On October 28, 2014, the National Labor Relations Board (the “Board”) again held that employers violate Section 7 of the National Labor Relations Act (“NLRA”) when they require employees to sign class action waivers as a condition of their employment.  The Board first so held in D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012).  Although numerous courts have since rejected the Board’s reasoning in D.R. Horton, the Board nonetheless reaffirmed its position, meaning that employers who maintain such agreements will continue to face significant hurdles to their enforcement.

In Murphy Oil USA, Inc., 361 NLRB No. 72 (Oct. 28, 2014), the employer (“Murphy Oil”) required, as a condition of employment, that all employees sign a Binding Arbitration Agreement and Waiver of Jury Trial (the “Agreement”).  The agreement specifically provided:

By signing this Agreement, Individual and the Company waive the right to commence, be a party to, or [act as a] class member [in, any class] or collective action in any court action against the other party relating to employment issues.  Further, the parties waive their right to commence or be a party to any group, class or collective action claim in arbitration or any other forum.

In June 2010, Sheila M. Hobson and three other employees (“plaintiffs”) filed a collective action in federal court, alleging violations of the Fair Labor Standards Act (“FLSA”) for failure to compensate plaintiffs for overtime and other work-related activities performed off the clock.  Murphy Oil filed a motion to dismiss the FLSA claim in its entirety and to compel the plaintiffs to arbitrate their claims on an individual basis based on the plaintiffs having executed the Agreement.

Hobson then filed an unfair labor practice (“ULP”) charge in January 2011, alleging that Murphy Oil violated Section 8(a)(1) of the NLRA by maintaining and enforcing a mandatory arbitration agreement that prohibits employees from engaging in protected, concerted [legal] activities.  On or around March 6, 2012, Murphy Oil revised its Agreement.  The revised Agreement specifically provided:

Notwithstanding the group, class or collective action waiver set forth in the preceding paragraph, Individual and Company agree that Individual is not waiving his or her right under Section 7 of the National Labor Relations Act (“NLRA”) to file a group, class or collective action in court and that Individual will not be disciplined or threatened with discipline for doing so.  The Company, however, may lawfully seek enforcement of the group, class or collective action waiver in this Agreement under the Federal Arbitration Act and seek dismissal of any such class or collective claims.

On September 18, 2012, the district court granted Murphy Oil’s motion to compel individual arbitration and stayed the action, pending the results of arbitration.

In light of the district court’s decision to enforce the Agreement, Murphy Oil invited the Board to overturn its controversial ruling in D.R. Horton, which the Fifth Circuit had rejected.  However, the Board refused.  In the Board’s view, it was the Fifth Circuit, and not it, that erred when it concluded that the right to pursue a collective legal action was merely a procedural right, which arbitration agreements may effectively waive.  “[W]e think the D.R. Horton Board was clearly correct when it observed that the right to engage in collective action—including collective legal action—is the core substantive right protected by the NLRA.” Id. at 7 (emphasis in original).  Indeed, “[t]here is no basis in the Act or its jurisprudence to carve out concerted legal activity as somehow entitled to less protection than other concerted activity.” Id. at 8.  Mandatory arbitration agreements that purport to extinguish substantive rights protected by the NLRA are invalid. Id. at 9 (citing National Licorice Co. v. NLRB, 309 U.S. 350 (1940) and J.I. Case Co. v. NLRB, 321 U.S. 332 (1944)).  Accordingly, because both Murphy Oil’s original and revised arbitration agreements would restrict employees’ Section 7 rights, the Board found that they violated Section 8(a)(1) and were invalid.

Both Member Philip A. Miscimarra and Member Harry I. Johnson issued strong dissents.  In particular, Johnson noted “. . . with this decision, the majority effectively ignores the opinions of nearly 40 Federal and State courts that, directly or indirectly, all recognize the flaws in the Board’s . . . reading of the National Labor Relations Act in order to both override the Federal Arbitration Act and ignore the commands of other federal statutes.  Instead, the majority chooses to double down on a mistake that, by now, is blatantly apparent.” Id. at 35.

The strong disagreements amongst the Board members and amongst the Board and numerous federal courts indicate that the issue is far from being finally decided.  However, employers can glean several points from the Board’s Murphy Oil decision.

  • Remember that both the agreement and its enforcement can violate the NLRA.
  • Language stating that an employee does not waive his or her Section 7 rights, including the right to file a collective action, will be insufficient to otherwise prevent a violation of the NLRA, where the employee grants the employer the right to dismiss such action.
  • The Board will find an ULP even in the presence of language clarifying that the waiver does not waive one’s rights to join in collective action.
  • Although most federal courts have found that individual arbitration agreements with class waivers do not violate the NLRA, such agreements could subject an employer to increased litigation costs in order to obtain a favorable decision.
  • In addition, as noted by the majority, many academic scholars agree with the reasoning of the Board.  Thus, a later, favorable decision is hardly a sure thing.
  • Employers utilizing such agreements should ensure that they have severability clauses in the event the Board or a later court finds that the arbitration agreement is unenforceable.
  • Should the class action waiver be severed from the agreement, employers should also consider inserting a provision requiring that class claims proceed in a judicial court and not before an arbitrator.  The Fifth Circuit pointed out that numerous problems could arise if a class claim proceeds before an arbitrator.