NLRB Reaffirms D.R. Horton Decision Invalidating Arbitral Class Action Waivers

In a controversial decision that rejects the precedent of numerous federal and state courts, the National Labor Relations Board (NLRB) has reaffirmed its earlier decision in D.R. Horton, Inc., 357 NLRB No. 184 (2012). In D.R. Horton, the NLRB ruled that an arbitration agreement under which employees were required to waive the right to bring class or collective actions violated the National Labor Relations Act (NLRA). In the recent decision, a 3-2 NLRB majority invalidated a similar agreement, concluding that the "reasoning and result" of the Horton decision were correct. Murphy Oil USA, Inc., 361 NLRB No. 72 (2014). Two dissenting NLRB members disagreed with the decision, one observing that the majority had chosen to "double down on a mistake that, by now, is blatantly obvious."

Procedural Background

The Murphy Oil case involved a company that operates retail fueling stations in 21 states. The company required employees to sign an agreement requiring arbitration of employment disputes and waiving the right to file or participate in a group, class or collective action in court, arbitration or other forum. Notwithstanding this agreement, four employees filed a collective action against the company in federal district court alleging violations of the Fair Labor Standards Act (FLSA). The company responded by filing a motion in that court to compel individual arbitration of the claims as provided in the agreement. The lead plaintiff then filed an unfair labor practice charge with the NLRB, and the General Counsel of that agency issued a formal complaint against the company.

At that point, the company revised the arbitration agreement to provide that employees did not waive their right under the NLRA to file a group, class or collective action, but that the company could seek dismissal of such claims under the Federal Arbitration Act (FAA). Thereafter, the federal district court granted the company's pending motion to compel arbitration on an individual basis. The NLRB's General Counsel issued an amended complaint against the company. After a two-year delay, the NLRB issued the Murphy Oil decision, in which it found that the company had committed two violations of the NLRA—requiring employees to sign the arbitration agreements and enforcing the agreements in court.

D.R. Horton Rationale Reaffirmed by NLRB

The three-member NLRB majority in Murphy Oil justified the decision by restating the rationale of the earlier decision in D.R. Horton, consisting of three main arguments. First...