*By Patrick J. Hoban
In a decision issued on November 6, 2012, a National Labor Relations Board (“NLRB”) administrative law judge (“ALJ”) ruled that an employer’s decade-old employment arbitration program violated the National Labor Relations Act (“NLRA”). The ALJ decision in 24 Hour Fitness USA, Inc., JD(SF)-51-12, NLRB Case No.: 20-CA-035419, is the NLRB’s most recent assault on employment arbitration policies and doubles down on its 2012 decision in D.R. Horton, 357 NLRB No. 184 (2012) by invalidating arbitration programs that waive an employee’s right to pursue class action litigation.
The employer maintained the mandatory arbitration policy requiring arbitration of employment disputes for over a decade. The policy was contained in the employee handbook presented to all employees at the time of hire and included a written acknowledgement. In 2005, the employer amended the policy to include a waiver of class litigation – including class arbitration. In 2007, the employer further amended the policy to allow employees to opt out of the arbitration program by submitting a form within 30 days of hire. At the time of the ALJ’s decision, the employer was attempting to compel arbitration of employment disputes under its policy in 11 state and federal courts.
An employee hired in 2008, who had the opportunity to opt out of the arbitration program but did not do so, filed an unfair labor practice charge alleging that the class action waiver provision violated the NLRA. The employer contended that requiring a waiver of class litigation and arbitration rights did not violate the NLRA and, if it did, the employee’s failure to opt out rendered his subsequent waiver of class action rights voluntary. After characterizing the arbitration program as “unilaterally devised” and “highly self-serving,” the ALJ relied on D.R. Horton to find that the class waiver provision was unlawful.
Specifically, the ALJ rejected the employer’s reliance on a string of recent U.S. Supreme Court decisions applying the Federal Arbitration Act (“FAA”) to uphold class waivers in arbitration agreements. The ALJ referred to the employer’s reliance on the Supreme Court’s rulings as “tedious” and proclaimed that “they have little, if anything, to do with arbitration in the context of the employer-employee relationship.” The ALJ went on to discount the opt-out provision, stating that it was “an illusion” and that employees could not be required to “affirmatively act to preserve rights already protected by Section 7 [of the NLRA].” The ALJ further questioned whether the thousands of employees who had not taken advantage of the opt-out really knew what they were doing.
The ALJ also ruled that the arbitration policy’s non-disclosure provision separately violated the NLRA. The provision in question stated that, “except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.” The ALJ found that this language “imposes extreme limitations on activities protected by [the NLRA]” and speculated that it would lead a reasonable employee to conclude that he was prohibited from discussing employment claims with fellow employees, identifying supporting witnesses, seeking monetary contributions to pay for “the very expensive costs of” arbitration or asking fellow employees to provide moral support.
On the basis of his decision, the ALJ ordered the employer to stop maintaining any provision of the policy that prohibited class litigation and attempting to enforce the arbitration policy’s provisions in state and federal courts. The ALJ specifically ordered the employer to withdraw any motion it had in state or federal court seeking to enforce the arbitration policy and notify the courts that it “no longer objected to its employees bringing or participating in ... class or collective actions.”
In 24 Hour Fitness, the ALJ issued a full-throated defense of the NLRB’s D.R. Horton decision – despite the fact that numerous federal courts have refused to follow the decision on grounds that the NLRB is not competent to interpret and apply the FAA and/or hold that the NLRA’s protection of concerted activity extends to employment litigation unrelated to the NLRA. The decision also refutes the NLRB’s suggestion in D.R. Horton that an opt-out provision might save an arbitration program including a class waiver. Moreover, the ALJ’s expansive and highly speculative reading of the non-disclosure provision threatens to undermine arbitration confidentiality provisions generally.
In the end, the NLRB continues and intensifies its assault on employment arbitration programs and employers may want to review and carefully consider implementing new programs to avoid violating the NLRA. However, given federal courts’ almost unanimous rejection of D.R. Horton, employers may be best served by awaiting a federal court decision either upholding or striking down the NLRB’s stance on class waivers in arbitration agreements before making any changes to current arbitration programs. Z&R will provide further updates and analysis as this issue develops.
*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 private and public sector labor relations. For more information about the NLRB’s decisions on employment arbitration programs or labor & employment law, please contact Pat (pjh@zrlaw.com) at 216.696.4441.
