Fifth Circuit Re-Rebukes the National Labor Relations Board on the Validity of Class and Collective Action Waivers

By David P. Frantz

On October 26, 2015, the U.S. Court of Appeals for the Fifth Circuit once again butted heads with the National Labor Relations Board (“NLRB”) over the issue of class and collective action waivers in employment dispute arbitration agreements. See Murphy Oil USA, Inc. v. NLRB, No. 14-60800 (5th Cir. Oct. 26, 2015). In Murphy Oil, the Fifth Circuit rejected the NLRB’s decision that arbitration agreements with class/collective action waivers violate employees’ rights to engage in protected concerted activity under Section 7 of the National Labor Relations Act (“NLRA”). The Fifth Circuit’s December 2013 decision in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013) (which Z&R discussed here) reached the same conclusion.

In D.R. Horton, the Fifth Circuit previously held that the NLRA does not prohibit mandatory arbitration agreements with class/collective action waivers. The court explained that class or collective action procedures are not substantive legal rights; they are merely procedural devices. Thus, the NLRA’s protection of employees’ substantive rights does not extend to filing class or collective actions. However, the Fifth Circuit also held that the language of the arbitration agreement at issue reasonably could be construed to prohibit employees from filing unfair labor practice charges (“ULP”) with the NLRB. Such prohibitions violate the NLRA.

When issuing its underlying decision in Murphy Oil, the NLRB engaged in “Board nonacquiescense” and disregarded the Fifth Circuit’s D.R. Horton holding. Murphy Oil involved four employees who filed a federal wage and hour collective action after signing arbitration agreements with class/collective action waivers. Murphy Oil moved to dismiss and compel arbitration, and the federal court stayed the collective action proceeding pending arbitration (which never was initiated). While the motion to dismiss was pending, one of the employees filed a ULP with the NLRB, alleging the arbitration agreement violated her rights under the NLRA.

In October 2014, ten months after the Fifth Circuit’s ruling in D.R. Horton, the NLRB issued its decision in Murphy Oil, holding that the arbitration agreement violated the employees’ substantive rights under the NLRA and reasonably could be construed to prohibit employees from filing ULPs. The NLRB also found that Murphy Oil’s motion to dismiss and compel arbitration in the wage and hour lawsuit was a separate violation of the NLRA. The NLRB determined that Murphy Oil “acted with an illegal objective in seeking to enforce an unlawful contract provision.”

On appeal before the Fifth Circuit, the court reaffirmed its analysis in D.R. Horton, stating: “Our decision was issued not quite two years ago; we will not repeat its analysis here.” Murphy Oil asked that the court hold the NLRB in contempt for its “defiance” of the D.R. Horton decision. The court declined to do so because the NLRB’s Murphy Oil decision could have been appealed in a number of jurisdictions outside the Fifth Circuit, and the NLRB may not have known which circuit’s law would apply. The court stated, “[w]e do not celebrate the Board’s failure to follow our D.R. Horton reasoning, but neither do we condemn its nonacquiescence.”

The Fifth Circuit also addressed whether Murphy Oil’s arbitration agreements reasonably could be construed to prohibit the filing of ULPs. The court examined two versions of the arbitration agreements: one in effect for employees hired before March 2012, and a revised version for employees hired thereafter. The pre-March 2012 version included language that “any and all disputes or claims” must be resolved through arbitration. The Fifth Circuit held that this broad “any claims” language, without any qualification, can create the reasonable impression that the employee is waiving both trial rights and administrative rights. Employee-employer agreements that limit the NLRB’s ability to prevent unfair labor practices violate the NLRA. As waivers of administrative rights would have such an effect, they are illegal.

The Fifth Circuit did not hold that the arbitration agreement must expressly state that the employee may file ULPs with the NLRB; however, “[s]uch a provision would assist, though, if incompatible or confusing language appears in the contract.” Murphy Oil’s revised arbitration agreement included such language, stating that it does not preclude employees from participating in ULP proceedings. Based on this language, the Fifth Circuit held that the revised agreement was valid.

Finally, the Fifth Circuit rejected the NLRB’s conclusion that Murphy Oil violated the NLRA by moving to dismiss and compel arbitration in the wage and hour suit filed by its employees. Based in part on its D.R. Horton decision, the court held Murphy Oil’s motion was not a baseless attempt at discouraging employees from exercising their rights under the NLRA.

The Murphy Oil decision reassures employers that, at least in the Fifth Circuit, arbitration agreements with class and collective action waivers are enforceable. Likewise, the Second, Eighth, Ninth, and Eleventh Circuits have reached the same conclusion or indicated that they would. However, employers should ensure that their arbitration agreements and class/collective action waivers cannot be construed to prohibit employees from pursing administrative claims, including ULPs.

*David P. Frantz practices in all areas of labor and employment law. If you have questions about the Murphy Oil decision, arbitration agreements, or class and collective action waivers, please contact: David P. Frantz | dpf@zrlaw.com | 216.696.4441

DOES YOUR COMPANY CONDUCT THIRD-PARTY BACKGROUND CHECKS… AND COMPLY WITH FCRA? The frightful law you may not fear, but you should.

By Helena Oroz*

In honor of the scariest, spookiest month of the year, here are the scariest things we are hearing these days about using background reports and complying with the law that governs use of that information:

• “I think FCRA is that law about credit reports. But we don’t check credit for our job applicants. So we’re good, right?”
• “Do we disclose to applicants that we’re requesting consumer reports? We inform them of a lot of stuff. I think it’s in our employment application somewhere.”
• “Adverse action letters? Two of them? Is that a new thing?
• “My background check company handles all those forms. So we’re good, right?”
• “I’m pretty sure we’re doing most of that stuff right some of the time. But don’t quote me on that.”

Okay, full disclosure: these are not real quotes. But they do represent real misunderstandings and confusion about employer obligations under the Fair Credit Reporting Act (“FCRA”).

If these questions and statements sound reasonable, the FCRA class action bar is looking for your company. Here is a small sampling of large companies that settled FCRA class actions in 2015:

• Fernandez v. Home Depot – $3 million
• Brown v. Delhaize America (owns Food Lion grocery stores) – $2.99 million
• Marcum v. DolgenCorp (owns Dollar General stores) – $4.08 million

But it doesn’t matter if you are small or large, local or national – you are just their type.

Third-party background check reports are “consumer reports.” In simplest terms, the Fair Credit Reporting Act, or FCRA, is a federal law that governs the collection, assembly, and use of information about consumers. The first thing you need to understand about FCRA is that it applies to employers, but also lots of other entities, so it’s not written for employers. Its name is confusing and so is the term “consumer reports,” both which feed misperceptions about what the law covers.

So know this: if your company requests any information about an applicant (or current employee) from a third party and then uses it to make an employment decision, your company has requested a “consumer report” and must comply with FCRA’s disclosure, authorization, and adverse action notice requirements. Common “consumer reports” that employers use to vet applicants include criminal history reports, driving records, education records, employment history, and yes, credit history.

Employers are on their own when it comes to FCRA compliance. This is the second thing you need to understand about FCRA: it is a hyper-technical statute with little to no guidance to lead you to compliance. Even if you have the right notices in place, they still may not be technically compliant if, for example, they contain extraneous language or too much information.

Explanatory regulations? Model forms? FCRA is no FMLA, people. Don’t look to government agencies to fill that guidance vacuum anytime soon. The Consumer Financial Protection Bureau has been the primary agency responsible for interpreting FCRA for more than five years, yet it has not issued a single piece of useful guidance regarding employer FCRA obligations during that time. As for the Federal Trade Commission, if this blog post is any indication, no one is at the wheel there anymore (if they ever were).

Instead, that vacuum is being filled, slowly but surely, with court decisions and an absolute deluge of recent FCRA class actions across the county. According to a recent report from WebRecon, FCRA lawsuits increased 83% in August 2015 from the same period in 2014. From Whole Foods to Michaels Stores to Amazon, even the giants are getting hit for FCRA violations.

What should employers do? Don’t let FCRA scare the living daylights out of you. First, review your hiring practices to ensure that your company is at least doing the following:

(1) making a clear, conspicuous written disclosure to each applicant that consumer reports may be obtained about them for employment purposes;

(2) obtaining each applicant’s written authorization to obtain consumer reports;

(3) when your company decides not to hire an applicant based on information in a consumer report, providing the applicant a copy of the report at issue and a summary of their FCRA rights before taking the action (commonly referred to as pre-adverse action notice); and,

(4) after taking the action, providing the applicant with notice of the adverse action, contact information for the agency that provided the report, and other information (commonly referred to as post-adverse action notice).

Second, if you think your company is FCRA-compliant because it does complete each of the above steps, review your disclosure, authorization, and adverse action notices. Extra information or confusing language in those documents could jeopardize your company’s compliance efforts. Additionally, if your company uses “investigative reports" – reports based on personal interviews concerning a person's character, general reputation, personal characteristics, and lifestyle – your company has additional obligations under FCRA.

Third, if your company operates in more than one state, be aware that a number of states (a number which is growing) have their own “mini-FCRAs” with separate disclosure, authorization, and/or adverse action requirements. Many states also severely restrict use of credit information and/or criminal background information for employment purposes.

Finally, DO NOT rely on your background check provider for FCRA compliance. Ask questions and make sure you know exactly what your background check company is doing on your behalf. Do not forget that FCRA compliance is ultimately your company’s responsibility, not your provider’s.

*Helena Oroz practices in all areas of employment law compliance and often assists Z&R’s clients with FCRA and state fair credit reporting and background check laws. For more information or assistance with your company’s FCRA compliance, please contact Helena | hot@zrlaw.com | 216.696.4441