Fifth Circuit Continues to Reject NLRB Position that Collective Litigation is a Protected Right

November 19, 2015

by Joshua J. Henry

Over the last few years, the National Labor Relations Board’s (“Board”) position regarding the imposition of mandatory arbitration agreements as a condition of employment has been under fire, most directly by the United States Court of Appeals for the Fifth Circuit (covering Louisiana, Mississippi, and Texas). Just last month, the Fifth Circuit published its decision in Murphy Oil USA, Inc. v. National Labor Relations Board, its latest salvo in its ongoing standoff with the Board.

Last year, GSH published an article describing the first chapter of the standoff, which arose out of D.R. Horton, Inc., 357 N.L.R.B. 184 (2012), in which the Board determined that a mandatory arbitration agreement which required employees to agree, as a condition of employment, to not pursue collective litigation against their employer violated the National Labor Relations Act (“NLRA”). Specifically, the Board concluded the agreement at issue violated Section 8(a)(1) of the NLRA because it expressly restricted Section 7 activities and employees could reasonably construe the agreement to restrict such activities. The Board emphasized that collective litigation undertaken to improve workplace conditions is “at the core of what Congress intended to protect by adopting the broad language of Section 7.” The following year, the Second, Eighth, and Ninth Circuits, while addressing related issues, generally disagreed with the Board’s conclusion that collective litigation is protected by Section 7 because that conclusion would impermissibly negate the policy decisions underlying the Federal Arbitration Act (“FAA”).

In 2013, the Fifth Circuit granted the employer’s petition for review in D.R. Horton and addressed the issue directly. Although the Fifth Circuit agreed with the Board that the employer’s agreement violated Section 8(a)(1) of the NLRA because it could reasonably be construed to restrict Section 7 rights, the court held that the ability of employees to engage in collective litigation is not protected by Section 7 because requiring a class mechanism would impede arbitration efforts and therefore violate the FAA. The court emphasized that the NLRA contains no command against the application of the FAA and, therefore, the NLRA could not override the policy decisions underlying the FAA.

After this criticism, the Board was given an opportunity to reanalyze the issue in Murphy Oil USA, Inc., 361 N.L.R.B. 72 (2014). At issue in that case was an employer’s arbitration agreement that the employer required all applicants and employees to execute as a condition of employment. The agreement provided that all disputes relating to the employee’s employment, in any manner whatsoever, would be resolved by binding arbitration. The agreement also included a waiver by both the employer and employee of any “right to commence or be a party to any group, class or collective action” in arbitration, any court proceeding, or any action in any other forum. The agreement also proscribed consolidation of any claims by or against either party with claims of any other person or entity.

The Board began its analysis with an examination of its decision in D.R. Horton and the criticisms against it, noting from the outset that its rationale in D.R. Horton “was straightforward, clearly articulated, and well supported at every step.” The Board repeated its position that employer-imposed “arbitration agreements that bar employees from bringing joint, class, or collective workplace claims in any forum” restrict employees’ Section 7 right to act concertedly for mutual aid or protection. The Board additionally asserted finding such agreements unlawful under the NLRA does not undermine the policies of, or even conflict with, the FAA, and it stated its belief that “the Fifth Circuit’s decision gives too little weight” to “national labor policy, which is built on the principle that workers may act collectively-at work and in other forums, including the courts-to improve their working conditions.” The Board made it abundantly clear that it was “not persuaded by the Fifth Circuit’s view that the D.R. Horton Board” was incorrect. The Board took similar stances in relation to the previous decisions rendered by the Second, Eighth, and Ninth Circuits. The Board concluded that the arbitration agreement at issue was unlawful under its previous D.R. Horton analysis, and that it violated Section 8(a)(1) of the NLRA because it explicitly restricted Section 7 rights.

The Fifth Circuit granted Murphy Oil’s petition for review of the Board’s decision and adhered to its prior decision in holding that the employer did not violate Section 8(a)(1) by requiring applicants and employees to sign the arbitration agreement. The Fifth Circuit simply stated that it would not repeat its D.R. Horton analysis, and it summarily concluded the employer committed no unfair labor practice in requiring its employees to sign the arbitration agreement. The court noted that, while it did “not celebrate the Board’s failure to follow” its reasoning, it also did not condemn the Board for its non-acquiescence.

For employers, although the Fifth Circuit is the only appellate court to directly address the issue of mandatory arbitration agreements including collective litigation waivers under the NLRA, its decisions in D.R. Horton and Murphy Oil will be relevant to other courts’ analyses of the issue. Employers should recognize, however, that the Board has made it abundantly clear that it will find arbitration agreements including collective litigation waivers in violation of the NLRA. Regardless of which position ultimately prevails, employers should keep in mind that the Fifth Circuit concluded the arbitration agreements in both D.R. Horton and Murphy Oil were still in violation of the NLRA, as both could reasonably have been construed to restrict Section 7 rights.