Growing Section 7 & 8(a)(1) Violations Pose A Threat To Arbitration Employment Agreements

Growing Section 7 & 8(a) (1) Violations Pose A Threat To Arbitration Employment Agreements


A rise in the number of employers opting to handle employment disputes through arbitration has been paired with increased scrutiny by the National Labor Relations Board (Board), specifically with regard to provisions threatening rights protected under Section 7 of the National Labor Relations Act (Act).   Section 7 of the Act provides that employees have the right to organize, form, join, assist a labor organization, bargain collectively, or engage in other “concerted activities for mutual aid or protection.” Section 8(a)(1) prohibits “interference with, restraint, or coercion” of employees in the exercise of such rights.

In D.R. Horton v. NLRB (2012)the Board ruled that it was a violation of the Act to require “employees covered by the Act,” as a condition of their employment, to sign an agreement barring them from “filling joint, class, or collective claims addressing their wages, hours, or other working conditions against their employer.” Not long thereafter, in a highly anticipated 2-1 decision, the Fifth Circuit of Appeals reversed the Board’s holding.  On review, the Fifth Circuit concluded that the Board’s decision “did not give proper weight to the Federal Arbitration Act.”  Proponents of employment arbitration hoped this case would turn the tide in their favor, but subsequent decisions have demonstrated unwillingness by the Board to change their stance. Two recent cases, On Assignment Staffing Services Incand Arnella M. Freeman (2015) and Leslie’s Poolmart Inc. v. Keith Cunningham (2014), have arguably expanded the Board’s holding in D.R. Horton to include arbitration agreements that contain an “opt-out” procedure for employees and which are silent on the issue of collective class claims, respectively.

The Board’s Refusal to Revise Its Position on Class Action Waivers

In Leslie’s Poolmart, Inc., the respondent required employees, as a condition of employment, to enter into individual arbitration agreements that were allegedly intended to waive their right to pursue class, collective, or representative actions. While such provision was not expressly stated in the contract, the Board concluded that the agreement, paired with the respondent’s motion to compel arbitration of Cuningham’s individual claims, had the effect of barring class or collective claims. Thus, taken together, it was found that the agreement constituted an interference with Section 7 rights protected under the NLRA. Leslie’s Poolmart moved for dismissal of the case on the grounds that:  (1) D.R. Horton was inapplicable due to being contrary to controlling Supreme Court precedent and the Federal Arbitration Act; (2) the Board lacked jurisdiction at the time when it decided D.R. Horton, Inc.; and (3) the Fifth Circuit’s reversal of D.R. Horton had rendered its holding invalid.  The Board, unmoved by these arguments, concluded that the company had indeed “engaged in certain unfair labor practices.” The court ordered affirmative action to effectuate the policies of the Act, a cease and desist, and reimbursement of the respondent’s litigation fees.

Thus, the present case did more than simply uphold the D.R. Horton decision; it expanded the decision to employment agreements that, in combination with a motion to compel, prohibited class or collective action, even in the absence of express language targeting class and collective actions.

Opt-Out Procedures

Employers looking to shield themselves of Section 8(a)(1) liability through the use of certain contractual maneuvers are cautioned to do so under competent advice.  As the following case demonstrates, opt-out provisions do not legitimize an arbitration agreement containing a class action waiver.  The dispute in On Assignment Staffing Services, Inc. arose when an employee of On Assignment Staffing Services Inc. alleged that the company’s dispute resolution agreement, in binding employees to a waiver of their rights to participate in collective and class litigation, “interfered with employees’ Section 7 rights to engage in collective legal activity.”  The issue was whether the employer could legally require its employees to be bound to an agreement limiting resolution of all employment-related claims to individual arbitration where employees retained the option to opt out of the agreement within the proscribed time frame.  The company argued that the opt-out option rendered the agreement voluntary and that the claim, for that reason, fell outside the scope of D.R. Horton’s ruling which had to do with mandatory agreements required as a condition of employment.  The Board made no distinction between the two, maintaining that the procedure “reasonably tended to interfere with its employees’ exercise of Section 7 rights.  Specifically, the opt-out procedure, they held, violated their Section 7 rights in that it: (1) placed a burden on employees to comply with a specific procedure in order in preserve their rights; and (2) required employees to make known to the employer their support for or rejection of concerted activity.

What this Means for Employers

Arbitration affords employers a more cost-effective and efficient method of resolving employment disputes, but as the referenced cases show, the risks of litigating before the Board or appealing a Board decision should be taken into consideration.  In light of the Board’s decisions, employers are advised to assess their risk and consider a new review of their arbitration agreements to ensure that provisions do not improperly restrain protected collective and class actions.  Of course, the D.R. Horton decision has been met with considerable opposition; already, the Fifth, Second, and Eighth Circuit courts have rejected the Board’s position.  Notwithstanding, the Board has made clear that it does not give deference to any court other than the U.S. Supreme Court.   As the issue of enforceability of class action waivers in arbitration agreements remains unresolved, it is only a matter of time before the appeals process is exhausted and the issue is taken to the U.S. Supreme Court.