NLRB Ruling is Latest Setback for Employers Hoping to Compel Arbitration

The labor and employment bar was set abuzz over the weekend by last week’s decision by the National Labor Relations Board rejecting an arbitration agreement that required employees of homebuilder D.R. Horton to waive their class action rights. As The American Lawyer’s Scott Graham reported Monday, the NLRB’s ruling, released Friday, appeared to fly in the face of the U.S. Supreme Court’s ruling last year in AT&T Mobility v. Concepcion, which made it easier for defendants to enforce arbitration agreements with would-be class action plaintiffs.

For employers banking on the Concepcion ruling to uphold arbitration clauses in employment agreements, the NLRB ruling was quickly labeled a game-changer. But as we’ve reported, courts around the country have already rejected defense arguments that Concepcion protects class action waivers in labor and employment agreements.

In July a San Francisco federal district judge in San Francisco rejected O’Melveny & Myers arguments that Concepcion precluded a class challenge to its arbitration agreement with employees. Likewise, in a closely-watched case involving Citigroup, in November a Manhattan federal district judge denied the bank’s motion to dismiss a suit brought by loan officers seeking overtime wages. That ruling found that Concepcion didn’t apply because the claims were brought under federal rather than state employment law.

The Supreme Court concluded in Concepcion that the Federal Arbitration Act preempted a California state law that allows certain class action waivers to be voided as unconscionable. Since AT&T’s lawyers at Mayer Brown won the ruling last April, other consumer class action defendants have cited Concepcion to persuade judges to compel customers to arbitrate their claims. But as NLRB member Craig Becker and chairman Mark Gaston Pierce pointed out in Friday’s ruling, the D.R. Horton case involved a perceived conflict between the FAA and the National Labor Relations Act, not state law.

“The board is saying that our workplace laws essentially take precedent over the [Federal Arbitration Act,]” said Philip Berkowitz of Littler Mendelson in a phone interview Monday. Berkowitz said the NLRB’s ruling was “ a line in the sand sort of decision” that gives labor lawyers a lot more clarity on what kinds of agreements will pass muster under the board’s current make-up.

There’s been no shortage of discussion in the courts about how Concepcion should be applied in the employment context, as evidenced by Seyfarth Shaw’s annual report on workplace class actions, which was released on Monday. The report tallied 215 rulings in which Concepcion was cited in federal and state courts last year alone. Seyfarth’s Gerald L. Maatman Jr. told us he thinks Friday’s NLRB ruling will generate an equal amount of discussion–if not more–in the coming year. “[Employers in all 50 states] are operating on a playing field in flux,” Maatman said. “Employment lawyers advising companies on workplace arbitration agreements are very busy these days.”

Berkowitz and Maatman both pointed out that the NLRB decision and other employment cases in which defendants have cited Concepcion face a long road ahead in the appeals courts. Berkowitz added that the NLRB decision is getting quite a bit of scrutiny as a result of its 2-0 vote. The NLRB is statutorily comprised of five members, and Berkowitz said the ruling could raise issues under the Supreme Court’s 2010 decision in New Process Steel v. NLRB, which held that the NLRB requires a quorum to rule on a case.

This article originally appeared in The AmLaw Litigation Daily.