought the case as a collective action under the FLSA which allows them to sue on behalf of themselves and all other similarly situated Murphy Oil employees.  The company asked the court to dismiss the collective action, seeking to enforce arbitration agreements signed by the employees that require that all claims be arbitrated on an individual basis.  One of the plaintiff-employees then filed an unfair labor charge with the NLRB alleging that the company was violating Section 8(a)(1) of the NLRA by using and enforcing mandatory arbitration agreements that prohibited employees from engaging in protected, concerted activities. 

Board Asserts D.R. Horton Was Correctly Decided

In deciding this NLRA violation issue, the Board believes the rationale articulated in its 2012 D.R. Horton case is correct, asserting that “[m]andatory arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum restrict the exercise of the substantive right to act concertedly for mutual aid or protection that is central to the National Labor Relations Act.”  The Board states that the basic premise of federal labor law – protecting the right of workers to engage in collective action – makes the NLRA different from other labor and employment statutes.  The Board points to earlier Supreme Court decisions that made clear that the NLRA protects employees “when they seek to improve working conditions through resort to administrative and judicial forums  . . .”  Other court decisions cited by the Board held that individual agreements between employees and an employer (as opposed to collective bargaining agreements) cannot restrict employees’ Section 7 rights.  Relying on these cases and the majority’s interpretation of the core objective of federal labor law, the Board adheres to its position that protecting workers’ right to pursue collective actions to improve working conditions is a substantive right under the NLRA that cannot be waived by employees through a mandatory arbitration agreement.

Fifth Circuit Got D.R. Horton Decision Wrong, According to the Majority Opinion of Board

In December 2013, a divided Fifth Circuit Court of Appeals held that the NLRA did not override the Federal Arbitration Act (FAA), thereby allowing an employer’s arbitration agreement to be enforced according to its terms, including the agreement’s waiver of class claims.  D.R. Horton, Inc. v. NLRB, ___ F.3d ___, 2013 WL 6231617 (5th Cir. Dec. 3, 2013).  Rather than settling the issue for the NLRB and employers nationwide, the Fifth Circuit’s decision did little to quell the NLRB’s belief that class action waivers violate the NLRA.  In the Murphy Oil case, the Board attempts to explain why it believes the Fifth Circuit got it wrong. 

First, the Board asserts that the Fifth Circuit simply followed other FAA cases that did not involve a substantive right under Section 7 of the NLRA.  The Board argues that both the NLRA and the FAA must be accommodated and the Fifth Circuit’s decision gave too little weight to the NLRA and its underlying labor policy.  Second, the Board states that the Fifth Circuit’s decision forces workers into more costly and disruptive forms of concerted activity than bringing a collective action in court.  The Board believes that there is no basis for carving out concerted legal activity as entitled to less protection than other concerted activities, such as picketing, strikes and boycotts.  Third, the Board notes that the Supreme Court, while favoring arbitration, prohibits a prospective waiver of a party’s right to pursue statutory remedies and an arbitration agreement that precludes employees from filing joint, class or collective claims regarding working conditions in any forum amounts to a prospective waiver of a right guaranteed by the NLRA. 

Analysis By Other Circuits Rejected by Board

The Board pays little attention to and dismisses decisions by three other circuit courts of appeal that rejected the Board’s D.R. Horton rationale.  In essence, the Board states that the Second and Eighth Circuits purportedly did not conduct a thorough analysis of the legal issues and the Ninth Circuit amended its decision to refrain from deciding the issue.  Consequently, the Board found those decisions to be unpersuasive.

Two Board Members Dissent

Two of the five board members dissented, rejecting the majority’s D.R. Horton rationale.  Member Miscimarra stated that the NLRA “cannot reasonably be interpreted as giving employees a broad-based right to “class” treatment under other Federal, State, and local laws.” Member Johnson stated that the Board’s “interpretation of the FAA – which otherwise requires an agreement to be enforced exactly according to its terms – would allow Section 7 to swallow up the FAA itself.”  The dissenters also noted that the majority essentially ignored numerous clear decisions of the Supreme Court.  In citing the Supreme Court’s 2011 AT&T Mobility, LLC v. Concepcion case, member Johnson stated “Notably, the Court forbade [the majority’s] interpretation [of the FAA] when it decided that the FAA’s savings clause could not be construed to include a right that would be “absolutely inconsistent” with the FAA’s provisions.”  He went on to write:

The governing law could not be plainer.  Provisions in arbitration agreements precluding class actions may not be condemned simply because they restrict an employee’s ability to use litigation procedures established under other statutes in litigating those employment-related claims.  This is especially so where the governing statutes clearly describe the litigation procedures as procedural rights.

The dissenting members believe that employees and employers may enter into agreements that waive class procedures in litigation or arbitration. 

What’s Next For Arbitration Agreements That Waive Class Actions?

The current majority of the Board appears unpersuaded by federal court decisions—not to mention the Supreme Court of the United States–holding that its position in D.R. Horton  is simply wrong.  It appears that, absent a further Supreme Court decision on the issue, the NLRB General Counsel likely will continue to issue complaints against employers who require employees to sign arbitration agreements that include a waiver of joint, class and collective actions.  If and when the makeup of the Board changes, the dissenting opinion may become the majority opinion for future cases.  In the meantime, employers who mandate such agreements should continue to enforce them.  In other words, if faced with a class or collective action by an employee or employees who signed an agreement waiving class claims, the employer should ask the court to compel individual arbitration, dismissing the class/collective action.  Despite the Board’s current position,  a court is likely to grant that request.  Employers should review their arbitration agreements, however, to ensure that any disputes arising under the NLRA are not subject to the mandatory arbitration provision and that employees are not prohibited from participating in proceedings before the Board.

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August 26, 2013

Ninth Circuit Joins Growing Trend – Declines to Follow D.R. Horton and Upholds Arbitration Agreement Prohibiting Class Claims

By Jeffrey T. Johnson 

On August 21, 2013, the Ninth Circuit Court of Appeals, in Richards v. Ernst & Young, LLP, Case No. 11-17530, became the third federal Circuit – together with the Second and Eighth – to reject the National Labor Relations Board’s (NLRB’s) controversial D.R. Horton decision, which held that an arbitration agreement requiring an employee to waive his or her right to bring class claims violated the National Labor Relations Act.  The Richards Court also rejected the plaintiff’s argument that Ernst &Young had waived its right to arbitrate her claims by waiting to seek arbitration until after discovery and several rulings by the court.  Therefore, the Court held that the arbitration agreement between Richards and Ernst &Young was enforceable, even though it precluded class arbitration. 

Federal Courts of Appeal Reject NLRB’s D.R. Horton Decision 

Decided in January 2012, the NLRB’s D.R. Horton ruling attempted to thwart efforts by employers to reduce their risk of class action claims through the use of arbitration agreements containing a class/collective action waiver. In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012). Despite D.R. Horton, employers have continued to argue for the enforceability of such agreements, and like Ernst & Young, have often prevailed in court.  In fact, the overwhelming majority of courts that have considered the enforceability of mandatory arbitration agreements with class waivers subsequent to the D.R. Horton decision have rejected the NLRB’s reasoning and refused to follow its holding.   

In addition to numerous district courts so ruling, the Ninth Circuit becomes the third federal appellate court to reject D.R. Horton.  In January 2013, the Eighth Circuit Court of Appeals held that a class arbitration waiver in the employer’s mandatory arbitration agreement did not preclude arbitration of the employee’s claims under the Fair Labor Standards Act (FLSA). Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).  The Eighth Circuit found that without a congressional mandate under the FLSA indicating that a right to engage in class actions overrides the mandate of the Federal Arbitration Act in favor of arbitration, the NLRB’s rationale in D.R. Horton must be rejected. 

Earlier this month, the Second Circuit Court of Appeals also upheld an arbitration agreement containing a class action waiver in another FLSA case brought against Ernst & Young in New York.  Sutherland v. Ernst & Young LLP, No. 12-304-cv, 2013 U.S. App. LEXIS 16513 (2d Cir. Aug. 9, 2013).  Despite the employee’s argument that the class action waiver removed the financial incentive for her to pursue a claim under the FLSA, the Court ruled that the arbitration agreement must be enforced.  Like the Eighth Circuit, the Second Circuit declined to follow the D.R. Horton decision.

NLRB ALJ’s Bound by D.R. Horton Precedent 

Despite employer victories in court, arbitration agreements with class action waivers are still being invalidated by the NLRB and its Administrative Law Judges (ALJs).  Just this week, an NLRB ALJ found that the employer violated the NLRA with its mandatory class waiver arbitration agreement of employment claims.  Despite the employer’s attempt to distinguish its agreement from the one at issue in D.R. Horton and to point out how courts have rejected the D.R. Horton rationale, the ALJ stated that he was bound by the D.R. Horton decision and required to apply it unless it is overturned by the Supreme Court or reversed by the NLRB itself. 

Fifth Circuit to Decide D.R. Horton Appeal 

The D.R. Horton decision is currently on appeal in the Fifth Circuit.  Union and non-union employers alike will be watching to see whether the Fifth Circuit will follow the other circuits that have rejected the NLRB’s rationale, and overturn the D.R. Horton ruling.  If, on the other hand, the Fifth Circuit affirms the D.R. Horton decision, the split between the Circuit Courts could result in the Supreme Court taking up the issue.  We will continue to monitor these cases and keep you informed.


Disclaimer: This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.


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