NLRB Challenges Class Action Waivers In Employment Agreements

Over the past decade, large corporations have found a mechanism for avoiding class action litigation: their contracts or employment agreements include provisions that require any disputes be brought through private arbitration, rather than in a court, and that any such arbitration be handled on an individual basis. The United States Supreme Court has repeatedly upheld such provisions, referred to as class action waivers. Recently, however, employees have successfully challenged these contractual bans on class actions in actions brought before the National Labor Relations Board (known as the NLRB).

The NLRB’s mandate is to safeguard employees’ rights and to determine whether they can be represented by a union; the rights it enforces are guaranteed under the National Labor Relations Act (NLRA). The NLRA protects employees’ ability to engage in “concerted activity,” which is when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment.  As the NLRB’s website explains: “A single employee may also engage in protected concerted activity if he or she is acting on the authority of other employees, bringing group complaints to the employer’s attention, trying to induce group action, or seeking to prepare for group action.” In the view of the NLRB, this right to engage in “concerted activity” includes the right to bring an action in court on behalf of a group of employees. In other words, the NLRB views the ability to bring a class action against an employer as a tool to protect employee rights.

In 2012, the NLRB held in D.R. Horton, Inc., that an employer violates Section 8(a)(1) of the NLRA when it requires employees, as a condition of their employment, to sign an agreement that precludes them filing joint, collective, or class actions addressing wages, hours, or other working conditions. When the employer challenged that ruling in federal court, the Fifth Circuit Court of Appeals, in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013) disagreed with the NLRB panel, finding that the class action is a procedural mechanism, and not a substantive right guaranteed by the NLRA.  Since that opinion, the Fifth Circuit reaffirmed its understanding of the NLRA in Murphy Oil USA, Inc., 808 F.3d 1013 (5th Cir. 2015) and the Second Circuit Court of Appeals came to a similar conclusion in Sutherland v. Ernst & Young, 726 F.3ed 290 (2d Cir. 2013)).

Despite the outcomes in these court cases, the NLRB has continued to hear challenges to class action waivers included in mandatory arbitration clauses in employment contracts and has continued to strike down these provisions. In the last several months alone, the NLRB has rejected class action waivers in employment agreements for employees in various industries, including employees of Samsung Electronics America Inc.; Citigroup Inc. and its Citicorp Banking Corp. subsidiary; several restaurants (including Jack in the Box Inc. and Great Lakes Restaurant Management, LLC, a Wendy’s franchise based in Buffalo, NY); and a Honda dealership.

Ultimately, the United States Supreme Court will likely be called upon to decide whether the NLRB’s interpretation of the NLRA is correct. In the meantime, however, the NLRB is continuing its fight against mandatory arbitration provisions that incorporate class action waivers.

Trief & Olk represents employees in actions challenging unlawful wage and hour practices, both in collective or class actions brought in court and in individual arbitration proceedings brought when employers require such alternate dispute procedures as a condition of employment.