In a strangely timed opinion, the Sixth Circuit has entered the fray over whether class and collective waivers in employee arbitration agreements violate the National Labor Relations Act (NLRA). Strangely timed because on January 13, 2017, the U.S. Supreme Court granted certiorari in three consolidated cases that will resolve if arbitration agreements with class and collective waivers are enforceable under the Federal Arbitration Act (FAA), irrespective of the Board’s current interpretation of the NLRA.  We have been following the developing law in this area for years and addressed the Supreme Court’s grant of certiorari in a January 17, 2017 blog here.  We also analyzed the Ninth and Seventh Circuit opinions in blogs on May 31, 2016 and August 24, 2016.

The consolidated cases, referenced above, will be argued during the Supreme Court’s upcoming term, which begins in October 2017, and an opinion will likely be issued in late 2017 or early 2018. So these issues should be finally resolved soon, and the case will likely either act as a de facto stamp of approval or an effective reversal of the Sixth Circuit’s decision.

The Alternative Entertainment, Inc., Opinion

In National Labor Relations Board v. Alternative Entertainment, Inc., No. 16-1385 (May 26, 2017), the Sixth Circuit majority joined the Seventh and Ninth Circuits in holding that an arbitration agreement requiring employees to individually arbitrate their claims violates the NLRA’s protection of the right to engage in concerted activity, which includes a guaranteed right to pursue collective action.

Alternative Entertainment Inc. (AEI) provided Dish Network installation and services.  It had an Open Door Policy and Arbitration Program for its employees, which required binding arbitration. It stated: “By signing this policy, you and AEI also agree that a claim may not be arbitrated as a class action, also called ‘representative’ or ‘collective’ actions and that a claim may not be consolidated or joined with claims of others.”

The NLRB sought enforcement of a decision and order of the Board, finding AEI violated the Act by barring employees from seeking class action relief or collective arbitration for employment claims.

As explained by the author of the opinion, Judge Karen Nelson Moore, there was no need to inquire “whether the NLRA trumps the FAA” because the two statutes are not in conflict, since the FAA’s savings clause addresses the issue before the court. The NLRA prohibits the collective action waiver on grounds that would apply to any contract, and consequently fits within the FAA’s savings clause as an “illegal” provision.

Judge Moore thus used the NLRA’s “substantive right” and the FAA’s savings clause to distinguish the Supreme Court’s holdings in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); and Mitsubishi Motors Corp. v. Solor Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).

Judge Moore also rejected the Fifth Circuit’s analysis in D.R. Horton v. NLRB, 737 F.3d 344 (5th Cir. 2013), concluding, in part:

“. . . the Fifth Circuit relied on its determination that “[t]he use of [Rule 23] class action procedures . . . is not a substantive right.”  D.R. Horton, 737 F.3d at 357.  This determination is correct, but irrelevant.  Rule 23 is not a substantive right, but the Section 7 right to act concertedly through Rule 23, arbitration or other legal procedures is.

The Dissent

In a 10-page dissent, Judge Jeffrey Sutton dissected the Board’s contentions. He noted that the Court has enforced the FAA in the federal employment law arena. And the Supreme Court “has upheld application of the FAA in every case it has considered involving a statutory right ‘that [did] not explicitly preclude arbitration,’” citing D.R. Horton v. NLRB, 737 F.3d 344, 357 n. 8 (5th Cir. 2013). Included are federal statutes that must evidence a “contrary Congressional command” to overcome the FAA’s mandate. See CompuCredit Corp. v. Greenwood, 132 S. Ct. 655, 669 (2012).

Listing five opinions, Judge Sutton pointed out that the federal courts of appeal have had little difficulty concluding that an employee may waive the right to bring collective actions under other federal laws. He observed:

“Every circuit to consider the question has concluded that an employee may waive the right to bring a collective action under the Fair Labor Standards Act, which includes the same collective-action provision as the Age Discrimination in Employment Act.”

Judge Sutton also was critical of the NLRB’s interpretation of the Act:

“Statutory interpretation prioritizes the specific over the general. If Congress wanted to create unwaivable rights to pursue class actions or other collective lawsuits, it would place that right in the workplace-rights statutes themselves, not in the NLRA in 1935. The Board’s theory is worse than assuming Congress would place elephants in mouseholes. It assumes that Congress forgot how to write statues.” (Citations omitted.) (Emphasis added.)

Finally, Judge Sutton also contested the NLRB’s construction of Section 7 and the application of Chevron deference to the D.R. Horton rule. He declared:

“Trying to keep a grip on Chevron deference, the Board and the majority maintain that any conflict between the D.R. Horton rule and the FAA is illusory. But the Board’s interpretation of Section 7 runs headlong into Concepcion. The inescapable conclusion is that, like the California Supreme Court’s prohibition on class waivers in consumer contracts, the Board’s prohibition on class waivers in employment contracts ‘creates a scheme inconsistent with the FAA.’ Concepcion, 563 U.S. at 344. It is particularly noteworthy in this respect that the California Supreme Court, in a thoughtful opinion by Justice Liu, recognizes that Concepcion forecloses the D.R. Horton rule. Iskanian v. CLS Transp. L.A., LCC, 327 P.3d 129, 141 (Cal. 2014).”

Hence, Judge Sutton presented the forceful opposition to the NLRB’s D.R. Horton rule that was first adopted by the Board in 2012.

Bottom Line: The Sixth Circuit Alternative Entertainment opinion aptly illustrates “the robust debate” among the appellate courts surrounding the propriety of the Board’s D.R. Horton rule.  Although not among the consolidated cases pending before the Supreme Court, it simply adds one more decision to a circuit split, with the Supreme Court standing by to finally resolve the issue.