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September 22, 2017 Practice Points

Sixth Circuit Sides with NLRB

By Karl Bayer

The Court of Appeals for the Sixth Circuit has ruled that an employer may not prohibit employees from pursuing collective action litigation or arbitration for work-related claims. 

In NLRB v. Alternative Entertainment, Inc., No. 16-1385 (6th Cir., May 26, 2017), James DeCommer, a field technician, signed an arbitration agreement when he began working for Alternative Entertainment, Inc. (AEI).  The agreement required employees to submit all claims against AEI to binding arbitration and prohibited them from engaging in collective action.  It also prohibited them from discussing compensation issues with fellow workers. AEI made changes to the compensation structure used to pay field technicians.  After DeCommer voiced his concerns about them, AEI terminated him, and DeCommer filed charges with the National Labor Relations Board (NLRB).

The NLRB determined that AEI violated the National Labor Relations Act (NLRA):

(1) By (1) prohibiting James DeCommer from discussing his concerns over changes in compensation with coworkers; (2) implementing rules prohibiting unauthorized disclosure of employee compensation and salary information; and (3) compelling employees, as a condition of employment, to sign arbitration agreements waiving their right to pursue class or collective actions in all forums, arbitral and judicial,  . . . [and]  [4] [b]y discharging DeCommer for engaging in protected activity .  .  .

The NLRB sought enforcement of its Decision.  In a 2-1 opinion, the Sixth Circuit declined to side with the Fifth Circuit's decision in D.R. Horton which held "employers may require employees to agree to a mandatory arbitration provision requiring individual arbitration of employment-related claims."  Instead, it ruled:

the right to concerted activity is a substantive right. But if the NLRA is ambiguous about whether the right to concerted legal activity is a substantive right, at the very least the NLRB's determination that the right is substantive is a permissible construction of the NLRA entitled to Chevron deference. That the NLRB is not due Chevron deference as to interpretations of the FAA is irrelevant. Whether the right to engage in concerted action—and concerted legal action—is a substantive right is solely an interpretation of the NLRA  . . . Therefore, we disagree with the Fifth Circuit's holding that employers may require employees to agree to a mandatory arbitration provision requiring individual arbitration of employment-related claims. Mandatory arbitration provisions that permit only individual arbitration of employment-related claims are illegal pursuant to the NLRA and unenforceable pursuant to the FAA's saving clause.

In addition, the Sixth Circuit disagreed with AEI's claim that the NLRB's decision must be overturned based on United States Supreme Court precedent.  The court stated:

Although Concepcion makes clear that it is "beyond dispute that the FAA was designed to promote arbitration" and embodies a "national policy favoring arbitration," Concepcion does not hold that the FAA requires enforcement of arbitration provisions in all circumstances. . . .The text of the FAA's saving clause precludes such a holding, because—as Congress established—an arbitration provision that runs afoul of any "grounds as exist at law or in equity for the revocation of any contract" is unenforceable. 9 U.S.C. § 2.   . . . Here, . . .there is a conflict between the NLRA's explicit guarantee of employees' right to concerted activity and an arbitration provision that explicitly prohibits any collective legal action. Arbitration provisions that are illegal under the explicit and generally applicable terms of a federal statute are distinct from arbitration provisions that may be in tension with the underlying policy of a federal statute. Explicitly illegal arbitration provisions trigger the FAA's saving clause. "[A]rbitration agreements [are] as enforceable as other contracts, but not more so." Prima Paint Corp., 388 U.S. at 404 n.12 (1967).

Thus, the Sixth Circuit joined the Seventh and Ninth Circuits in holding that an arbitration provision requiring employees covered by the NLRA individually to arbitrate all employment-related claims is not enforceable, because it violates the NLRA's guarantee of the right to collective action and therefore falls within the FAA's saving clause.

Karl Bayer is the founder of Karl Bayer Dispute Resolution in Austin, Texas.

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