National Labor Relations Board Continues to Invalidate Arbitration Agreements Containing Class Action Waivers, Bucking Federal Court Rulings

In its recent decision in Murphy Oil USA, Inc., the National Labor Relations Board (NLRB) reaffirmed its earlier decision in D.R. Horton, Inc., that requiring employees as a condition of employment to waive their right to bring class, collective or joint actions violate the National Labor Relations Act (NLRA). The NLRB’s ruling is at direct odds with a ruling from the Fifth Circuit Court of Appeals that overruled the D.R. Horton decision and held that class action waivers in arbitration agreements do not violate the NLRA, so long as employees retain the right to bring individual claims. The Second and Eighth Circuits have likewise rejected the NLRB’s reasoning in D.R. Horton.

Facts: Murphy Oil required all job applicants and current employees, as a condition of employment, to sign a “Binding Arbitration Agreement and Waiver of Jury Trial.”  The Agreement provided that disputes related to employment shall be resolved by binding arbitration and that the parties “waive their right to commence or be a party to any group, class or collective action claim in arbitration or any other forum.” Sheila Hobson signed this Agreement when she applied for employment with Murphy Oil in 2008. Two years later, Hobson and three other employees filed a federal collective action against Murphy Oil alleging violations of the Fair Labor Standards Act (FLSA). In response, Murphy Oil filed a motion to compel the plaintiffs to arbitrate their claims on an individual basis. That motion was granted by the federal court and the action was stayed pending arbitration of the individual claims.

Subsequently, the NLRB General Counsel issuing a complaint alleging Murphy Oil violated Section 8(1)(a) of the NLRA by maintaining and enforcing a mandatory arbitration agreement prohibiting employees from engaging in protected, concerted activities.

The Ruling: Despite the Circuit Courts rejection of D.R. Horton, the NLRB maintained its previous position and held Murphy Oil’s arbitration agreement and its efforts to enforce that agreement in court violated Section 8(a)(1) of the NLRA because it prohibited employees from collectively pursuing employment-related claims in any forum, a substantive right provided by Section 7 of the NLRA. The three-member majority faced its break with the federal courts head on, stating, “[i]n sum, we have carefully considered, and fully addressed, the views of both the Federal Appellate courts that have rejected D.R. Horton and the views of our dissenting colleagues. We have no illusions that our decision today will be the last word on the subject, but we believe D.R. Horton was correctly decided, and we adhere to it.”

In his searing dissent, Board Member Johnson chastised the majority for “refusing to follow the clear instructions” from the United States Supreme Court on the interpretation of the NLRA, an error compounded by the majority’s rejection of the Supreme Court’s instruction that the Federal Arbitration Act reflects a public policy favoring arbitration.

Takeaway: The NLRB’s reaffirmation of its reasoning and position in D.R. Horton solidifies its position that binding arbitration agreements with class action waivers violate the NLRA and are unenforceable. The directly conflicting stances between the NLRB and the federal courts will undoubtedly result in future litigation and ultimate resolution of the issue by the Supreme Court.

As a result, employers outside of the Second, Fifth and Eight Circuits with arbitration agreements that include class waivers, or those considering such agreements, must take into account the conflicting stances as well as the possibility of a challenge by the NLRB if they move to enforce individual arbitration of disputed claims until the Supreme Court resolves the issue.