Authored by: Ericka Spears

Much like a war where each side steadily amasses victories and defeats, the federal courts and the National Labor Relations Board (NLRB) continue to have diverging opinions on the enforceability of class action waivers in arbitration agreements.

Federal courts have won the most recent battle in the war. In Owen v. Bristol Care, Inc., No. 12-1719, 2013 WL 57874 (8th Cir. Jan. 7, 2013), the Eighth Circuit held that class action waivers are enforceable in Fair Labor Standards Act (FLSA) cases, and became the first court of appeals to explicitly reject the National Labor Relations Board’s (NLRB’s)  stance against class waivers in the employment context as established in  In re D. R. Horton, Inc., 357 NLRB No. 184,2012 WL 36274 (N.L.R.B. Jan 03, 2012), appeal pending, No. 120600031 (5th Cir.  Jan. 13, 2012) (oral argument is scheduled for February 5, 2013), which held that class action waivers violated employees’ rights to engage in protected concerted activity under Sections  7 and 8(a)(1) of the National Labor Relations Act (NLRA).

The Owen Decision

In 2009, Bristol Care, Inc. hired Sharon Owen as a nursing home administrator.  Both parties signed a Mandatory Arbitration Agreement in which they agreed to resolve all claims or controversies, including claims arising from the FLSA, by binding arbitration.  The agreement also contained a class action waiver prohibiting parties “from arbitrating claims subject to [the] Agreement as, or on behalf of, a class.” The agreement, however, did not waive the right to file a complaint with a federal, state or local agency designed to investigate statutory violations or similar claims. 

In September 2011, Owen initiated an action against Bristol Care, alleging that her employer intentionally misclassified her and other similarly situated individuals as exempt employees in order to avoid paying proper overtime compensation under the FLSA.  In response, Bristol Care moved to stay district court proceedings and compel arbitration in accordance with the agreement and the Federal Arbitration Act (FAA).

The District Court in Owen v. Bristol Care, Inc., NO.11-04258-CV-FJG, 2012 WL 1192005 (W.D. Mo. Feb 28, 2012), denied the motion to compel arbitration, holding that class action waivers are invalid in FLSA cases because the FLSA provides for the right to bring a collective action.  In reaching this conclusion, the Court distinguished the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which upheld the enforceability of a class action waiver in a consumer contract, stating that the holding was not controlling in an employment context.  Instead, the District Court relied on the NLRB’s decision in D.R. Horton and the Southern District of New York’s decision in Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, 398-408 (S.D.N.Y. 2011), stating that “[i]n the employment context, waivers of class arbitration are not permissible.”

On appeal, the Eighth Circuit Court of Appeals reversed the District Court’s ruling and held that mandatory arbitration agreements containing class action waivers are valid and enforceable in cases arising under the FLSA.   The appeals court stated several reasons for their reversal including:

  • The Supreme Court’s decision in Concepcion applies to employment as well as consumer cases.
  • Nothing in the text or legislative history of the FLSA indicates a congressional intent to bar employers and employees from agreeing to arbitrate FLSA claims.
  • The FAA created a strong public policy in favor of arbitration and nothing in the FLSA overrides this.
  • Unlike the agreement in D.R. Horton,   the agreement did not bar all concerted action—under the agreement employees had the right to file a complaint with administrative bodies such as the U.S. Department of Labor or Equal Employment Opportunity Commission.
  • The Court declined to defer to the NLRB’s interpretation of Supreme Court precedent and stated that the NLRB did not have special competence or experience in interpreting the FAA.
  • The conclusion that class action waivers are enforceable is consistent with two decades of Supreme Court precedent and the majority of federal courts that have ruled on this issue.

Federal Courts:  Class Action Waivers in Arbitration Agreements Are Enforceable

The Eighth Circuit has many allies that oppose the NLRB’s holding in D.R. Horton. The general trend among federal courts at all levels is that class action waivers in arbitration agreements are enforceable.

Courts of Appeal in the Third (Vilches v. The Travelers Companies, Inc., 413 F. App’x  487 (3rd Cir. 2011)), Fourth (Adkins v. Labor Ready, Inc. , 303 F.3d  496 (4th Cir.  2002)), Fifth (Carter v. Countrywide Credit Industry, Inc., 362 F.3d 292 (5th Cir 2004)), Ninth (Horenstein v. Mortgage Market, Inc. , 9 F. App’x 618 (9th Cir. 2001)), and Eleventh Circuits (Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005)) have concluded that arbitration agreements containing class waivers are enforceable in FLSA cases.  However, since these cases pre-date D.R. Horton, the Eighth Circuit in Owen was the first federal court of appeals case to directly refuse to follow the NLRB’s ruling in D.R. Horton.

Similarly, a majority of federal district courts, including those in New York (LaVoice v. UBS Financial Services, Inc., NO. 11 CIV. 2308 BSJ JLC,  2012 WL 124590 (S.D.N.Y.  Jan. 13, 2012); Cohen v. UBS Financial Services, Inc., NO. 12 CIV. 2147 BSJ JLC, 2012 WL 6041634 (S.D.N.Y. Dec . 4, 2012)), California (Morvant v. P.F. Chang’s China Bistro, Inc., 870 F. Supp. 2d 831 (N.D. Cal. 2012); Reyes v. Liberman Broadcasting, Inc., 146 Cal. Rptr. 3d 616 (C.D. Cal. 2012); Swift Transp. Co. of Ariz., LLC, No. 10-cv-03739, 2012 WL 523527 (N.D. Cal. Jan. 17, 2012)); Johnmohammadi v. Bloomingdales, Inc., No. CV 11-6434 (C.D. Cal. Feb. 23, 2012)), Arkansas (Delock v. Securitas Sec. Services USA, Inc., NO. 4:11-CV-520-DPM, 2012 WL 3150391 (E.D. Ark.  Aug 1, 2012)), Florida (De Oliveira v. Citicorp North America, Inc., NO. 8:12-CV-251-T-26TGW, 2012 WL 1831230 (M.D. Fla. May 18, 2012)), Kansas (Spears v. Mid-America Waffles, Inc., NO. 11-2273-CM, 2012 WL 2568157 (D. Kan. Jul 02, 2012)), Pennsylvania (Tenet HealthSystem Philadelphia, Inc. v. Rooney, NO. CIV. A. 12-MC-58, 2012 WL 3550496 (E.D.Pa. Aug. 17, 2012); Brown v. Trueblue, Inc., NO.  1:10-CV-0514, 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012)), Texas (Carey v. 24 Hour Fitness USA, Inc., Civil Action No. H–10–3009, 2012 WL 4754726 (S.D. Tex. Oct.4, 2012); Johnson v. TruGreen Ltd. Partnership, Cause No.  A-12-CV-166-LY (Oct. 25, 2012)), and Georgia (Palmer v. Convergys Corp.,No. 7:10-CV-145 HL, 2012 WL 425256, at *3 (M.D. Ga. Feb. 9, 2012)), have expressly declined to follow D.R. Horton, repeatedly observing that the NLRB’s ruling conflicts with Supreme Court precedent.

California state courts have also expressly rejected D.R. Horton, as in Truly Nolen of America v. Superior Court,  208 Cal. App. 4th 487 (Cal. App. 4 Dist. 2012), and Nelsen v. Legacy Partners Residential, Inc., 207 Cal. App. 4th 1115 (Cal. App. 1 Dist. 2012).

And, most recently, the United States District Court of Appeals for the District of Columbia  determined that President Obama’s recess appointments in January 2012 were illegal. Therefore the NLRB has not had a working quorum since the end of Member Becker’s term at the end of December, 2011, and  its decisions since then have been invalid.  See Noel Canning v. NLRB – F.3d. – (D.C. Cir. 2013). This ruling places D.R. Horton in doubt and the issue may ultimately be determined by the U.S. Supreme Court.

NLRB:  Class Action Waivers in Arbitration Agreements are Unenforceable

Despite the wave of attacks from the federal courts, the NLRB continues to fight back and apply its holding in D.R. Horton, striking down the use of class action waivers as unfair labor practices.  The NLRB has upheld and extended D.R. Horton in Administrative Law Judge Opinions (24 Hour Fitness USA, INC. and Alton  J. Sanders, NO. 20-CA-035419, 2012 WL 5495007 (N.L.R.B. Div. of Judges Nov 06, 2012); Convergys Corporation  and  Hope Grant, NO. 14-CA-075249, 2012 WL 5494972 (N.L.R.B. Div. of Judges Oct 25, 2012); Advanced Services, Inc., NO. JD(ATL)-16-12,2012 WL 2562584, *1+ (N.L.R.B. Div. of Judges July 2, 2012)); a NLRB Board Decision ( SUPPLY TECHNOLOGIES, LLC AND TEAMSTERS LOCAL 120, 359 NLRB 1 (N.L.R.B. Dec.  14, 2012)); and in a General Counsel Memorandum  (Concord Honda, 2012 WL 5942369 (N.L.R.B.G.C. 2012)). 

In addition to the NLRB’s rulings, there are a minority of federal district courts that share the view that class action waivers are unenforceable and could be potential NLRB allies.  For example, in Herrington v. Waterstone  Mortg. Corp., NO.11-CV-779-BBC, 2012 WL 1242318 (W.D. Wis. Mar 16, 2012), the district court  applied D.R. Horton to strike down a class action waiver in an arbitration agreement stating that it violated the NLRA and distinguished the Concepcion decision as not being controlling. Pre D.R. Horton, in Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294 (S.D.N.Y. 2011), the court held FLSA class action waivers unenforceable as a matter of law.  Most recently, in Ryan v. Event Operations Group, Inc., No. 2:12-cv-0070-MHH (N.D. Ala. Jan. 7, 2013), the judge opined that a written arbitration clause that encompassed the plaintiffs’ FLSA claims would not be enforceable.

Bottom Line:  The law regarding the enforceability of class action waivers in arbitration agreements is still in flux, and federal courts will continue to enforce the same arbitration agreements that the NLRB would strike down.