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NLRB Again Attempts to Invalidate Mandatory Arbitration Clauses for Employment Claims

Written by Brent Douglas

In its Murphy Oil decision, the National Labor Relations Board affirmed its 2012 holding in D. R. Horton, which found an employer violates the NLRA when it requires employees “as condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer.” Employment attorneys were waiting to see how the NLRB would react to the Fifth Circuit Court of Appeals’ reversal of its 2012 D. R. Horton decision.  Unpersuaded, the Board indicated it “independently reexamined” D. R. Horton and concluded: “Today we reaffirm that decision.”

The Board employed sweeping language from the outset of its opinion: “For almost 80 years, Federal labor law has protected the right of employees to pursue their work-related legal claims together, i.e., with one another, for the purpose of improving their working conditions.”  For Murphy Oil, this meant its pre-employment, binding arbitration agreements were unenforceable.  The Board reiterated its rationale from D.R. Horton: “Arbitration is a matter of consent, not coercion,” and arbitration agreements may not require a party to waive its right to pursue statutory remedies.  The NLRB found arbitration agreements “that are imposed as a condition of employment, and that compel NLRA-covered employees to pursue workplace claims against their employer individually, do require those employees to forfeit their substantive right to act collectively.”

The Murphy Oil decision provides little clarity for employers nationwide.  As a dissenting NLRB Member pointed out, almost 40 courts have rejected the precedent set in D. R. Horton.  Indeed, the affirmation of its earlier-but-reversed decision continues the Board’s trend of seeing itself bound only by the precedent of the U.S. Supreme Court and not by the Circuit courts.  Thus, although the central holding of Murphy Oil is already under review by the Second Circuit in Lewis v. United Healthcare, and Murphy Oil has asked the Fifth Circuit to review the case, the NLRB is unlikely to change course without a clear direction from the Supreme Court.  And perhaps the Supreme Court will eventually intervene and expand upon its 2011 decision in AT&T Mobility LLC v. Concepcion, where it found the Federal Arbitration Act preempted California state law making mandatory arbitration provisions in adhesion contracts with consumers unconscionable.

While employers likely need not necessarily worry about the ability to enforce reasonable arbitration provisions in the face of the overwhelming trend against D. R. Horton, those looking for a safer alternative may consider offering employees the opportunity to opt out of an arbitration agreement. The Ninth Circuit in Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1075-1077 (9th Cir. 2014), recently enforced a mandatory arbitration clause containing an early employment opt-out provision, expressly finding D. R. Horton inapplicable. The court found the ability to opt out meant the employer did not coerce the employees into waiving their right to file a class action, nor did it require them to accept a class-action waiver as a condition of employment.

However, employers should remain aware that employees may challenge mandatory arbitration provisions without resorting to the federal labor law.  For example, the Central District of California in Reyes v. United Healthcare, recently found that an employer’s mandatory arbitration policy that could be amended by the employer throughout employment was illusory and unconscionable under California common law.  Therefore, employers should consult with their trusted advisors in drafting any arbitration agreements.

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