What Does The Supreme Court’s Decision In Italian Colors Mean For The NLRB’s D.R. Horton Decision?

As our readers will no doubt recall, the Supreme Court boldly struck a blow for truth, justice and the American Way a few years ago in its approval of class action waivers in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).  In that case, the Court struck down California’s Discover Bank rule, which prohibited class action waivers in the consumer context, on the basis of Federal Arbitration Act preemption.

A few months later, the National Labor Relations Board decided that it knows better than that silly old Supreme Court, at least in the employment context.  (Apparently, the NLRB didn’t get the memo saying that the Supreme Court is the highest court in the land, but whatever.)  The Board held that employee class waivers violate Section 7 of the National Labor Relations Act, 29 U.S.C. § 157, which protects concerted employee activities. D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012).  In the NLRB’s view, this includes the right of employees (and the plaintiffs’ bar) to collectively bully employers with meritless lawsuits.  (DISCLAIMER: That summary of the Board’s D.R. Horton holding may not be completely objective, and should not be relied upon as legal advice.)

The NLRB was gracious enough to acknowledge the Supreme Court’s Concepcion decision, bless their little hearts.  But, it rejected the notion of FAA preemption on the basis that the NLRA is a federal statute.  In particular, the Board held, “Preemption, schmreemption—the FAA isn’t the boss of us!” (or words to that effect).  Obviously, this holding was a bit of a buzz-kill for all those employers who had just paid their lawyers to come up with super-duper, bulletproof class waivers.  (No refunds, sorry.)

But then, a ray of hope!  Earlier this month, the Supreme Court issued another decision in its ongoing, “we’ve never met an arbitration agreement that wasn’t just adorable” series.  American Express Co. v. Italian Colors Restaurants, Case No. 12-133 (June 20, 2013).  The plaintiffs in Italian Colors were merchants suing American Express for alleged antitrust violations.  Each merchant had signed an arbitration agreement that waived the ability to proceed on a class basis in any dispute with American Express.  But, it was largely undisputed that the claimed antitrust violations would require each potential class member to incur hundreds of thousands of dollars in expert costs, with a maximum individual recovery of less than $40,000.

Oddly enough, the merchants weren’t too happy with this arrangement, and insisted that it would unfairly insulate American Express from antitrust liability.  The Supreme Court majority, however, didn’t see any reason for all the hubbub.  Its decision can be summed up as, “Tough –deal with it.”

So, what does this mean for the NLRB’s D.R. Horton ruling?  Well, we believe it’s encouraging.  Of course, there are a few, minor grounds on which Italian Colors might be distinguishable, but we make our bones representing employers, so we’re going to ignore those here.  In truth, the rationale of the Italian Colors majority undeniably suggests that the Court would not look favorably on the NLRB’s D.R. Horton rationale.  Three portions of the majority’s analysis particularly stand out in this respect.

First, the Italian Colors majority emphasized that the class procedures adopted in the Federal Rules of Civil Procedure did not exist at the time the Sherman Act was passed.  In particular, the Court noted that “the individual suit that was considered adequate to assure ‘effective vindication’ of a federal right before adoption of class-action procedures did not suddenly become ‘ineffective vindication’ upon their adoption.” (Slip Op. at 7).  Similarly, the National Labor Relations Act was passed in 1935, while the Federal Rules were adopted three years later, in 1938. The current version of Rule 23 is largely based on a significant expansion of the class action vehicle through amendments in the mid-1960s. Thus, at the time the NLRA was adopted, employees could not act collectively in the litigation process in the manner that is now permitted under Rule 23.  Applying the majority’s analysis in Italian Colors, Section 7 therefore should not be read as intended to protect the right to petition for class status.

Second, in deciding D.R. Horton, the NLRB distinguished the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).  The Supreme Court held in Gilmer that the plaintiff was required to arbitrate his claim under the Age Discrimination in Employment Act.  Letting out a collective yawn, the NLRB brushed off the Gilmer decision on the basis that there was no definitive class waiver in that case and the issue was not litigated.  The Italian Colors majority appeared to read Gilmer more broadly: “In Gilmer, supra, we had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue, the Age Discrimination in Employment Act, expressly permitted collective actions.” (Slip Op. at 8).

Third, the NLRB held in DR Horton that, even if there is no substantive right to class certification itself, the ability to petition for Rule 23 class certification is a substantive right.  The Italian Foods majority held to the contrary.  In fact, it phrased its rejection of this assertion in almost prescient terms: “One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But we have already rejected that proposition in AT&T Mobility.” (Slip Op. at 6, emphasis added).  In other words, “Nice try.”

Of course, this may all be moot.  On Monday, June 24th, the Supreme Court accepted certiorari in the Noel Canning case.  The D.C. Circuit held in Noel Canning that President Obama improperly exercised his recess appointment powers in regard to three of the current Board members.  Noel Canning v. N.L.R.B., 705 F.3d 490 (D.C. Cir. 2013).  If the Supreme Court upholds the D.C. Circuit’s decision, D.R. Horton will be wiped away along with hundreds of other decisions the Board has issued since January 2012.  Early reports indicate that few tears will be shed by employers in that event.

Bottom Line:  Italian Colors is an encouraging sign of the well-deserved demise of D.R. Horton, if Noel Canning doesn’t call the cops on the NLRB’s party first.