NLRB Judge Invalidates Arbitration Agreement Without Express Class Action Waiver

February 3, 2014

The split between the National Labor Relations Board (NLRB) and federal courts over the enforceability of class action waivers in employment arbitration agreements widened in a January 2014 administrative law judge (ALJ) decision, Leslie’s Poolmart, Inc.

In Leslie’s, ALJ Lisa Thompson invalidated an arbitration agreement that did not expressly preclude class and collective action claims but had the “effect of doing so” when the employer relied upon it to attempt to prohibit a former employee from pursuing a class action lawsuit. Significantly, the ALJ’s decision cited and expanded on the Board’s controversial decision in D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012), which held that arbitration agreements that prohibit employees from bringing class or collective action claims are unlawful.

Case Background

The Leslie’s decision began after former employee Keith Cunningham filed a class action lawsuit against Leslie’s in California state court for unpaid overtime wages. Leslie’s removed the lawsuit to federal district court and then moved to compel arbitration of Cunningham’s individual claims. The district court granted the motion and issued an order (a) compelling Cunningham to arbitrate his individual claims, and (b) dismissing his class claims. Cunningham responded by filing an unfair labor practice charge with the NLRB, claiming that Leslie’s violated his rights under the National Labor Relations Act (NLRA) by using the arbitration agreement to prevent him from pursuing his claims against Leslie’s on a class-wide basis.

Leslie’s first argued that the NLRB lacked a proper quorum when D.R. Horton was decided due to invalid recess appointments of Board members, citing the D.C. Circuit Court of Appeals’ decision in Noel Canning v. NLRB, which is presently on appeal to the U.S. Supreme Court. The ALJ rejected that argument, electing to ignore both Noel Canning and a similar 4th Circuit decision and instead follow NLRB decisions which hold that the NLRB was lawfully constituted at the time D.R. Horton was decided.

Leslie’s also argued that even if valid, D.R. Horton was not controlling based on the 5th Circuit Court of Appeals’ December 2013 rejection of that decision on appeal in D.R. Horton, Inc. v. NLRB, which held that the Board’s findings were contrary to both controlling Supreme Court precedent and the Federal Arbitration Act. Further, the 5th Circuit’s decision was recently joined by the 9th Circuit in Richards v. Ernst & Young, LLP. The ALJ nonetheless disagreed, citing contrary NLRB decisions applying D.R. Horton and stating that she was “bound by D.R. Horton until it is reversed by the Supreme Court.” The ALJ further held that there was nothing “meaningfully distinguishable” between an arbitration agreement that expressly precluded employees from bringing class action claims and one that did not expressly do so but was enforced in such a manner.

Employer Take-Aways

The Leslie’s ruling demonstrates the ongoing divergence between the federal courts and the NLRB over the lawfulness of class action waivers in employment arbitration agreements, as well as the NLRB’s continuing attempt to impose its views on employment practices absent clarity from the U.S. Supreme Court. Unless and until the Supreme Court weighs in on whether such waivers violate the NLRA, employees will continue to seek NLRB intervention as a means to preclude enforcement of class and collective action waivers. Further, the scope and effectiveness of class action waivers will continue to be an area of legal uncertainty for employers seeking to enforce such provisions in arbitration agreements.

For questions regarding how the NLRB’s employment arbitration decisions may apply to your workplace, please reach out to your McGuireWoods contact or a member of the firm’s traditional labor group.