July 18, 2012 Articles

D.R. Horton and Class-Waiver Arbitration Provisions

The NLRB has strongly asserted itself in the fight over class-action waivers in employer-mandated arbitration agreements.

By Hillary Benham-Baker

Over the past several years, employers have increasingly required employees to execute class-action waivers, typically as a component of employer-mandated arbitration agreements. This tactic is used by employers as a means of avoiding class liability altogether. As the frequency of such waivers increased, so too did the amount of litigation regarding the enforceability of class waivers. The U.S. Supreme Court issued a ruling last year that held, inter alia, that based on Federal Arbitration Act (FAA) preemption of state law, class waivers were enforceable. AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Concepcion was decided in the consumer context, but many courts have relied on it to enforce class waivers in the employment context and compel employment class-action plaintiffs to individual arbitration, citing this precedent. The landscape shifted yet again in early 2012, however, when the National Labor Relations Board (NLRB) found that class-action waivers in the employment context violated the National Labor Relations Act (NLRA) in D.R. Horton Inc., 357 N.L.R.B. No. 184, 2012 WL 36274 (Jan. 3, 2012).

On January 3, 2012, the NLRB issued the D.R. Horton decision, holding that joint, class, or collective action waivers in employee arbitration agreements violate Section 8(a)(1) of the NLRA. That section makes it an unfair labor practice for an employer to interfere with, restrain, or coerce employees wishing to exercise the rights guaranteed to them in Section 7 of the NLRA—namely, their right “to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .” 29 U.S.C. §§ 157–58.

Citing the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991), the board concluded that group legal activity, such as filing a class-action lawsuit, is a protected substantive right under the NLRA. In issuing this decision and invalidating D.R. Horton’s class waiver, the board relied on extensive precedent in finding that the class-action waiver in the D.R. Horton arbitration agreement curtailed the employees’ right to engage in concerted action regarding the terms and conditions of their employment. The board found that the FAA did not conflict with this interpretation of the NLRA.

The board also cited the Norris-LaGuardia Act of 1932, 29 U.S.C. § 101 et seq., the NLRA’s predecessor, as a basis for its holding. The Norris-LaGuardia Act, according to the board, “manifest[s] a strong federal policy against agreements in the nature of yellow-dog contracts, in which individual employees are required, as a condition of employment, to cede their right to engage in such collective action.” D.R. Horton, 2012 WL 36274, at *11. The board reasoned that both the NLRA and the Norris-LaGuardia Act embrace the core substantive right of employees to engage in concerted activity. The board further reasoned that, under the Norris-LaGuardia Act, “a private agreement that seeks to prohibit ‘a lawful means [of] aiding any person participating or interested in’ a lawsuit arising out of a labor dispute (as broadly defined) is unenforceable as contrary to the public policy protecting employees’ ‘concerted activities for . . . mutual aid or protection.’” Id. Congress also expressly repealed “all acts and parts of acts in conflict with” the Norris-LaGuardia Act. 29 U.S.C. § 115. Therefore, to the extent the FAA requires this result, the board found that it would conflict with and be repealed by the later-passed Norris-LaGuardia Act.

The board also addressed head-on the Supreme Court’s Concepcion ruling. In Concepcion, a consumer class action, the Supreme Court held that the FAA preempted California law. The board in D.R. Horton found that Concepcion did not conflict with the board’s holding because the FAA did not conflict with its interpretation of the fundamental federal labor law principles that prohibit employers from banning class or collective employment actions. In contrast with Concepcion, no state arbitration law was in play in D.R. Horton. Further, in finding that the NLRA right to group legal activity is a substantive, rather than procedural, right, the board concluded that its finding did not conflict with the FAA because the waiver interfered with a substantive statutory right where the intent of the FAA was to leave substantive rights undisturbed. The board also noted that the claims at issue in Concepcion had the potential to include tens of thousands of claimants, whereas the average employment class arbitration would be much smaller and thus “far less cumbersome.” D.R. Horton, 2012 WL 36274, at *12.

The board did not prohibit mandatory employment arbitration agreements themselves or even class-wide arbitration. However, the board explained that the employer must provide a meaningful forum for employees to pursue their substantive, statutory NLRA right to assert class, collective, and joint employment claims. D.R. Horton, 2012 WL 36274, at *9.

D.R. Horton, Inc., has since appealed the board’s decision to the United States Court of Appeals for the Fifth Circuit. Courts must afford the board’s interpretation of the NLRA the highest degree of deference and follow it, absent a reading that the decision is “arbitrary, capricious, or manifestly contrary to the statute.” ABF Freight Sys., Inc. v. NLRB, 510 U.S. 317, 324 (1994) (citing Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984)). But a decision from the Fifth Circuit would only be binding on relevant cases that fall within that circuit. If the NLRB is overturned on appeal, the agency may nevertheless choose not to follow that ruling in other circuits. Of course, these complicated issues may eventually end up before the U.S. Supreme Court.

District Courts’ Application of D.R. Horton
Since the board’s issuance of the D.R. Horton decision, employee advocates have relied on it to advance arguments against class-action waivers. The district courts’ reactions to D.R. Horton have been mixed.

Shortly after D.R. Horton was issued, several district courts declined to address it or decided the motions before them on other grounds. See, e.g., Canales v. Univ. of Phoenix, No. 2:11-CV-00181, 2012 WL 1155510, at *6 (D. Me. Apr. 5, 2012) (refusing to compel arbitration on other grounds); De Oliveira v. Citicorp N. Am., Inc., No. 8:12-CV-251-T-26TGW, 2012 WL 1831230, at *2 (M.D. Fla. May 18, 2012) (compelling arbitration under Concepcion and Eleventh Circuit precedent; declining to discuss NLRA issues); LaVoice v. UBS Fin. Servs., Inc., No. 11 Civ. 2308, 2012 WL 124590, at *6 (S.D.N.Y. Jan. 13, 2012) (noting only that “the Court declines to follow [D.R. Horton]”); Palmer v. Convergys Corp., No. 7:10-CV-145, 2012 WL 425256, at *3 (M.D. Ga. Feb. 9, 2012) (stating that D.R. Horton “does not meaningfully apply to the facts of the present case,” a case of non-arbitration employment class-action waiver required of applicants).

In one case, the court described D.R. Horton as “a new wrinkle” and candidly stated the following in response to the D.R. Horton arguments raised in the parties’ briefing:

[T]he Court is working through this complicated issue. But the Court needs a bit more time to decide Horton’s reach in this case . . . . this case is going to arbitration. The open question is whether [the plaintiffs] will be able to pursue a collective [wage and hour] action there. And the Court will answer that question soon.

Delock v. Securitas Sec. Servs., Inc., No. 4:11-CV-520, 2012 WL 1066378, at *4 (E.D. Ark. Mar. 29, 2012).

However, in addition to the cases noted above, there have been a handful that substantively address the board’s D.R. Horton ruling. Because employment arbitration provisions containing class-action waivers are so prevalent, district courts will undoubtedly continue to grapple with these issues.

In Herrington v. Waterstone Mortgage Corp., No. 11-CV-779, 2012 WL 1242318, at *6 (W.D. Wis. Mar. 16, 2012), Judge Barbara Crabb of the Western District of Wisconsin compelled class-wide arbitration in response to a challenge to a class-action waiver in an employment arbitration provision. Judge Crabb applied D.R. Horton explicitly, finding that the NLRB’s decision was “reasonably defensible.” Further, in response to the employer’s argument that Concepcion conflicts with D.R. Horton, the court explained that it “agree[d] with the Board that AT&T Mobility is not on point because the class action waiver in that case did not conflict with the substantive right of a federal statute. Rather, the question was whether the FAA preempted a ruling under state law . . . .” Id.

Similarly, in Owen v. Bristol Care, Inc., No. 11-04258, 2012 WL 1192005, at *4 (W.D. Mo. Feb. 28, 2012), the court rejected the Concepcion argument, which enforced a mandatory employment arbitration agreement with a class-action waiver. In so holding, Judge Gaitan held that in employment matters such as that wage-and-hour case, Concepcion was not controlling because class-action waivers in the employment context are impermissible. The court embraced D.R. Horton’s holding that the NLRA right to group legal activity was a substantive, rather than procedural, right. The court also held that the class-action waiver provision would deprive the employees of their substantive right to assert a collective action under the Fair Labor Standards Act, 29 U.S.C. § 216(b).

In Morvant v. P.F. Chang’s Bistro, No. 11-CV-05405, 2012 WL 1604851, at *13 (N.D. Cal. May 7, 2012), however, Judge Yvonne Gonzalez Rogers of the Northern District of California rejected the NLRB’s interpretation of the NLRA in D.R. Horton and compelled individual arbitration for the named plaintiff who signed the agreement. The court disagreed with the NLRB’s interpretation of the NLRA in holding that the right to proceed collectively is a procedural rather than substantive right. The court held that the FAA and the general policies espoused by the Supreme Court in Concepcion overrode the NLRA because “Congress did not expressly provide that it was overriding any provision in the FAA when it enacted the NLRA or the Norris–La Guardia Act.” Id. at *11. Further, the court dismissed arguments concerning the Norris-LaGuardia Act as inapplicable to arbitration agreements.

The 24 Hour Fitness Complaint
In addition to challenges to class-action waivers in court, employees have continued to challenge the waiver of their class-action rights with the NLRB. As a result of one such employee complaint, the NLRB recently filed a formal complaint against 24 Hour Fitness. In April 2012, the NLRB issued a complaint challenging the company’s “opt-out” mandatory arbitration scheme. See NLRB News Release, Complaint Against 24 Hour Fitness Alleges Arbitration Policy Is Unlawful (Apr. 30, 2012).

In the complaint, former nonunion employee Alton Sanders alleges that 24 Hour Fitness’s policy requiring employees to opt out of its mandatory arbitration agreement within 30 days of receiving the employee handbook (which contains the arbitration provisions) coerces employees into waiving their substantive NLRA right to concerted action. D.R. Horton, in contrast,involved a mandatory class-wide arbitration waiver for employees, without any type of “opt-out” option as alleged by Mr. Sanders. In the 24 Hour Fitness complaint, the NLRB alleged that the opt-out process is coercive and deprives employees of their rights under the act. The complaint further alleges that 24 Hour Fitness has actively sought to enforce its class-action waiver provisions in its arbitration agreement in seven separate cases. In challenging the 24 Hour Fitness arbitration policy, the NLRB may seek an injunction in federal court to proscribe what it alleges is an unfair labor practice. NLRA § 10(j), (l); 29 U.S.C. § 160(j), (l). Although it has yet to do so, the NLRB could conceivably craft a request for an injunction that would reach the numerous ongoing individual arbitrations stemming from actions that were originally pleaded as class, collective, or joint actions. This complaint was set for hearing in June 2012.

Although the long-term impact of D.R. Horton remains to be seen, the NLRB has strongly asserted itself in the fight over class-action waivers in employer-mandated arbitration agreements. Moreover, in issuing the complaint against 24 Hour Fitness on behalf of Mr. Sanders, the NLRB has made it clear that this issue will continue to remain in its focus. In the interim, D.R. Horton promises to be a powerful tool for employees wishing to challenge waivers of their right to pursue joint, class, and collective legal action.

Keywords: litigation, class actions, derivative suits, arbitration, Concepcion, D.R. Horton, employment, arbitration, class-action waiver, 24 Hour Fitness

Copyright © 2012, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).