* By Lawrence E. Dube and Peyton M. Sturges
A recent decision holding that an employer may require its employees to sign an arbitration agreement that waives their rights to participate in class or collective actions, without interfering with their rights under federal labor laws, has important implications for health care employers, attorneys told Bloomberg BNA (D.R. Horton, Inc. v. NLRB, 2013 BL 335349, 5th Cir., No. 12-60031, 12/3/13).
The ruling by a split U.S. Court of Appeals for the Fifth Circuit, finding the National Labor Relations Board erred in concluding homebuilder D.R. Horton Inc. interfered with employees’ National Labor Relations Act rights by mandating arbitration with waivers, provides a green light for health-care employers to adopt similar provisions in their employment agreements, the attorneys said.
The decision is also important because it rebuffed the NLRB with respect to one of its many recent initiatives aimed at nonunion workplaces, they said. Although the NLRB is widely expected to appeal the decision, the Fifth Circuit’s ruling is consistent with those of the other federal appeals courts that have addressed the class and collective action waiver issue and recognized the primacy of the Federal Arbitration Act in interpreting and enforcing arbitration provisions, they added.
Patrick J. Hoban, with Zashin & Rich, Cleveland, said the implications of the court’s decision for health-care employers are substantial, but that health care employers are really no different from other employers when it comes to the need to manage the threat of class action litigation. ‘‘Health-care employers face the same risk of class action litigation under the Fair Pay Act, Title VII, the Fair Labor Standards Act, and other employment and discrimination laws as employers in other industries, so this decision is extremely important to them,’’ he said.
Health Care Implications. Edward Berbarie, with Littler Mendelson PC, Dallas, said the D.R. Horton ruling ‘‘is a big victory for all employers, including those in the health-care industry’’ who ‘‘should consider implementing an arbitration program containing class and collective action waivers.’’ The decision ‘‘reaffirms the U.S. Supreme Court’s mandate to enforce arbitration agreements so that litigants get the benefits of informal, efficient, cost-effective dispute resolution,’’ he said.
‘‘The Fifth Circuit has removed what could have been a big hurdle to the enforcement of class-action waiver provisions, and there is no reason that health-care employers should not, at the very least, seriously consider instituting an arbitration program that provides for the efficient and streamlined resolution of claims,’’ he said.
John Doran, in Littler’s Providence, R.I., office, agreed that the decision is very helpful for health-care employers, particularly because it reined in the board with respect to an issue arising in a nonunion setting.
‘‘The NLRB has made a concerted effort over the last several years to expand its reach to nonunion employees,’’ Doran said. ‘‘Although the NLRA does in fact apply to both union and nonunion employees alike, the NLRB has traditionally focused its energies on union employees.’’
‘‘This has changed in recent years with the NLRB actively pursuing cases against nonunion employers on, allegedly, overbroad policies such as social media policies, confidentiality provisions in employee handbooks and class action waivers in arbitration agreements,’’ he continued. ‘‘There is no doubt that D.R. Horton is primarily about the efficacy of class action waivers in general and the benefits that provides to employers, but the courts reining in the NLRB is an important subtext of the decision.’’
Hoban agreed. ‘‘In recent years, the activist, Obama-appointed NLRB has invaded nonunion employer activities and repeatedly held that long-standing and standardized employer practices violate employees’ NLRA rights,’’ he said. ‘‘Here, the Fifth Circuit joined the Second, Eighth, and Ninth circuits in rejecting the NLRB’s rationale and enforcing mandatory arbitration agreements containing class action waivers.’’
Among those decisions, Hoban noted, was Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013), in which the Eighth Circuit found a former nursing home employee was required to arbitrate her FLSA overtime pay claim even though the arbitration pact contained a class action waiver that forecloses her ability to bring the claim as an FLSA collective action (22 HLR 85, 1/17/13).
‘‘Notably, the Fifth Circuit affirmed the NLRB’s conclusion that D.R. Horton’s arbitration agreement violated the NLRA because employees could reasonably interpret its language to prohibit them from filing unfair labor practice charges with the NLRB,’’ Hoban continued. ‘‘Nevertheless, the Fifth Circuit’s decision provides some light for employers who have or are considering mandatory arbitration agreements prohibiting class arbitration.’’
‘‘However, as the NLRB is very likely to appeal the decision to the U.S. Supreme Court, final resolution of this issue is pending. In the meantime, employers that require employees to sign arbitration agreements must ensure that the agreements clearly set forth that employees retain the right to file unfair labor practices and other administrative charges to avoid running afoul of the NLRA,’’ Hoban concluded.
FAA Controls. In a Dec. 3 ruling, and writing for the majority that included Judge Carolyn Dineen King, Judge Leslie H. Southwick said the NLRB ‘‘did not give proper weight to the Federal Arbitration Act,’’ which made the agreement enforceable. The National Labor Relations Act, which protects the right of employees to engage in concerted activity, ‘‘should not be understood to contain a congressional command overriding the application of the FAA,’’ Southwick wrote in the 2-1 ruling.
Judge James E. Graves dissented from the court’s ruling that maintaining the arbitration agreement with the challenged waivers was lawful.
The court was unanimous in rejecting several ancillary arguments asserted by Horton, including its allegation that the NLRB lacked a quorum to decide the unfair labor practice case. Horton didn’t make a timely challenge to President Barack Obama’s 2010 recess appointment of former NLRB member Craig Becker, the Fifth Circuit said, and the company failed to establish that Becker’s appointment expired before he participated in the NLRB decision.
The appellate court agreed with the NLRB, however, that the homebuilder’s arbitration agreement could reasonably be understood by employees as precluding them from bringing unfair labor practice cases before the NLRB. It therefore enforced the NLRB’s order that the company revise the document to clarify that the agreement didn’t limit the employees’ rights to pursue claims before the NLRB.
The appeals court dismissed the company’s allegations that the NLRB order was void because the board lacked a quorum to decide the case against the company. The court acknowledged the D.C. Circuit’s decision in NLRB v. Noel Canning Division of Noel Corp., 705 F.3d 490 (D.C. Cir. 2013), and the fact that the U.S. Supreme Court has agreed to review that decision (22 HLR 977, 6/27/13).
Nevertheless, it found Horton never challenged the validity of board quorum. The court also rejected Horton’s argument that the board lacked authority to issue its decision against the company in the absence of a proper delegation of authority to the three-member panel.
NLRA, FAA Have ‘Equal Importance.’ The appeals court turned to NLRB’s finding that Horton violated Section 8(a)(1) of the NLRA by interfering with the right of employees under Section 7 to engage in concerted activity for their mutual aid or protection. Although the NLRB concluded that an individual filing a class or collective action on behalf of employees is engaged in Section 7 activity, and maintaining an employment policy that requires employees to relinquish the statutory right violates Section 8(a)(1), the court found the waiver didn’t affect substantive rights.
The court also found the NLRB couldn’t rely on FAA’s savings clause to support its decision to invalidate the waiver of class procedures in the Horton arbitration agreement. Finally, the court rejected the contention that the NLRA contained a congressional command to ‘‘override’’ the FAA.
Noting the NLRA doesn’t explicitly provide for employee collective actions or procedures for collective claims, the court said ‘‘there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.’’
The court also cited Richards v. Ernst & Young LLP, 2013 BL 22217 (9th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013); and Owen v. Bristol Care Inc., 702 F.3d 1050 (8th Cir. 2013), and said ‘‘[e]very one of our sister circuits to consider the issue has either suggested or expressly stated that they would not defer to the NLRB’s rationale, and held arbitration agreements containing class waivers enforceable.’’
Dissent. Graves dissented from the majority’s finding on the legality of the class and collective action waiver. Citing the board’s Horton decision, Graves said he agreed that the agreement interfered with employee rights under the NLRA and that it didn’t conflict with the FAA.
‘‘The Board made it clear that it was not mandating class arbitration in order to protect employees’ rights under the NLRA, but rather was holding that employers may not compel employees to waive their NLRA right to collectively pursue litigation of employment claims in all forums, judicial and arbitral,’’ Graves wrote.
Noting the majority conceded the court’s deference to NLRB decisions interpreting ambiguous statutory provisions, Graves said ‘‘there is authority to support the Board’s analysis’’ and concluded the NLRB’s order against Horton should have been enforced in its entirety.
Ronald W. Chapman, of Ogletree, Deakins, Nash, Smoak & Stewart, in Dallas, argued the case for D.R. Horton Inc. NLRB attorney Kira Dellinger Vol, in Washington, argued for the board.
To contact the reporter on this story: Lawrence E. Dube´ in Washington at ldube@bna.com and Peyton M. Sturges in Washington at psturges@bna.com. To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com.
The opinion is available at http://www.bloomberglaw.com/public/document/DR_Horton_Incorporated_v_NLRB_Docket_No_1260031_5th_Cir_Jan_13_20/3
Reproduced with permission from BNA's Health Law Reporter, 22 HLR 1839 (Dec. 19. 2013). Copyright 2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Sunday, December 29, 2013
Monday, December 9, 2013
Waive that Class Goodbye: The Fifth Circuit Reverses the NLRB on Class Action Waivers
By Patrick J. Hoban*
On December 4, 2013, the Fifth Circuit Court of Appeals, in D.R. Horton, Inc. v. NLRB, No. 12-60031, reversed the National Labor Relations Board ("NLRB") decision that mandatory class and collective action waivers in employment arbitration agreements violate the National Labor Relations Act ("NLRA"). In recent years, the activist Obama-appointed NLRB has invaded non-union employer activities including social media policies, at-will statements in employee handbooks, and workplace investigations. The NLRB has repeatedly held that long-standing and standardized employer practices violate employees' NLRA rights. One such practice is the inclusion of waivers of class and collective actions in mandatory employment arbitration agreements.
In a 2012 decision (which Z&R discussed here), the NLRB started a firestorm when it held that homebuilder D.R. Horton's mandatory arbitration agreement, which included a class and collective action waiver, violated employee rights. Specifically, the NLRB held that employees had a substantive right under Section 7 of the NLRA to bring a class or collective actions as a form of protected concerted activity. Although the NLRB continued its attack on class action waivers in subsequent decisions (which Z&R discussed here), the Second, Eighth, and Ninth Circuit Courts of Appeals each rejected the NLRB's rationale and enforced mandatory arbitration agreements containing class action waivers. See Richards v. Ernst & Young, LLP, No. 11-17530 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).
In its decision, the Fifth Circuit held that the NLRA does not prohibit mandatory arbitration agreements with class action waivers. Contrary to the NLRB, the Court held that the right to class action procedures is not a substantive legal right, but rather a procedural device. Therefore, the Court rejected the NLRB's position that Section 7 of the NLRA includes the right to bring class or collective actions as a protected concerted activity.
The Court further explained that the Federal Arbitration Act ("FAA") establishes a national policy of favoring arbitration to resolve disputes. Under the FAA, arbitration agreements must be enforced as written in the same manner as any other contract. The Court held that because there is no substantive right to bring class or collective actions protected by the NLRA, no grounds existed under the FAA to invalidate D.R. Horton's arbitration agreement. The Court further explained that the NLRB's decision actually disfavored arbitration by sacrificing lower costs and informality in favor of time consuming and drawn-out class action arbitration while leaving employers with very limited rights of appeal. Altogether, the Court concluded, the NLRB's decision would make employers less likely to consider using arbitration to resolve employment disputes.
The Fifth Circuit further held that there is nothing in the text or legislative history of the NLRA revealing a congressional intent that its provisions override the FAA and its clear purpose favoring arbitration.
Notably for employers, the Fifth Circuit affirmed the NLRB's conclusion that D.R. Horton's arbitration agreement violated the NLRA because employees could reasonably interpret its language to prohibit them from filing unfair labor practice charges with the NLRB. Specifically, the language failed to expressly state that employees retained the right to file unfair labor practice charges and suggested that such claims were subject to arbitration. Based on this, the Court upheld the NLRB's order requiring D.R. Horton to rescind and revise its mandatory arbitration policy.
The Fifth Circuit's decision in D.R. Horton provides some light for employers who have or are considering mandatory arbitration agreements prohibiting class arbitration. However, as the NLRB is very likely to appeal the decision to the U.S. Supreme Court, final resolution of this issue is pending. In the meantime, employers that require employees to sign arbitration agreements must ensure that the agreements clearly set forth that employees retain the right to file unfair labor practices and other administrative charges to avoid running afoul of the NLRA.
*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, appears before the National Labor Relations Board and practices in all areas of labor relations. For more information about arbitration agreements, this decision, or the NLRA, please contact Pat (pjh@zrlaw.com) at 216.696.4441.
On December 4, 2013, the Fifth Circuit Court of Appeals, in D.R. Horton, Inc. v. NLRB, No. 12-60031, reversed the National Labor Relations Board ("NLRB") decision that mandatory class and collective action waivers in employment arbitration agreements violate the National Labor Relations Act ("NLRA"). In recent years, the activist Obama-appointed NLRB has invaded non-union employer activities including social media policies, at-will statements in employee handbooks, and workplace investigations. The NLRB has repeatedly held that long-standing and standardized employer practices violate employees' NLRA rights. One such practice is the inclusion of waivers of class and collective actions in mandatory employment arbitration agreements.
In a 2012 decision (which Z&R discussed here), the NLRB started a firestorm when it held that homebuilder D.R. Horton's mandatory arbitration agreement, which included a class and collective action waiver, violated employee rights. Specifically, the NLRB held that employees had a substantive right under Section 7 of the NLRA to bring a class or collective actions as a form of protected concerted activity. Although the NLRB continued its attack on class action waivers in subsequent decisions (which Z&R discussed here), the Second, Eighth, and Ninth Circuit Courts of Appeals each rejected the NLRB's rationale and enforced mandatory arbitration agreements containing class action waivers. See Richards v. Ernst & Young, LLP, No. 11-17530 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).
In its decision, the Fifth Circuit held that the NLRA does not prohibit mandatory arbitration agreements with class action waivers. Contrary to the NLRB, the Court held that the right to class action procedures is not a substantive legal right, but rather a procedural device. Therefore, the Court rejected the NLRB's position that Section 7 of the NLRA includes the right to bring class or collective actions as a protected concerted activity.
The Court further explained that the Federal Arbitration Act ("FAA") establishes a national policy of favoring arbitration to resolve disputes. Under the FAA, arbitration agreements must be enforced as written in the same manner as any other contract. The Court held that because there is no substantive right to bring class or collective actions protected by the NLRA, no grounds existed under the FAA to invalidate D.R. Horton's arbitration agreement. The Court further explained that the NLRB's decision actually disfavored arbitration by sacrificing lower costs and informality in favor of time consuming and drawn-out class action arbitration while leaving employers with very limited rights of appeal. Altogether, the Court concluded, the NLRB's decision would make employers less likely to consider using arbitration to resolve employment disputes.
The Fifth Circuit further held that there is nothing in the text or legislative history of the NLRA revealing a congressional intent that its provisions override the FAA and its clear purpose favoring arbitration.
Notably for employers, the Fifth Circuit affirmed the NLRB's conclusion that D.R. Horton's arbitration agreement violated the NLRA because employees could reasonably interpret its language to prohibit them from filing unfair labor practice charges with the NLRB. Specifically, the language failed to expressly state that employees retained the right to file unfair labor practice charges and suggested that such claims were subject to arbitration. Based on this, the Court upheld the NLRB's order requiring D.R. Horton to rescind and revise its mandatory arbitration policy.
The Fifth Circuit's decision in D.R. Horton provides some light for employers who have or are considering mandatory arbitration agreements prohibiting class arbitration. However, as the NLRB is very likely to appeal the decision to the U.S. Supreme Court, final resolution of this issue is pending. In the meantime, employers that require employees to sign arbitration agreements must ensure that the agreements clearly set forth that employees retain the right to file unfair labor practices and other administrative charges to avoid running afoul of the NLRA.
*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, appears before the National Labor Relations Board and practices in all areas of labor relations. For more information about arbitration agreements, this decision, or the NLRA, please contact Pat (pjh@zrlaw.com) at 216.696.4441.
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