The Federal Arbitration Act of 1925 (FAA), 9 U.S.C. § 1 et seq., provides that arbitration agreements are "valid, irrevocable and enforceable" and entitled to the same respect as other contracts. Despite this, the California Supreme Court struck down an arbitration clause in a consumer agreement because the arbitration clause did not permit the consumer to bring a class arbitration. The U.S. Supreme Court reversed. The Supreme Court held that California law requiring that class actions be available in consumer cases discriminated against arbitration. The Court reasoned that arbitration is consent-based and generally ill-suited to class actions. It stated that California's imposition of a class-action requirement on arbitration sacrificed arbitration's informality and made it slower, more complicated, and more expensive. Requiring arbitration to permit class actions also made arbitration less attractive as a dispute-resolution mechanism because it raised the stakes. For these and other reasons, the Supreme Court held that California state law was inconsistent with the goals of the FAA and preempted by it. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747 (2011).
Reconciling the FAA with the NLRA
Concepcion dealt with a conflict between the FAA and state law. It did not involve a conflict between the FAA and another federal statute. Recently, the National Labor Relations Board (NLRB) considered Concepcion's application to an arbitration clause in an employment agreement. The arbitration clause required the employee to resolve any employment-related disputes through individual arbitration, thereby precluding class or collective claims. The NLRB struck down the arbitration clause as unenforceable on the ground that it violated an employee's right to collective action under the National Labor Relations Act, 29 U.S.C. § 157 (NLRA). In re D. R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012).
The NLRB reasoned that section 7 of the NLRA "vests employees with a substantive right to engage in specified forms of associational activity." When "[e]mployees join together to bring employment-related claims on a classwide or collective basis in court or before an arbitrator, [they] are exercising rights protected by Section 7 of the NLRA." 357 NLRB No. 184 at *2, *5. The NLRB held that courts cannot enforce waivers of collective action without compromising employees' associational rights under the NLRA.
The NLRB recognized that its ruling exposed a possible conflict between the FAA and the NLRA. It stated that, when two federal statutes conflict, "the issue must be resolved in a way that accommodates the policies underlying both statutes to the greatest extent possible." Id. at *10. Citing Concepcion, the NLRB reiterated that the FAA requires arbitration agreements to be given the same respect as other contracts—but not any greater respect. Instead, under section 2 of the FAA, arbitration contracts are subject to the same defenses that apply to other agreements. Id. In the employment context, an arbitration agreement can interfere with rights protected by the NLRA. In that situation, "to find that [the] arbitration agreement must yield to the NLRA is to treat it no worse than any other private contract that conflicts with federal labor law." Id. at *11.
Citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the NLRB acknowledged that there is a liberal federal policy favoring arbitration and that employees can be required to arbitrate their employment or other statutory claims. 357 NLRB No. 184 at *8. The NLRB stated, however, that such claims can be resolved in an arbitral forum only as long as substantive rights are preserved. "Thus, arbitration may substitute for a judicial forum only so long as the litigant can effectively vindicate his or her statutory rights through arbitration." Id. at *9 (citing Gilmer, supra at 28 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 628 (1985).
The NLRB went on to address some of the concerns about class arbitration that the Supreme Court articulated in Concepcion. The NLRB stated that class arbitration is not as expensive and disruptive in the employment context as it might be in the consumer context. Whereas the consumer contracts at issue in Concepcion "might cover 'tens of thousands of potential claimants'. . . the average number of employees employed by a single employer, in contrast, is 20." 357 NLRB No. 184 at *15. The NLRB reasoned that this size limitation radically decreased the threat to efficient, predictable arbitration proceedings, and accordingly, decreased any intrusion on the policies underlying the FAA. Id.
Although the NLRB considered its decision in Horton compatible with Concepcion, a district court recently disagreed. LaVoice v. UBS Financial Services, Inc. 11 Civ. 2308 BSJ JLC, 2012 WL 124590 (S.D.N.Y. Jan. 13, 2012). In LaVoice, the plaintiff argued that his agreement to arbitrate was unenforceable because it prevented class arbitration and he had an absolute right to class arbitration under the Fair Labor Standards Act (FLSA). The district court ruled that plaintiff's reliance on the FLSA was misplaced. Instead, it held that Concepcion stands "against any argument that an absolute right to collective action is consistent with the FAA's 'overarching purpose.'" La Voice, 2012 WL 124590 at *6. La Voice did not discuss any potential conflict between the FAA and the FLSA or any other federal law. It cited Concepcion's description of California laws that "create a scheme inconsistent with the FAA," without explicitly acknowledging that those laws were state laws or addressing whether Concepcion's analysis should apply when it is federal law that conflicts with the FAA. La Voice, 2012 WL 124590 at *6. The failure of La Voice to address these issues leaves unanswered questions. Are arbitration agreements that prohibit class-wide arbitration enforceable under the FAA regardless of the context in which they arise, or are they subject to closer scrutiny and possible invalidation when they arguably conflict with other federal statutes, including federal labor laws?
Effect on Employment Contracts in Federal Circuit Courts
Other courts have cited Concepcion where the arbitration agreement in question did not specifically allow or deny class arbitration. In Jock v. Sterling Jewelers Inc., the Second Circuit upheld an arbitrator's interlocutory decision allowing an employment case to proceed as class arbitration. 646 F.3d 113 (2d Cir. 2011). The Second Circuit determined that the agreement intended to "make available in arbitration all remedies and rights that would otherwise be available in court," and it was not error to determine that class arbitration was among those remedies. 646 F.3d. at 127. In Quilloin v. Tenet HealthSystem Philadelphia, Inc., the ThirdCircuit held that although "[s]ilence regarding class arbitration generally indicates a prohibition against class arbitration, but the actual determination as to whether class action is prohibited is a question of interpretation and procedure for the arbitrator." 673 F.3d 221, 232 (3d Cir. 2012). With these results, the Second and Third Circuits signaled to employers that the lack of a waiver could subject them to class arbitration. At the same time, according to the NLRB in Horton, requiring an employee to sign a waiver of class arbitration may constitute an unfair labor practice. Does this leave employers who want to embrace arbitration but avoid class arbitration between a rock and a hard place? The answer would appear to be yes, at least until we see how much currency the courts give to the NLRB's decision in Horton.
Keywords: litigation, alternative dispute resolution, class arbitration; arbitration waivers; AT&T Mobility v. Concepcion