The Board Vs. The Courts: Will 2016 Mark The Final Showdown For Class Action Waivers In Arbitration Agreements?

Arbitration agreements are practical tools that help employers protect confidential information and avoid the costs associated with traditional litigation. They can also be an extremely effective mechanism for employers to reduce exposure to risky employment litigation and potentially abusive collective action claims under the Fair Labor Standards Act ("FLSA"). We've written extensively on the courts' treatment of such agreements on several occasions.

Nevertheless, since its 2012 decision in D.R. Horton, Inc., 357 NLRB 184, the National Labor Relations Board ("NLRB") has consistently maintained that the National Labor Relations Act ("NLRA") prohibits arbitration agreements that require employees to waive the right to pursue labor-related class and collective actions – despite provisions allowing workers to opt out of, or into, the waivers.

Since D.R. Horton, state and federal courts have repeatedly rejected the Board's stance and upheld class and collective action waivers on the basis that the NLRA or FLSA fails to contain a congressional mandate for an employee's right to engage in collective actions; therefore, the clear mandate of the Federal Arbitration Act in favor of arbitration prevails. In 2013, the Fifth Circuit outright overturned the Board's precedent-setting D.R. Horton decision on appeal ( D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). The Second, Eighth, Ninth, and Eleventh Circuits likewise found D.R. Horton unpersuasive (Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013); Richards v. Ernst & Young, LLP, 734 F.3d 871 (9th Cir. 2013); Walthour v. Chipio Windshield Repair, 745 F.3d 1326 (11th Cir. 2014)).

Instead of the Board seeking review with the U.S. Supreme Court, it circumvented the Circuits and issued a second decision in Murphy Oil USA, Inc., 361 NLRB 72 (2014), to rehabilitate its D.R. Horton standards. On October 26, 2015, the Fifth Circuit reversed Murphy Oil on appeal (Murphy Oil USA, Inc. v. NLRB, No. 14-60800 (5th Cir. Oct. 26, 2015)) (and the NLRB's en banc petition was denied without recorded dissent). The Board now has 90 days from that decision to petition the U.S. Supreme Court for review.

In the meantime, the NLRB has held firm despite the Fifth Circuit's recent reversal. In 2015, the Board issued 35 published decisions that found arbitration agreements unlawful based on the D.R. Horton and Murphy Oil principles. The Board issued...