New Life for D.R. Horton?

Published November 10th, 2014 -  - 11.10.1413


Last week the NLRB confirmed its 2013 opinion in D.R. Horton, in a case which may breathe new life into the Board’s conclusion that employers who require their employees to waive their right to collective action under their employment contracts violate § 7 of the NLRA. The Board’s new decision in Murphy Oil U.S.A. reaffirmed its earlier holding that workers have an unwaivable right to collectively pursue employment-related claims in either a legal or arbitral forum. The case represents an interesting development in this hotly contested doctrinal area.

To summarize our past coverage, D.R. Horton established that a class action waiver in an employment contract violates employees’ § 7 right to act collectively for “mutual aid and protection.” Notably, the Board’s decision departed from a trend in recent Supreme Court cases like American Express Co. v. Italian Colors and AT&T Mobility LLC v. Concepcion, which generally uphold binding class action waivers (though these cases were not specific to the employment context). Because of this conflict, many district and circuit courts have since weighed in on the controversy, with most declining to support the Board’s position. Most notably, the Fifth Circuit explicitly found that the Board in D.R. Horton had incorrectly interpreted the NLRA to override the Federal Arbitration Act (FAA), and that the right to file collective actions was not a substantive right under the NLRA. (Professor Sachs has argued against that logic.) One partial exception to this trend was the Ninth Circuit’s decision in Chavarria v. Ralphs Grocery, in which the court held that the FAA did not preempt state law contract doctrines like unconscionability, a finding especially relevant to the take-it-or-leave-it nature of many employment contracts. Yet this concern with unequal bargaining power was unusual among the courts that have reviewed the D.R. Horton decision.

This brings us to Board’s decision last week in Murphy Oil U.S.A. Under facts substantially similar to those in D.R. Horton, Murphy Oil offers a wholehearted defense of the Board’s logic in D.R. Horton. It repeatedly finds protection for employees’ § 7 right to “act in concert, in support of one another”—a right which would be curtailed by precluding group actions in both judicial and arbitral settings. The majority leveled several criticisms at the Fifth Circuit’s contrary reasoning. First, the majority noted that “the [Fifth Circuit’s] first step was to determine that the pursuit of claims concertedly is not a substantive right under § 7 of the NLRA. We cannot accept that conclusion; it violates the long-established understanding of the Act and national labor policy. . . . [T]he right to engage in collective action—including collective legal action—is the core substantive right protected by the NLRA.” It also wrote that while Concepcion dealt with federal preemption of California state law, D.R. Horton and Murphy Oil instead concern two federal laws (the NLRA and the FAA), and that the Fifth Circuit was wrong to conclude that the FAA necessarily trumps the NLRA. Finally, the Board believed its holding did not conflict with the FAA because its decision treated arbitration clauses no less favorably than any other contract that violates federal law.

A vigorous and lengthy dissent by Member Harry Johnson noted the majority’s divergence from what he claimed was clearly established precedent. “[W]ith this decision, the majority effectively ignores the opinions of nearly 40 Federal and State courts that, directly or indirectly, all recognize the flaws in the Board’s . . . reading of the National Labor Relations Act in order to both override the Federal Arbitration Act and ignore the commands of other federal statutes. Instead, the majority chooses to double down on a mistake that, by now, is blatantly apparent.”

Murphy Oil signals that the Board has dug in its heels with regard to the illegality of mandatory agreements that waive class action rights. As the dissent noted, this decision may steer “the agency on a collision course with the Supreme Court,” given the clear conflicts with other circuits. In the meantime, ALJs across the country remain free to strike down these arbitration agreements as § 7 violations under the authority of D.R. Horton and Murphy Oil. Stay tuned for further developments.

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