Recently, the United States Court of Appeals for the Fifth Circuit handed down a significant ruling in the continuing conflict over the ability of employers to require employees to arbitrate employment disputes and to waive the right to class arbitration. In a long-awaited – and, in many circles, expected – decision, the Court overturned the National Labor Relations Board’s ruling that employers violate the National Labor Relations Act by forcing employees to submit employment disputes to individual arbitration. The Court’s decision may pave the way for employers to enforce class arbitration waivers without fear of NLRB enforcement action….at least not anytime soon.
The Court’s decision stems from the NLRB’s January 2012 ruling in D.R. Horton, 357 NLRB No. 184, that employer arbitration agreements prohibiting class and/or collective actions violate Section 8(a)(1) of the NLRA. The Board had held such agreements interfere with employees’ rights under Section 7 of the NLRA to act collectively to protest terms and conditions of employment. The Board distinguished the U.S. Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, in which the Supreme Court held the Federal Arbitration Act preempted a state law prohibiting class waivers in commercial arbitration agreements. The Board viewed the Supreme Court’s Concepcion ruling as inapplicable in a Section 7 context since it involved commercial disputes. The Board also opined the Concepcion case involved a federal preemption issue, namely, whether the FAA preempted a contrary state law. The Board reasoned that interpreting the NLRA – another federal statute – to ban class arbitration waivers did not create tension with the FAA.
The Fifth Circuit disagreed, holding the Board failed to accord appropriate weight to the FAA. The Court concluded that while the Board is empowered to read the NLRA to protect employees’ rights to engage in collective action, it is not free to ignore other federal authority on the subject. The Court noted the Board’s interpretation of the NLRA neither fit within the FAA’s savings clause nor reflected a congressional command removing the statute from the FAA’s reach. Interestingly, the Fifth Circuit sidestepped the question whether the Board members who decided D.R. Horton were properly constituted under the Recess Appointments Clause of the Constitution. As we have noted before in this space, that challenge is now pending before the Supreme Court in the Noel Canning case. Ultimately, if the Supreme Court rules the NLRB was not properly constituted at the time Noel Canning (and D.R. Horton) was issued, the underlying Board decision would essentially be wiped away anyway.
While it remains to be seen whether the Board will appeal the decision on the merits to the Supreme Court, the Fifth Circuit’s decision is a positive development for employers seeking to enforce class or collective arbitration waivers. Moreover, it is unlikely the Supreme Court as presently constituted would overturn the Fifth Circuit’s ruling given its stance in Concepcion. It would not be surprising if the Board decided to hold its powder for another day, perhaps when it can raise this issue again before a more friendly Supreme Court.