By David S. Baffa, Noah A. Finkel, and Joseph S. Turner

Seyfarth Synopsis: Congress has once again proposed legislation that would seek to ban mandatory workplace arbitration of employment claims, despite a string of United States Supreme Court decisions upholding arbitration and class/collective action waivers as a lawful and appropriate mechanism to resolve workplace disputes. 

H.R. 7109, the Restoring Justice for Workers Act, was introduced by Representative Jerrold Nadler, D-N.Y., and Representative Bobby Scott, D-Va., with 58 Democratic co-sponsors.  Similar legislation is expected to be introduced in the Senate by Senator Patty Murray, D-Wash, with eight Democratic co-sponsors.  The proposed legislation would  overturn the U.S. Supreme Court’s decision in Epic Systems, and would amend the National Labor Relations Act to specifically prohibit class and collective action waivers under a new “Section 8(a)(6).”

As proposed, the new law would prohibit any pre-dispute agreement requiring arbitration of employment disputes.  The law also would prohibit post-dispute agreements to arbitrate, unless the agreement is obtained without coercion or condition of employment-related privilege or benefit.  Employees entering into voluntary post-dispute agreements also must be made aware of their rights under what would be a new section of the National Labor Relations Act.  That new section would make it an unfair labor practice to “enter into or attempt to enforce any [pre-dispute] agreement” that would bar or prohibit class or collective actions relating to employment, or to retaliate against any employee for refusing to promise not to pursue a class claim.

While there is no chance that this bill will move in the House of Representatives as currently comprised, it previews the legislation Democrats are likely to pursue if the House changes control next week.  A bill like this could even put a narrowly-controlled Republican Senate to the test, as the perceived unfairness of pre-dispute mandatory arbitration has been the target of considerable media attention, social media campaigns, and as recently as yesterday — large-scale employee activism.  As such, protecting mandatory arbitration of workplace disputes may be an issue on which even conservative legislators might waver.

Indeed, this is not Congress’ first attempt to ban workplace arbitration.  Before the Supreme Court’s decision in Epic Systems, and as part of the #metoo movement, Congress introduced in December 2017, bi-partisan legislation ostensibly aimed at preventing employers from enforcing arbitration agreements of sexual harassment claims.  That bill, “Ending Forced Arbitration of  Sexual Harassment Act,” was introduced by Senator Kristen Gillibrand, D-NY (and attracted some Republic support), but was penned in a way that would actually ban workplace arbitration in its entirety.  We figured it was an oversight at the time, as written in our blog, “Slow Down Congress: You Are About to Render the FAA Inapplicable to Employment Disputes (and Class Waivers), and You Probably Don’t Realize It.”  Clearly, this week’s Halloween bill was no accident.

Most legislative action against workplace arbitration has centered on the idea of prohibiting arbitration of sexual harassment claims, and by extension all other Title VII claims.  Among the earliest efforts begun in 2009, when — perhaps ironically — then-Senator Al Franken pursued the Arbitration Fairness Act, which sought to prohibit the mandatory arbitration of sexual harassment claims.  While that legislation was not successful, Senator Franken’s efforts led to provisions in the Department of Defense Appropriations Act of 2010, which to this day prohibits contractors to the U.S. DoD, with limited exceptions, from requiring arbitration of Title VII claims (including sexual harassment claims).  Under President Obama, the DoD prohibition was expanded by his Fair Pay and Safe Workplaces Executive Order on July 31, 2014, effective January 2016, to all federal contractors.  President Trump, however, rescinded this EO shortly after taking office in late 2016.

Several state legislatures have sought to ban mandatory arbitration of sexual harassment claims.  Washington, Maryland, and New York each passed laws that would prohibit mandatory arbitration of sexual harassment claims, but those laws are either explicitly or presumptively preempted by the Federal Arbitration Act.  See our Client Alert on the New York Ban.

Facing increasing headwinds against mandatory arbitration of sexual harassment claims, several large companies have proactively and publicly declared that they will exempt sexual harassment claims from existing mandatory arbitration programs.  Other companies also are considering more limited arbitration programs, such as mandatory arbitration and class waivers for wage-hour claims only.  But the Halloween bill and other attempts to ban workplace arbitration altogether are also becoming more common following Epic.  The California legislature passed a law that would have barred arbitration of any violation of the California Labor Code or the Fair Employment and Housing Act, but it was vetoed by Governor Brown on September 30, 2018.  Governor Brown’s term ends this year, and on November 6th Californians will pick a new Governor of California to take office on January 7, 2019.

Kentucky also recently joined the fray.  On September 27, 2018, the Kentucky Supreme Court, in Northern Kentucky Area Development District v. Snyder shot down a workplace arbitration agreement on the basis that a mandatory arbitration agreement for employment claims is prohibited by Kentucky law, and not preempted by the Federal Arbitration Act.   Kentucky’s law prohibits any employer from requiring as a condition of employment an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit…”.  The Court ruled that the statute was not an anti-arbitration clause provision, but an anti-employment discrimination provision.  Of course, calling arbitration a diminution of rights are “fightin’ words” to the U.S. Supreme Court, so we remain on the lookout for a cert petition.

For now, employers are staying the course.  Many companies remain interested in implementing dispute resolution procedures and mandatory arbitration programs that would limit their exposure to class and collective actions.  Most employers report faster and more efficient resolution of workplace grievances and concerns, with more ability to direct money and time to the resolution of real complaints, rather than simply to line the pockets of class action plaintiffs’ lawyers.

For more information on this topic, please contact the authors, your Seyfarth Attorney, or any member of the Firm’s Labor & Employee Relations Team.

Co-authored by: Steve Shardonofsky and John P. Phillips

Seyfarth Synopsis: On November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act. If passed by the Senate, the bill would overturn Obama-era decisions and agency guidance broadly defining and holding separate, unrelated companies liable as “joint employers” under federal wage & hour and labor law. Perhaps more importantly, the bill signifies a broader trend to provide more clear guidance and roll-back various Obama-era rules on wage & hour issues.

The Broad Approach to “Joint Employment” Under the Obama Administration

Under the prior Administration, and particularly during the later years, employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves in the crosshairs of federal agencies and regulators. Traditionally, joint employer status was found where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment. In that case, both entities could be held jointly liable for violations of wage & hour and other employment laws. The Obama Administration upended this traditional test, however.

In August 2015, the NLRB issued its much-discussed Browning-Ferris decision (addressed here), where the Board adopted an expansive definition of joint employment focusing on the right to control the terms and conditions of employment and the indirect exercise of those rights. (Seyfarth Shaw LLP is leading the appeal of Browning-Ferris to the D.C. Circuit Court of Appeals.) In 2015 and 2016, then-WHD Administrator Dr. David Weil issued two separate Administrator’s Interpretations (“AIs”) concerning independent contractors and joint employment. In 2015, in an effort to reduce the classification of workers as independent contractors and increase the number of workers subject to the FLSA’s minimum wage and overtime requirements, Dr. Weil issued guidance espousing a broad interpretation of who qualifies as an “employee” under the FLSA and highlighting the DOL’s position that almost all workers are employees. In 2016, Dr. Weil followed-up with guidance emphasizing the DOL’s position that joint employment must be determined based on the economic realities instead of (in their view) artificial corporate or contractual arrangements, including situations involving “horizontal” and “vertical” joint employment (discussed here). This guidance focused on the economic realities of a business’s relationship with a given worker, especially noting that indirect control (e.g., control excised solely through a staffing company) can be sufficient for a finding of joint employment. While the AIs were not entitled to judicial deference, we anticipated that some judges would treat Dr. Weil’s words as gospel.

As we previously reported, the broader tests espoused by the NLRB and the WHD exposed employers to a myriad of new wage and hour liabilities, investigations, and enforcement actions, and were especially relevant to companies that outsource work, utilize staffing agencies and contractors, or employ a franchisor/franchisee business model. If recent activity by Trump’s DOL and Congress is any indication, a shift in regulatory enforcement and focus is well underway.

The Winds of “Joint Employment” Are Shifting

As we reported here and here, this summer the DOL withdrew its AIs on joint employment and independent contractors. More recently, on November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act by a vote of 242-181, including yes votes from eight Democrats. The bill clarifies the standard for “joint employer” status under the FLSA and the NLRA, and returns to a traditional test that requires “direct, actual, immediate,” and “significant” control over the essential terms and conditions of employment, such as hiring, discharging employees, determining rates of pay and benefits, day-to-day supervision, and administering employee discipline.

Implications for Employers

The DOL’s decision to withdraw its AIs and the passage of the Save Local Businesses Act are welcome changes for employers who faced significant liability and uncertainty under the Obama-era rules. Although the bill itself still faces a tough road in the Senate—where it will require Democratic support to reach 60 votes and avoid a filibuster—it would represent a significant shift in the federal government’s focus. Even if the bill stalls, it nevertheless solidifies a broader regulatory and enforcement trend that may prompt federal courts to return to the traditional and more predictable joint employer test under the FLSA.

Full passage of the Save Local Businesses Act in Congress and signature by the President, however, will not be a panacea for these thorny joint-employer issues. Many states, such as California, still have broad joint-employer tests under their respective wage-hour laws. Courts will also continue to grapple with the proper application and interpretation of these rules, as evidenced by a recent decision from the Fourth Circuit Court of Appeals purporting to define joint employment even more broadly than the Obama Administration. Furthermore, the plaintiffs’ bar will continue to push the outer contours of the law in their search to apply joint employer principles more broadly and thereby reach the “deep pockets” of franchisors and other principals. Regardless of what happens to the Save Local Businesses Act, we foresee continued potential exposure and litigation in this arena. Employers—and particularly those in industries that make heavy use of franchises, subcontractors, and staffing agencies—should remain engaged and focused on these issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.

Authored by Andrew L. Scroggins, Noah A. Finkel, and David S. Baffa

Seyfarth Synopsis:  The NLRB has withdrawn the significant concession it offered at oral argument on the nature of the NLRA rights it seeks to assert in the face of employers’ mandatory arbitration programs.

As noted in our earlier blog post, the Supreme Court heard oral argument on October 2, 2017, on one of the most significant employment law cases in some time, to consider whether to permit employers to use mandatory arbitration programs that contain waivers of collective and class actions.

In the most dramatic moment of the morning, the NLRB’s General Counsel Richard Griffin made a significant admission.[1]

In response to a series of questions by a skeptical Chief Justice Roberts, Griffin agreed that it would not be an unfair labor practice for a mandatory arbitration program to require use of a forum whose rules did not allow class arbitration. Justice Alito quickly realized the significance of this point: “if that’s the rule, you have not achieved very much because, instead of having an agreement that says no class, no class action, not class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.” Griffin did not dispute this. He commented that “the provisions of the [NLRA] run to prohibitions against employer restraint.”

Next to the podium was counsel for the employees, Daniel Ortiz of the University of Virginia School of Law. Ortiz did not agree with that concession, thus seeming to highlight a fundamental dissent from the NLRB’s position. This gap was all the more notable for the fact that the Solicitor General already had abandoned the NLRB to side with the employers.

In an unusual development, just one day after the argument, the NLRB’s Griffin sent a short letter to the Court disavowing its argument and adopting the position staked out by Ortiz:

I am writing to correct an inaccurate response I gave at oral argument yesterday in response to the line of questioning by Chief Justice Roberts found at pages 47-50 of the transcript of the oral argument.  My responses, to the extent they indicated any difference from the responses given by employees’ counsel, Mr. Ortiz, to the questions of Chief Justice Roberts found at pages 60-64 of the transcript of the oral argument, were a result of my misunderstanding the Chief Justice’s questions and were inaccurate; Mr. Ortiz correctly stated the Board’s position and there is no disagreement between the Board’s and the employees’ position on the answers to those questions.

Such letters are not unprecedented. Still, it is a remarkable about face. For the justices who already seemed skeptical of the NLRB’s position, this change of position may only serve to highlight that the NLRB is not clear in the reasoning of its position or the effects such reasoning may have if ordered more broadly by the Court to apply to future cases.

[1] The New York Times highlighted Griffin’s concession:

The labor board’s general counsel, Richard F. Griffin Jr., argued for the workers. He made a concession at odds with the position of another lawyer on his side.

Mr. Griffin said that employment contracts could not require workers to give up collective action in arbitration but that the private entities that conduct arbitration could require that cases be pursued one by one.

If that is so, Justice Samuel A. Alito Jr. responded, “you have not achieved very much because, instead of having an agreement that says no class arbitration, you have an agreement requiring arbitration before the XYZ arbitration association, which has rules that don’t allow class arbitration.”

Daniel R. Ortiz, a law professor at the University of Virginia who also argued for the workers, took a different approach…

Authored by Holger G. Besch 

Perhaps signaling the importance of the issue for American businesses and jurisprudence, the U.S. Supreme Court‎ chose the first day of its term beginning in October as the date to set oral arguments in three petitions for certiorari asking whether employees can be required to waive their rights via arbitration agreements to file class and collective actions against their employers. The arguments in Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis; and NLRB v. Murphy Oil USA Inc., will all be heard on October 2nd, so mark your calendars.

The cases before the Supreme Court originated either before the National Labor Relations Board, which had ruled that such agreements violate workers’ rights under the National Labor Relations Act to take collective action to ameliorate their working conditions, or with district courts that had used the NLRB’s ruling to reject employers’ motions to compel bilateral arbitration of putative collective and class actions.

SCOTUS will be resolving the resulting Circuit split, in which the Ninth and Seventh Circuits backed the NLRB’s position when they ruled against Ernst & Young and Epic Systems, respectively, and the Fifth Circuit ruled in favor of Murphy Oil. Opening briefs are already on file and address, at bottom, whether the Federal Arbitration Act or the NLRA should take precedence.

Co-authored by Richard Alfred and Patrick Bannon

The National Labor Relations Board’s decision in Browning-Ferris Industries of California, Inc., announced last week, dramatically expands joint employer liability under the National Labor Relations Act. A business can be found to be a joint employer of individuals, the Board concluded, even if the business has only unexercised potential power to control the individuals’ work indirectly. The Board argues that this broad concept of joint employment is necessary because otherwise an entity with real control over the economics of a business could insulate itself from the obligations of an employer by contracting with a third party to employ the workers who keep the business running. Seyfarth Shaw’s discussion of the ramifications of the Browning Ferris decision, for both unionized and non-unionized employers, is available here.

Wage and hour lawyers who treat the Browning-Ferris decision as simply a matter of traditional labor law overlook the potentially major significance of the decision for wage and hour law. Even though the NLRA and the FLSA embody different tests for identifying employer-employee relationships (common law v. eceonomic realities), the Wage and Hour Division will undoubtedly cite the NLRB’s expanded view of who can be a “joint employer” to support the Wage and Hour Division’s expected further efforts to expand the range of parties that may be found responsible for wage and hour violations.

The Wage and Hour Division is likely to argue that the NLRB’s increased readiness to recognize joint employers under the NLRA, which has always been understood to embody a more stringent common-law agency test for establishing joint employer status, supports a broad view of joint employment under the Fair Labor Standards Act’s “economic realities” test for whether an employment relationship exists. The NLRB’s majority labored to explain how its joint employer concept is consistent with the common-law agency test. The Wage and Hour Division is not constrained by the common law’s right to control test and is likely to be emboldened to adopted an expansive joint employer standard under the more flexible economic realties test.

Indeed, last month, the Wage and Hour Division issued an Administrator’s Interpretation addressing the distinction between employees and independent contractors under the FLSA. That guidance is noteworthy for emphasizing the importance of whether an individual’s services are an integral part of a company’s business and downplaying the importance of whether the business controls an individual’s work. The Administrator’s view of what constitutes an employment relationship–if the courts accept it–would potentially support a joint employer doctrine that is dramatically broader than employers have seen to date and that could be used by the DOL and aggressive plaintiffs’ lawyers to pursue businesses for wage and hour violations involving individuals with whom the defendant companies have never had a direct relationship.

The Administrator of the Wage and Hour Division has long expressed concern about what is termed the “fissuring” of the employment relationship. At the heart of this concept, is the notion that business giants profit from the services of individuals who are direct employees of third-party companies, usually lower on the economic totem-pole. For example, the employees who run hotels and restaurants are often employees of local franchisees, not of the well-known national companies whose names are on the door. Similarly, the employees who work in a call center or distribution center are often employees of a staffing company, not of the business whose customers they help or whose products they handle.

The Wage and Hour Division has adopted a strategic enforcement plan that seeks to hold top-level companies responsible for wage and hour compliance as to the individuals who work in their business sector–regardless of whether a direct employment relationship exists. As the Wage and Hour Division appears to see things, a broad joint employer theory is essential to its efforts to target supposedly deep-pocketed national companies. Businesses that could be vulnerable to joint employer claims include suppliers, contractors, lessors, private equity and venture capital investors, companies that outsource work, staffing agencies, franchisors, creditors, and parent entities that have subsidiary businesses.

The combination of the Browning-Ferris decision and the Wage and Hour Division’s recent independent contractor guidance should serve as a warning to businesses in general to assess their potential exposure to wage and hour claims based on a joint employer theory. Assessments of this type should start with a close examination of contractual relationships with third-party employers to determine whether changes can be made to those agreements to reduce the risk of joint employer liability under the expanded definition of that term adopted by the NLRB and likely on the horizon from the Wage and Hour Division.

We will continue to report in the months ahead on developments regarding the joint employer issue and its impact on wage and hour law.

Co-authored by Christina F. Jackson and Julie G. Yap

While employers have been waiting patiently for the California Supreme Court’s decision regarding the enforceability of class and representative action waivers in arbitration agreements, last week, a California federal court jumped into the fray and held that state law rules are powerless against the broad preemptive power of the Federal Arbitration Act (“FAA”).  Specifically, the court concluded that—under the FAA and the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion—class and representative action waivers in arbitration agreements cannot be invalidated by state law.

In Fardig v. Hobby Lobby Stores, Inc., the non-exempt employee plaintiffs argued that the binding arbitration agreements they entered into with their employer were unenforceable under state law.  The plaintiffs asserted that the broad language in the agreement—waiving their rights to bring any class action, collective action, or joint claims—was contrary to: (1) the California Supreme Court’s ruling in Gentry v. Superior Court; (2) their “right” to bring collective claims under California’s Private Attorney General Act (“PAGA”); and (3) the National Labor Relations Act.  In response, the employer moved for an order compelling the plaintiffs to comply with the binding arbitration agreements, including the waiver provisions.

The court sided with the employer.  As previously discussed in other posts (here and here), California state courts have created a collage of varying conclusions as to whether Gentry remains good law after Concepcion.  In Fardig though, the court joined the majority of California federal courts holding that Concepcion overrules Gentry.  In Gentry, the California Supreme Court held that a class action waiver should not be enforced if a court determined that “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.”  However, the Fardig court simply and pointedly concluded that “Gentry does not survive Concepcion.”

The district court then concluded that the FAA’s broad policy in encouraging arbitration preempts any state law rule requiring arbitration agreements to permit collective PAGA actions.  The district court rejected the plaintiffs’ assertion that the California Supreme Court’s decision in Sonic Calabasas A., Inc. v. Moreno (“Sonic II”), created a “carve-out” for PAGA claims from the requirements of the FAA.  Specifically, the district court noted that Sonic II articulated that the test for determining whether a state rule is preempted following Concepcion is the “extent to which the rule ‘interfere[s] with the fundamental attributes of arbitration.’”  The district court concluded that there are “various ways in which representative PAGA actions do in fact burden the fundamental attributes of arbitration,” including creating “a slower, more costly process” and requiring “defendants to run the risk that an erroneous decision on a PAGA claim on behalf of many employees would go uncorrected given the absence of multilayered review.”

Finally, the district court held that the agreements were enforceable despite the National Labor Relations Board’s decision in D.R. Horton, Inc. concluding that an agreement precluding class claims regarding employees’ wages, hours, or working conditions violated the National Labor Relations Act.  Contrary to the NLRB’s position, the court held that the NLRB’s reasoning conflicted with the FAA and Concepcion—“strongly favoring enforcement of arbitration agreements and strongly against striking class waiver provisions.”

While employers continue to wait for the California Supreme Court to address the three substantive unconscionability arguments raised and rejected by the district court in Fardig, the district court’s decision serves as guidance. This case paints preemption as a dominant force when it comes to waivers in arbitration agreements and gives employers a persuasive opinion in support of preemption arguments—at least in federal court … for now.

Authored by Gena Usenheimer

In a decision that is becoming more and more commonplace, last week the Central District of California enforced a class action waiver in an arbitration agreement, rejecting the panoply of arguments raised by the plaintiff in opposition.

In Appelbaum v. AutoNation, Inc., et al., the plaintiff sought to representative a putative class of service technicians and mechanics in a suit alleging the defendants failed to comply with California’s wage and hour and meal break laws.  In its April 8, 2014 decision, the Central District granted the defendants’ motion to compel arbitration on an individual basis.  Among other dubious arguments raised by the plaintiff, the Court rejected the contention that the Federal Arbitration Act did not govern the agreement as well as plaintiff’s argument that the arbitration agreement was so unconscionable as to be unenforceable under California law.  Dedicating much of its analysis to this unconscionability argument, the Court ultimately found that the substantive terms of this particular agreement were not so one-sided or unfair as to “shock the conscience” or to otherwise render the agreement unenforceable.   Notably, the Court found California PAGA claims are subject to arbitration on an individual basis and declined to follow D.R. Horton, expressly rejecting the argument that the National Labor Relations Act or Norris-LaGuardia Act preclude enforcement of class action waivers.

Thus, while employers utilizing class action waivers in arbitration agreements may still face scrutiny, particularly before the National Labor Relations Board, Appelbaum makes clear that the growing trend in the federal courts is to enforce them.

Co-authored by Joshua Seidman and Nadia Bandukda

D.R. Horton Who?  Who is not the question here, it is why and what is going on with the NLRB saga?  Last week, the NLRB filed a petition for rehearing with the Fifth Circuit seeking reconsideration and reversal of the appellate court’s December 2013 decision regarding employee class action waivers. 

The Board’s petition seeks an answer to a simple question:  can employers require employees, as a condition of their employment, to agree to an arbitration provision that limits their ability to file class or collective actions in court?   The petition once again highlights the Board’s unwavering belief that the NLRA prohibits employees from entering into arbitration agreements that limit their ability to file class or collective actions because, in the NLRB’s view, it prohibits employees’ right to “engage in concerted activity for mutual aid or protection.”

Despite the Fifth Circuit’s decision, which found that an employer’s arbitration policy containing class and collective action waivers does not run afoul of the NLRA, the Board apparently now hopes to huff and puff and blow D.R. Horton’s house down by gaining momentum against the string of recent pro-arbitration Supreme Court and appellate decisions. 

Whether the Board’s rehearing campaign prevails will largely depend on the strength of its argument that the Fifth Circuit’s reliance on two Supreme Court decisions—Gilmer v. Interstate/Johnson Lane Corp. (1991) and AT&T Mobility LLC v. Concepcion (2011)—was misplaced.  The petition repeatedly points out that neither decision discussed or decided the issue presented in D.R. Horton—whether the NLRA “guarantees” the right to pursue a class or collective action.  Specifically, the petition argues that Gilmer and Concepcion did not touch upon the NLRA rights at stake in D.R. Horton and instead addressed “a strictly procedural forum waiver agreement that did not impair any substantive federal right and a law that conditioned enforcement of an arbitration agreement on the availability of class action procedures.”

With respect to Gilmer, the NLRB’s petition notes that the Fifth Circuit’s purported misinterpretation of the case caused it to improperly view the NLRA in the same light as other federal statutes, such as the ADEA or FLSA.  The NLRB argues that statutes such as the ADEA and FLSA are “individual rights” statutes, and thus cannot be appropriately compared to the NLRA, which “does vest employees with a substantive right to act in concert.”  The petition then draws parallels between class or collective lawsuits, on the one hand, and strikes and “other disruptive protests,” on the other hand, arguing that the former is “an alternative” to the latter.  The NLRB finally alleges that unified action by workers “of this sort” lays the groundwork for stronger collective bargaining.

Turning to Concepcion, the NLRB claims that the Fifth Circuit erred by not distinguishing between situations where procedural forum waivers are at issue, as in Concepcion, and situations where a party seeks to waive substantive rights.  Since the waiver in D.R. Horton “extinguishes its employees’…substantive right to litigate employment claims,” the NLRB alleges that the Fifth Circuit should have affirmed the Board’s decision invalidating the waiver.

Despite unfavorable decisions in multiple U.S. Courts of Appeals, as we reported, until the Supreme Court intervenes, employers must expect the D.R. Horton saga to remain in full effect and the NLRB to continue seeking new ways to advance its position.

Co-authored by Richard L. Alfred and Patrick J. Bannon

Employers that want to use traditional bilateral arbitration to resolve employment disputes won an important victory yesterday:  the Fifth Circuit overturned the National Labor Relations Board’s controversial D.R. Horton decision.  Nothing in federal labor law, the Fifth Circuit ruled, forbids employers and employees from agreeing to resolve disputes through individual rather than class or collective arbitration.

Yesterday’s ruling follows a string of pro-arbitration Supreme Court decisions, including Stolt-Nielsen, Concepcion and, this past June, American Express v. Italian Colors Restaurant.  Together with these cases, D.R. Horton further clears the way for employers to use individual arbitration to resolve wage and hour disputes under federal and state laws without subjecting themselves to Rule 23 class or Fair Labor Standards Act collective arbitration claims.

The D.R. Horton case arose from an overtime dispute between D.R. Horton and one of its former superintendents.  Like all D.R. Horton employees, the superintendent had agreed to arbitrate any disputes with the company on an individual basis only, without any class or collective arbitration.  Despite his agreement, the former superintendent notified the company that he intended to pursue arbitration on behalf of a nationwide class of similarly situated employees whom, he claimed, had been misclassified as exempt from overtime in violation of the FLSA.

D.R. Horton, of course, refused to participate in class or collective arbitration, citing the employee’s agreement.  In response, the former employee, filed a charge with the National Labor Relations Board, claiming that the agreement to forego class or collective arbitration violated his rights under the National Labor Relations Act.

Last year, the Board issued a surprising ruling in favor of the employee.  The Board explained that all employees — union and non-union, alike — have a federal right to join together to try to improve their working conditions, including a right to pursue litigation together on a class or collective basis.  Agreements requiring employees to resolve all disputes through individual arbitration only, the Board ruled, interfered with those employee rights.

All three of the federal circuit courts that had previously considered the Board’s D.R. Horton decision (the Second, Eighth and Ninth Circuits) found it unpersuasive.  Numerous lower courts have also rejected it.  But employees resisting individual arbitration continued to cite it in their efforts to arbitrate wage and hour claims on a class or collective basis.  Yesterday, the Fifth Circuit reversed the Board’s ruling and, in doing so, removed whatever shadow that ruling had cast over the enforceability of individual-only arbitration agreements.

The Board’s reasoning was flawed, the Fifth Circuit stated, because the Board paid insufficient attention to the Federal Arbitration Act.  In that statute, Congress provided that arbitration agreements must be enforced according to their terms, except in very limited circumstances.  Nothing in the text or the legislative history of the National Labor Relations Act, the appellate court ruled, warranted refusing to enforce as written an employer’s agreement with an employee to participate in arbitration only on an individual basis.

The Fifth Circuit relied on AT&T Mobility v. Concepcion, in which the Supreme Court explained the fundamental differences between individual and class arbitration and found the latter inconsistent with the FAA.  Accordingly, the Court of Appeals concluded, requiring an employer to allow class or collective arbitration would effectively deny the employer the benefits of arbitration — a result that would violate the FAA.

While the NLRB may not, as a matter of policy, choose to acquiesce in the Fifth Circuit’s opinion, yesterday’s decision is a compelling repudiation of the Board’s reading of the NLRA.  Unless the Fifth Circuit’s decision is overturned by the Supreme Court or an act of Congress (neither of which seems likely) employees are less likely to be successful in relying on federal labor law to resist enforcement of agreements to participate in individual arbitration.  Earlier this year, in American Express v. Italian Colors Restaurant, the Supreme Court held that agreements to participate in individual arbitration and forego class arbitration are enforceable even as to claims that are not economically feasible to pursue except on a class basis.  Thus, employees seeking to avoid enforcement of agreements limiting arbitration to individual claims have lost their two most widely used arguments.

While today’s decision is certainly a victory for employers, it includes one cautionary note.  The Fifth Circuit found that D.R. Horton’s arbitration agreement was not clear enough that employees retained the right to file unfair labor practice charges with the Board.  The court allowed to stand the portion of the Board’s decision requiring D.R. Horton to clarify its agreement on that point.  This portion of the decision warrants further study, especially for employers with operations within the Fifth Circuit’s jurisdiction.  This and related aspects of the Fifth Circuit’s decision are discussed in further detail in Seyfarth Shaw’s Management Alert, “Fifth Circuit Sets Aside NLRB Rule Prohibiting Class Action Waivers (12/03/13) at

SDNY.jpgAuthored by Patrick Bannon

Can an arbitration agreement preclude an FLSA collective action?  To the chagrin of many plaintiffs’ lawyers — and the National Labor Relations Board — a growing consensus says, “Yes.”  Last week, a President Obama-appointed federal judge in New York joined the chorus in Ryan v. JPMorgan Chase & Co., et al.

Tiffany Ryan, a former assistant branch manager of JPMorgan Chase Bank, sued the bank for $9,000 in overtime pay under the FLSA.  She attempted to pursue the case as a collective action:  a case on her own behalf and “on behalf of all others similarly situated.” 

When she was hired, however, Ryan had agreed to submit all claims against the bank — specifically including FLSA claims — to arbitration.  She had further agreed, in unmistakably clear language, that the arbitration would be on an individual basis only and not on a class or collective basis. 

The bank asked Judge Vincent Briccetti to enforce Ryan’s arbitration agreement by dismissing the lawsuit and ordering Ryan to arbitrate her claim on an individual basis.  

Ryan raised three objections — each unsuccessful. 

First, Ryan argued that her right to pursue an FLSA collective action is unwaivable.  Relying on higher court decisions that the right to pursue a class action can be waived, Judge Briccetti held that the right to proceed collectively under the FLSA was not per se unwaivable.

Second, Ryan argued that the arbitration agreement could not be enforced because if she were forced to arbitrate on an individual basis, she would be unable as a practical matter to vindicate her FLSA rights.  Judge Briccetti disagreed, noting that Ryan had not proven that individual arbitration would be unworkable given the amount of her claims, the bank’s agreement to pay all arbitration costs and the provision in the FLSA allowing Ryan to recover her attorneys’ fees if she won.

Finally, Ryan contended that enforcing her arbitration agreement would violate federal labor law.  The National Labor Relations Board endorsed this argument in 2012 in its lengthy and controversial D.R. Horton decision.  Judge Briccetti dismissed the reasoning of D.R. Horton in a sentence, noting that in doing so he was joining numerous other courts.  (He also questioned the validity of D.R Horton following the Court of Appeals for the D.C. Circuit’s ruling in Noel Canning that the appointments of certain NLRB members were unconstitutional.  D.R. Horton, itself, is pending decision by the Court of Appeals for the Fifth Circuit.) 

For employers who wish to resolve disputes with their employees through individual arbitration, the sky continues to brighten:  the analysis of D.R. Horton seems to be on life support while support for agreements to arbitrate FLSA claims on an individual basis and to waive FLSA collective actions continues to grow.