Fifth Circuit Invalidates NLRB Order Prohibiting Clauses In Covered Employment Agreement Waiving Class/Collective Claims and Requiring Individual Arbitration
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In the controversial case of D.R. Horton v. National Labor Relations Board (No. 12-60031, Dec. 3, 2013), the US Court of Appeals for the Fifth Circuit today vacated, in a 2-1 decision, orders of the National Labor Relations Board (NLRB) invalidating an employee arbitration agreement that waived class and collective procedures and compelled individual arbitration. This case, along with sister cases in other Circuits, is likely to come before the US Supreme Court in due course. In the meantime, however, the majority opinion in D.R. Horton holds that judicial deference to Federal administrative agency determinations does not permit that agency to disregard the Federal Arbitration Act in favor of its own subject-matter regulatory framework, unless there is an “express command” in that subject-matter regulatory framework disfavoring arbitration and class/collective action waivers.
The NLRA [National Labor Relations Act] should not be understood to contain a congressional command overriding application of the FAA. The burden is with the party opposing arbitration … and here the Board has not shown that the NLRA’s language, legislative history, or purpose support finding the necessary congressional command. Because the Board’s interpretation does not fall within the FAA’s “saving clause,” and because the NLRA does not contain a congressional command exempting the statute from application of the FAA, the Mutual Arbitration Agreement must be enforced according to its terms.
Importantly, the reasoning of the Fifth Circuit also implicates policies of other Federal agencies prohibiting pre-dispute arbitration clauses and waivers of class action absent express statutory authority to do so, including the long-standing policy of the U.S. Securities Exchange Commission to refuse to register securities for public sale if the issuing company seeks to require arbitration of disputes with securities holders. If and when the US Supreme Court comes to address the NLRB regulatory action, the consequences may therefore extend into securities law and other areas of Federal regulation.
The operative language from the majority opinion illustrates the approach taken by the Fifth Circuit, requiring compliance with the FAA’s pro-arbitration policy unless the statutory text or its legislative history contains a congressional command against application of the FAA or there is an “inherent conflict” between arbitration and the relevant substantive statute’s “underlying purposes.”
We give to the Board “judicial deference when it interprets an ambiguous provision of a statute that it administers.” …. “[T]he task of defining the scope of § 7 is for the Board to perform in the first instance as it considers the wide variety of cases that come before it . . . .” …. Where “an issue . . . implicates its expertise in labor relations, a reasonable construction by the Board is entitled to considerable deference.” … “Deference to the Board ‘cannot be allowed to slip into a judicial inertia which results in the unauthorized assumption . . . of major policy decisions properly made by Congress.’” …. Particularly relevant to this dispute is that “the Board has not been commissioned to effectuate the policies of the Labor Relations Act so single-mindedly that it may wholly ignore other and equally important Congressional objectives.”
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These cases under the NLRA give some support to the Board’s analysis that collective and class claims, whether in lawsuits or in arbitration, are protected by Section 7. To stop here, though, is to make the NLRA the only relevant authority. The Federal Arbitration Act (“FAA”) has equal importance in our review. Caselaw under the FAA points us in a different direction than the course taken by the Board. As an initial matter, arbitration has been deemed not to deny a party any statutory right. … Courts repeatedly have rejected litigants’ attempts to assert a statutory right that cannot be effectively vindicated through arbitration. To be clear, the Board did not say otherwise. It said the NLRA invalidates any bar to class arbitrations.
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The use of class action procedures, though, is not a substantive right.
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We now evaluate the Board’s reasoning. We start with the requirement under the FAA that arbitration agreements must be enforced according to their terms. …. Two exceptions to this rule are at issue here: (1) an arbitration agreement may be invalidated on any ground that would invalidate a contract under the FAA’s “saving clause,” …; and (2) application of the FAA may be precluded by another statute’s contrary congressional command ….
The Board clearly relied on the FAA’s saving clause. Less clear is whether the Board also asserted that a contrary congressional command is present. We consider each exception.
The first exception to enforcing arbitration agreements is set out in this language found in the FAA, which we will refer to as the “saving clause”:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2 (emphasis added).
The Board found that the Mutual Arbitration Agreement violated the collective action provisions of the NLRA, making the saving clause applicable. A detailed analysis of Concepcion leads to the conclusion that the Board’s rule does not fit within the FAA’s saving clause.
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We examine next whether the NLRA contains a congressional command to override the FAA. The FAA establishes “a liberal federal policy favoring arbitration agreements.” …. The FAA’s purpose is “to ensure the enforcement of arbitrations agreements according to their terms.” …. “That is the case even when the claims at issue are federal statutory claims, unless the FAA’s mandate has been ‘overridden by a contrary congressional command.’” …. If such a command exists, it “will be discoverable in the text,” the statute’s “legislative history,” or “an ‘inherent conflict’ between arbitration and the [statute’s] underlying purposes.” … “[T]he relevant inquiry [remains] whether Congress . . . precluded ‘arbitration or other nonjudicial resolution’ of claims.” …
When considering whether a contrary congressional command is present, courts must remember “that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.”… . The party opposing arbitration bears the burden of showing whether a congressional command exists. … Any doubts are resolved in favor of arbitration. …
There is no argument that the NLRA’s text contains explicit language of a congressional intent to override the FAA. Instead, it is the general thrust of the NLRA – how it operates, its goal of equalizing bargaining power – from which the command potentially is found. …. Such general language is an insufficient congressional command, as much more explicit language has been rejected in the past. Indeed, the text does not even mention arbitration. … Thus, there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA.
We next look for evidence in legislative history of a disavowal of arbitration. We find none.
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Therefore, the legislative history also does not provide a basis for a congressional command to override the FAA. Neither the NLRA’s statutory text nor its legislative history contains a congressional command against application of the FAA. Therefore, the Mutual Arbitration Agreement should be enforced according to its terms unless a contrary congressional command can be inferred from an inherent conflict between the FAA and the NLRA’s purpose. …. As explained below, we do not find such a conflict.
Read original articleTags: National Labor Relations Board, NLRA
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