Strength in Numbers – The NLRB Finds Class and Collective Arbitration Waivers Unlawful

*By Patrick J. Hoban

On January 6, 2012, the National Labor Relations Board (“NLRB”) issued its much-anticipated decision in D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012). In D.R. Horton, the NLRB again flexed its regulatory muscle and extended the protections of the National Labor Relations Act (“NLRA”) to all forms of class litigation. The case addressed the issue of whether a nonunionized employer could require employees, as a condition of employment, to accept a mandatory arbitration agreement that required arbitration of employment disputes and precluded “class” arbitrations (i.e., resolution of claims brought by a group of employees in a single arbitration). A plurality of the Board, consisting of Board Chairman Mark Pearce and recently departed Member Craig Becker, ruled that home builder D.R. Horton’s mutual arbitration agreement (“MAA”) violated the National Labor Relations Act because it required employees —as a condition of employment — to forego class and collective action arbitration proceedings.

Background Facts

In January 2006, D.R. Horton began requiring employees to execute the MAA as a condition of employment. The MAA required that "all disputes and claims relating to the employee's employment" be determined by arbitration. The MAA further stated that the arbitrator "may hear only [an] employee's individual claims," and "does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding." In other words, the MAA required an employee to resolve all employment-related disputes in individual arbitration, without the possibility of class or collective arbitration.

A D.R. Horton superintendent sought to arbitrate a claim on behalf of himself and other similarly-situated superintendents under the Fair Labor Standards Act (“FLSA”). The employee claimed that he and other employees were misclassified and thus entitled to overtime pay under the FLSA. D.R. Horton refused to submit to class arbitration, citing the MAA. The employee filed an unfair labor practice charge with the NLRB, claiming that the MAA violated Section 8(a)(1) by unlawfully interfering with employee rights under the NLRA.

Board’s Decision

The NLRB held that "an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by [the NLRA]." Thus, by requiring employees as a condition of employment to forego their rights to such concerted activity, D.R. Horton violated the NLRA.

The Board then addressed whether its decision was consistent with the language and goals of the Federal Arbitration Act (“FAA”). The Board determined that its decision did not conflict with the goals of the FAA because the right to bring a class or collective action was a substantive right guaranteed by the NLRA as a form of concerted protected activity. In reaching this conclusion, the Board distinguished the recent United States Supreme Court decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), which held that arbitration agreements that are silent on class arbitration cannot be construed to require a party to submit to arbitration involving class claims. The NLRB also distinguished AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011) wherein the Supreme Court held that state laws prohibiting class arbitration conflict with the FAA. Under these Supreme Court decisions, it is permissible for arbitration agreements to ban class or collective actions because arbitration is designed to provide an informal, simple mechanism for the resolution of bilateral disputes according to terms agreed upon by the parties.

The NLRB made clear that its decision addressed arbitration agreements that required a waiver of the right to engage in class litigation as a mandatory condition of employment. Many arbitration agreements, however, contain clauses allowing employees to "opt out" of the program. Under such agreements, employees may choose to refrain from participation in the arbitration process, preserving employee rights to participate in class action litigation and avoid individual arbitration entirely.

The decision leaves open the possibility that arbitration agreements that allow employees to “opt out” may not violate the NLRA, even if those agreements ban class or collective actions in any forum. However, in D.R. Horton, the NLRB established broad protections for employee participation in class or collective actions under the NLRA. As a result, the NLRB may find a violation of the NLRA if employers rely on Stolt-Nielsen to argue that arbitration agreements prohibit class or collective arbitration.

In light of the NLRB’s significant expansion of the protections under the NLRA, it is likely that D.R. Horton will be appealed to the U.S. Court of Appeals and the U.S. Supreme Court. Indeed, a U.S. District Court discounted the NLRB’s D.R. Horton decision without comment less than ten days after it was issued. Lavoice v. UBS Financial Services, Inc., 11 Civ. 2308 (SD N.Y., January 13, 2012). However, employers that use or are considering using mandatory arbitration programs that restrict class and collective actions must carefully consider the impact of D.R. Horton.

*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 this decision or the NLRB, please contact Pat (pjh@zrlaw.com) at 216.696.4441.

No Reason to be Bored with the Board: New Election Rules, Legal Challenges and Legislation to Stop New Rules, Delaying the Rights Posting Rule and Three "Recess" Appointments

*By Patrick J. Hoban

The National Labor Relations Board (the “Board”) is once again making headlines after a series of controversial decisions, activist rulemaking and President Obama’s decision to maintain the Board’s operating quorum through three “recess” appointments. These actions have resulted in legislation to limit the Board’s authority and/or undo the effect of recent Board rules and, to date, two lawsuits. Although the recess appointments will almost certainly face legal challenges on constitutional grounds, the fully-staffed “activist” Board is poised to continue to exercise its authority to skew the labor law landscape further toward unions and against employers.

Election Rule Amendments Will Hamstring Employer’s Campaigns

On December 22, 2011, the Board adopted eight amendments to its election rules that will significantly affect an employer’s ability to mount an effective representation election campaign.
The rule changes take effect on April 30, 2012 and include the following:

• Pre-election hearings are limited to whether a “question of representation” exists (i.e., do employees want a union) and all voter eligibility disputes (e.g., supervisor status) will be resolved post-election.
• Hearing officers may limit pre-election hearings to evidence relevant only to the issue of whether a question of representation exists.
• Hearing officers now have the authority to determine when (and if) a party may file a post-hearing brief. Previously, parties had a right to file post-hearing briefs which necessarily extended the time for campaigning. Hearing officers also have complete discretion to limit issues addressed in and time for filing briefs.
• Parties no longer have the right to seek Board review of regional director and hearing officer decisions prior to an election. In addition, the new election rules fail to state that elections should be scheduled at least 25 days after the regional director’s determination that a question of representation exists.
• Parties may request special permission for Board review of regional director or hearing officer decisions only if they show “extraordinary circumstances” and that review after the election would be meaningless.
• Board review of regional director or hearing officer determinations on pre and post-election disputes are now discretionary. Under previous Board rules, pre-election review was discretionary, while post-election review was mandatory.

Notably, the Board adopted these election rules amendments just before the Board lost its authority to make rules and issue decisions with the expiration of Member Becker’s recess-appointment on December 31, 2011. Board Chairman Pearce stated that the Board will consider additional election rules amendments in the future.

Most important for employers, the amendments will significantly reduce the time between a union election petition and an election by virtually eliminating pre-election litigation. As a result, employers will have less time to present the case against unionization to their employees and rebut union propagandizing that has been underway for months. Additionally, in light of the Board’s 2011 decision in Specialty Healthcare, 357 NLRB No. 83 (2011) (see our prior alert discussing the case in more detail), the Board has imposed significant limits on an employer’s ability to challenge unit composition and eligibility issues before an election. The decision encourages unions to “cherry pick” units comprised of employees who strongly support them and will allow them to get their foot in an employer’s door with a small unit to establish a presence in the workplace. This decision, together with the new election rules, drastically undermines an employer’s ability to defend itself and its employees against a union organizing campaign.

Legal Challenges to Board Actions

The Board’s ongoing activism drew swift reaction from congressional Republicans. The election rules amendments face challenges from the Senate under the Congressional Review Act, which allows the House or Senate to prevent federal agencies from enforcing their rules. Senator Mike Enzi (R-WY) announced his plans for challenging the final rule last week. Enzi contends that the new rules, by shortening the pre-election process and doing away with mandatory Board review of election challenges, deprive employers of the opportunity to present their case to their employees during a campaign. The U.S. Chamber of Commerce has also filed a lawsuit to stop the rules. See Chamber of Commerce, et al. v. National Labor Relations Board, No. 1:11-cv-02262 (D.C. Dec. 20, 2011).

Additionally, on November 30, 2011 the U.S. House of Representatives passed by a 235-188 vote a bill that would roll back both the new election rules and the Board’s decision in Specialty Healthcare. Rep. John Kline (R-MN) sponsored the Workforce Democracy and Fairness Act in response to the Board’s ongoing effort to tilt the Board’s policies in favor of labor unions. However, the bill is unlikely to become law anytime soon due to the Democrat majority in the Senate.

Board Delays Deadline for Posting “Employee Rights” Poster

The Board has once again postponed the posting requirement for the employee rights poster. Employers are now required to post the notices by April 30, 2012. The decision to postpone the effective date resulted from a request by the federal court in Washington, D.C. that is currently hearing a legal challenge regarding the rule. See Nat’l Assoc. of Manufacturers v. Nat’l Labor Relations Bd., et al., No. 1:11-cv-01629-ABJ (D.C. Sept. 8, 2011). The Board said that the delay will allow for “the resolution of the legal challenges that have been filed with respect to the rule.”

Board Restored to Five Members – a 3-2 Democrat Majority – After Three “Recess” Appointments

On December 31, 2011, Member Becker’s recess appointment expired and the Board lost the three members necessary to issue decisions or make rules. To maintain the Board’s authority, President Obama made three “recess” Board appointments on January 4, 2012. The U.S. Constitution grants the President the power to make recess appointments without Senate approval “during a recess of the Senate.” In this case, the Senate was conducting “pro forma” sessions and not in recess on January 4. As a result, lawmakers and employer advocates contend that the appointments are illegitimate and violate the Constitution.
The three recess appointments to the Board include:

• Sharon Block (Democrat member), former Deputy Assistant Secretary for Congressional Affairs at the U.S. Department of Labor. She previously worked for former Board Chairman Battista and as an attorney for the Board. Ms. Block also served on the staff of late U.S. Senator Ted Kennedy (D-MA). Prior to her public service, Ms. Block was in private practice for five years.
• Terence F. Flynn (Republican member), former Chief Counsel to current Board Member Hayes. Mr. Flynn was previously Chief Counsel to former Board Member Schaumber. Prior to his Board work, Mr. Flynn spent nearly thirteen years practicing labor & employment law with several different law firms.
• Richard Griffin (Democrat member), former General Counsel for International Union of Operating Engineers. Mr. Griffin also served on the board of directors for the AFL-CIO Lawyers Coordinating Committee. During his career of over thirty years, he has practiced before and held various positions with the Board.

As the newly constituted Board issues decisions and makes rules, it is almost certain that any party adversely affected by Board action will challenge its authority to do so based on the questions surrounding last week’s “recess” appointments.

Regardless of how these weighty constitutional issues play out, it is safe to assume that the new Board will continue its activist ways by favoring unions over employers. Employers must continue to defend themselves against the activist Board by reviewing written employment policies to ensure they are effective and lawful, and redoubling efforts to identify and address employee issues. The Board’s new rules, standards and the new activist majority mean that employers simply cannot wait until they receive an election petition to take action.

*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 the NLRB’s election amendments or labor & employment law, please contact Pat at 216.696.4441 or pjh@zrlaw.com.